Choice "D" is correct. Auditors engaged to perform audits of federal financial assistance (generally under the provisions of the Single Audit Act) must perform procedures to obtain an understanding of internal control pertaining to compliance, and should document this understanding of internal control.
Choice "b" is incorrect. The auditor is required to disclose actual instances of fraud and illegal acts, not all situations that could be indicative of fraud, abuse, or illegal acts.
Choice "a" is incorrect. Materiality levels of organizations receiving federal financial assistance are set by the auditor, not the government. Materiality levels depend upon auditor judgment and will not fall or rise purely as a result of federal participation.
Choice "c" is incorrect. Statistical sampling applications are permitted, and 100% verification of accounts is not required.