NP & Gov Exam II

What are criteria for determining if a fiduciary relationship exists?

(1) The assets related to the activity must be controlled by the government, (2) The assets related to the activity cannot be generated by the government's exchange or non-exchange revenues (there is an exception for pass-through grants on this criterion), and (3) The government cannot benefit from the assets

Discuss the four objectives according to the FASAB conceptual framework and explain why the focus of these objectives differ from that of the GASB.

(1) budgetary integrity, (2) operating performance, (3) stewardship, and (4) adequacy of systems and controls.

Is dual-track accounting appropriate for proprietary funds?

. For this reason, the "dual-track" approach may be useful in recording internal service fund transactions to ensure that double counting does not occur at the government-wide level

Disaster Risk - questions needed to be asked

1. Does the city have sufficient insurance and reserves to cover possible losses? 2. Does the government have sufficient resources (and a plan) for evacuation, protection against looting, financial assistance, and cleanup?

Budget

A PLAN for the accomplishment of programs related to objectives and goals within a definit time period, including an estimate of resources required, together with an estimate of the resources available, usually compared with one or more past periods and showing future requirements

Zero-based budgeting

A budget based on the concept that the very existence of each activity, as well as the amounts of resources requested to be allocated to each activity, must be justified each year.

Program budgeting

A budget wherein inputs of resources and outputs of services are identified by programs without regard to the number of organizational units involved in performing various aspects of the program. similar to Performance Budgeting.

Incremental budgeting

A budgeting approach that is simply derived from the current year's budget by multiplying by a factor (i.e., an incremental increase equal to inflation) or by adding amounts expected to be required by salary and other cost increases and deducting expenses not needed when the scope of operations is reduced. (Fed gov uses now)

Entrepreneurial budgeting

A budgeting approach that positions budgeting at the highest level and merges strategic plans, incentives, and accountability into the budget to communicate to citizens as a package.

Expended Appropriation

A charge against an appropriation for the actual cost of items received; the appropriation is no longer available to acquire additional goods and services.

Economic condition

A composite of a government's financial health and its ability and willingness to meet its financial obligations and its commitments to provide services.

Apportionment

A distribution made of a federal appropriation by the Office of Management and Budget into amounts available for specified time periods.

long-term solvency

A government's ability in the long run to pay all of the costs of doing business.

cash solvency

A government's ability to generate enough cash over a 30- or 60-day period to pay its bills.

budgetary solvency

A government's ability to generate enough revenue over its normal budgetary period to meet its expenditures and not incur deficits.

service-level solvency

A government's ability to provide services at the level and quality that are required for the health, safety, and welfare of the community and that its citizens desire.

Enterprise Risk Management (ERM)

A management approach in which an organization seeks to identify potential risks and develop means to alleviate the impact of the potential risks on the achievement of strategic objectives. COSO developed these principles

allotment

A part of an appropriation (or, in federal usage, parts of an apportionment) that may be encumbered (obligated) or expended during an allotment period.

Compare a private-purpose trust fund to a governmental permanent fund

A private-purpose trust fund is a fiduciary fund administered by a government entity for beneficiaries external to the administering government. A governmental permanent fund is a fund administered by a government entity for the benefit of the government or its citizens.

Committe of Sponsoring Organizations (COSO)

A private-sector group consisting of the American Accounting Association, the AICPA, the Institute of Internal Auditors, the Institute of Management Accountants, and the Financial Executives Institute.

What is meant by "segment info for enterprise funds"? When is the disclosure of a segment info required?

A segment is an identifiable activity either within an enterprise fund or other standalone entity An entity must disclose segment information if the segment has one or more bonds or other debt instruments outstanding, with revenues pledged to support the debt.

FEMIA of 1996

Act of Congress in 1996 that requires each federal agency to maintain a financial management system that applies federal accounting standards and provides the information necessary to report whether the agency is in compliance with those standards. (basically: appoint CFO, make sure not misappropriated)

Explain the distinction(s) between custodial funds and trust funds. What financial statements are prepared for each?

