Under government fuditing standards, auditors performing financial statement audits must

Government Auditing Standards (GAS):

GAS, often referred to as the Yellow Book, outlines the responsibilities of auditors conducting

financial statement audits for government entities.

One core requirement is that auditors must consider compliance with applicable laws, regulations,

contracts, and grant agreements that could materially affect financial statements.

Explanation of Answer Choices:

A . Design tests to assess compliance with laws, regulations, contracts, and grant agreements:

Correct. This is a required component under GAS to ensure financial statements are materially

accurate and comply with legal and regulatory frameworks.

B . Identify violations of laws which could be punishable by monetary penalties: Incorrect. Auditors

are not required to investigate or pursue penalties but to focus on material misstatements or risks.

C . Identify expenditures that exceed the related obligations: Incorrect. While this could indicate an

issue, auditors are not required to specifically test for this unless it relates to material misstatements

or compliance issues.

D . Design tests to detect fraud, waste, and abuse: Incorrect. Auditors are not specifically required to

detect fraud, waste, and abuse, though they should be alert to indicators.

Reference:

Government Accountability Office (GAO), Government Auditing Standards (Yellow Book).

Uniform Guidance (2 CFR Part 200), Audit Requirements for Federal Programs.