All fiduciary funds hold assets that benefit individuals, private organizations, or other governments that are not a part of the reporting entity. However, a fiduciary trust fund only exists if the fund meets certain requirements identified by the GASB, which include: (1) Assets are administered through a trust, (2) Assets are used only to provide benefits to recipients in accordance with benefit terms, and (3) Assets are legally protected from the government's creditors. Assets that are held in a fiduciary relationship that does not meet the requirements of a trust are reported as custodial funds. Fiduciary activities are reported only in the fiduciary fund financial statements. Custodial fund financial information is reported in a separate column of the statement of fiduciary net position and the statement of changes in fiduciary net position. Trust funds are reported in the statement of fiduciary net position and the statement of changes in fiduciary net position. Trust funds are reported in separate columns by type

What are the components of the PAR, and where would a federal agency go to find out the requirements for preparing a PAR?

An agency head message—analogous to a transmittal letter. A management's discussion and analysis. Performance report—provides information on the agency's success in achieving the goals in its strategic plan and performance budget. Financial statements—there are seven reports, two (statement of social insurance and statement of net changes in social insurance amounts) of which are only prepared by a limited number of agencies. The other five statements are the balance sheet, statement of net costs, statement of changes in net position, statement of budgetary resources, and statement of custodial activity. Other accompanying information—includes summary statements and information from the Inspector General concerning any serious management and performance challenges.

Balanced Scorecard

An integrated set of performance targets, both financial and nonfinancial, that are derived from an organization's strategies about how to achieve its goals.

When its mission is completed, how is an internal service fund dissolved?

An internal service fund may be dissolved in any one of the following three ways, or in combinations thereof: (1) Transfer the fund's assets to another fund that will continue the operation as a subsidiary activity (i.e., a supply fund becoming a department of the General Fund); (2) Distribute the fund's assets to another fund or to another government; or (3) Convert all of its noncash assets to cash and distribute the cash to another fund or other funds.

In the context of a gov audit, what is an opinion unit, and of what significance is an opinion unit to the auditor?

An opinion unit is related to the financial reporting structure of governments. Opinion units include governmental activities, business-type activities, aggregate discretely presented component units, each major governmental and enterprise fund, and the aggregate remaining funds. Auditors need to be familiar with the number of client opinion units since the auditor is required to opine on each unit

Sequence of the federal system budgetary steps

Appropriation, apportionment, allotment, commitment, obligation, expended appropriation

appropriation

Authorizations granted by a legislative body to incur liabilities for purposes specified in an appropriation act.

Required items on typical report (AFR)

Balance sheet, Statement of net cost, Statement of changes in net position, Statement of budgetary resources, Statement of custodial activity, Statement of social insurance (for specified programs), Statement of changes in social insurance amounts (for specified programs)

Discuss the difference between an external investment pool and an investment trust fund, including how the activities of each would be reported

Both an external investment pool and an investment trust fund conduct investment activities on behalf of parties external to the government. However, an external investment pool that is administered through a formal trust agreement is reported as an investment trust. It is reported in the Investment Trust column of the fiduciary fund financial statements

Performance budgeting

Budget format that relates the input of resources and the output of services for each organizational unit individually. Sometimes used synonymously with program budget

Allowable cost

Costs that meet specific criteria determined by the resource provider, generally used in the context of federal financial assistance. (basically, is it necessary and did you document it)

Explain the differences among these accounts: estimated revenues used by state and local governments, other appropriations realized used by the federal agencies in their budgetary track, and fund balance with treasury used by federal agencies in their proprietary track.

Estimated Revenues used by state and local governments is a budgetary account representing the government's estimate of the amount of revenue expected to be realized during the year. Federal agencies use the account Other Appropriations Realized in their budgetary track to capture the amount Congress has appropriated to an agency for the upcoming year. Other Appropriations Realized is for basic operating appropriations, rather than appropriations designated for specific purposes. Other Appropriations Realized is closer in meaning to Appropriations of state and local governments than it is to Estimated Revenues

3 components of Economic condition

Financial position fiscal capacity (A government's ongoing ability and willingness to raise revenues, incur debt, and meet its financial obligations as they become due) Service capacity (A government's ongoing ability and willingness to supply the capital and human resources needed to meet its commitments to provide services)

Comptroller is over the

GAO

Explain the role of the government accountability office (GAO), the department of treasury, and the office of management and budget (OMB) in the financial accounting and reporting of the federal government.

GAO: independent audit agency for the federal government. It is responsible for the audit of the federal government as a whole. Dept of Treasury: primary revenue collecting and cash disbursement department of the federal government. OMB: provides the financial plan for the federal government. Directly related to accounting and financial reporting are several circulars issued by OMB that provide guidance to agencies on how to record and report transactions.

When do GASB standards require interfund receivables and payables to be reported as Internal Balances?

GASB standards require that activity between governmental activities and business-type activities should be reported as internal balances at the government-wide level

Obligation

Generally, an amount that a government may be required legally to meet out of its resources. Included are actual liabilities, as well as unliquidated encumbrances. In federal usage, obligation has essentially the same meaning as encumbrance in state and local government accounting.

How do government budgeting concepts differ from those used in a corporate setting?

Government budgets are legally required. They are also integrated into a government's accounting system and play a role in external financial reports through the required budget-to-actual comparison schedules or statements. Finally, government budgets are used to facilitate compliance with laws and to communicate performance effectiveness.

Commitment

In federal government usage, a reservation of an agency's allotment in the estimated amount of orders for goods or services, prior to actually placing the orders. (like an encumbrance)

Line-item budgeting

Incremental and zero-based

Describe the reporting requirements for proprietary funds. Why do the reporting requirements of internal service funds and enterprise funds differ?

Internal service funds and enterprise funds are presented in three proprietary fund financial statements—a statement of net position; a statement of revenues, expenses and changes in fund net position; and a statement of cash flows since the transactions of internal service funds primarily involve sales of goods or services to the General Fund and other funds that compose the governmental activities of a government, while enterprise funds transact business with parties external to the government, internal service funds are reported in a different manner than enterprise funds.

How do internal service and enterprise funds differ?

Internal service funds are generally used for activities where centralization of a service or function is likely to result in efficiency and/or cost effectiveness. The customers of internal service funds would generally be within the government itself. An enterprise fund carries on activities that provide goods or services to the general public, such as a public swimming pool or a public utility. These activities are referred to as business-type activities

Identify the different types of trust funds and explain the purpose of each

Investment trusts, private-purpose trusts, and pension trusts. An investment trust fund is used to account for and report the fund equity in pooled investments held by fund participants who are external to the government operating the fund. Private-purpose trust funds record and report principal and/or interest managed by a government for the benefit of an individual, private organization, or another government. In pension and other employee benefits trusts, a government is managing benefits that belong to government employees

In a state and local gov audit, does the auditor issue an opinion on supplementary info?

It depends. Required supplementary information (RSI), such as the MD&A and budgetary comparison schedules, are outside the scope of the financial statement audit but are considered by the GASB to be essential to the financial report

How are the employer's pension expenditures and the employer's pension expenses calculated?

Modified accrual Thus, the amount recognized will be the actual amount paid to the plan and the net annual change in amounts normally expected to be liquidated with expendable available financial resources

What is OPEB and how is OPEB reported by governments?

OPEB stands for other post-employment benefits and includes retirement benefits other than pensions. Trust fund activity is reported in the pension column of the fiduciary financial statements.

Compare the GAAP hierarchy for the federal government to that for the state and local governments.

One major difference is that federal authoritative guidance comes from the FASAB, while state and local government authoritative guidance is issued by the GASB. For federal government GAAP, there are four categories of principles, while the GASB only has two levels in its hierarchy.

What are the characteristics of a proprietary fund?

Proprietary funds are funds that are supported by user charges, and therefore require reporting that illustrates whether user charges are covering costs. They are often described as being operated more like a business than most governmental funds, and the reporting is similar to that of for-profit organizations.

What auditing standards are used for audits of FP orgs, NFP entities, and govs?

Public: PCAOB Private: GAAS In other cases, GAAS may be used for audits of not-for-profit entities and governments

What are regulatory accounting principles (RAP) how do they related to enterprise fund accounting?

Regulatory accounting principles (RAP) are accounting principles established by any one of a number of state and/or federal entities. A number of enterprise funds may be subject to certain RAP requirements, given that enterprise funds frequently provide utility type services, which tend to be subject to state and federal regulation

What is the nature of enterprise fund restricted assets? Provide examples of items that might be reported in the Restricted assets section of an enterprise fund statement of net position.

Restricted assets are assets that have been segregated, pursuant to an agreement with an external party or by law or regulation, for a specified purpose and therefore are not available for the discretionary use of management. Customer deposits or resources held for the retirement of revenue bonds are commonly reported as restricted assets by government utilities that use proprietary fund accounting.

What are stewardship assets? How does the accounting for a stewardship asset differ from that for general PPE ?

Stewardship assets are of two types—heritage assets and stewardship land. Heritage assets have historical or natural significance; cultural, artistic, or educational significance; or are architecturally significant. General property, plant, and equipment (PP&E) of the federal government is used for operating purposes and, as such, is recorded in the same manner as PP&E of state and local governments, not-for-profit entities, and for-profit entities

Compliance with the Law

The GASB budgeting and budgetary control principle provides that a. An annual budget(s) should be adopted by every gov unit b. The accounting system should provide the basis for appropriate budgetary control c. A common terminology and classification should be used consistently throughout the budget, the accounts, and the financial reports of each fund or activity

A small city has been awarded a federal grant, in the finance director is curious as to what cost might be allowable under the grant. To what source could the finance officer go to determine what costs are allowable under federal grants?

The Office of Management and Budget (OMB) issues guidance on cost principles for federal grants in Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards. The "super circular," termed as such since it consolidated and replaced eight circulars previously issued by the OMB, lists allowable and unallowable costs for federal grants and contracts

Financial position

The adequacy of cash and short-term claims to cash to meet current obligations and those expected in the near future

What is the purpose of a financial audit? Who is responsible for setting standards for the financial audits of government and nfp orgs?

The purpose of a financial audit is to express an opinion or provide assurance for users of the financial statements that the statements have been prepared in conformity with accounting and financial reporting standards established by authoritative bodies. set by the Auditing Standards Board of the American Institute of Certified Public Accountants (AICPA). also must follow GAGAS

Although proprietary funds are often compared to for-profit organizations, there are several differences between financial reporting for proprietary funds and for-profit organizations. Identify and discuss at least one difference between each of the proprietary fund financial statements and its corporate counterpart.

The statement of revenues, expenses, and changes in fund net position can be compared to a for-profit organization's income statement. One difference is that a for-profit organization does not net items like bad debts from the related revenue as a proprietary fund does. Also, revenues and expenses of proprietary funds are required to be identified as operating and non-operating. Finally, the statement may include items such as interfund transfers and capital contributions, which are unique to government accounting.

Defining the reporting entity at the federal level is complicated by different perspectives from which the federal government can be viewed. What are the three perspectives? How are they defined? How do they interrelate?

The three perspectives from which the federal government can be viewed are the organizational perspective, budget perspective, and program perspective. Organizational perspective is most similar to what you would expect to see in an organizational chart; it contains the department/agencies/commissions of the government. Budget perspective refers to the budgetary account structure. It would be a collection of expenditures/appropriations/funds. Finally, the program perspective refers to the programs/functions/activities of the government.

What are the two tracks in the dual-track accounting system? Explain the purpose of each track. Relate each track to state and local government dual-track accounting.

The two tracks in the dual-track system are the budgetary accounts track and the proprietary track. The purpose of the budgetary accounts track is to (1) ensure that available budgetary resources and authority are not over expended or over obligated, and (2) facilitate standardized budgetary reporting requirements. Proprietary track accounts provide information for management on the cost of operating the entity. Federal budgetary accounts capture the legally approved budget and help ensure that entities do not exceed budgetary authority. However, the federal budgetary accounts track records only budgetary accounts, while the state and local governmental fund accounting track records the budgetary accounts, as well as the sources and uses of funds during the period

Under a single audit, what are Type A and Type B programs? Which are required to be audited in the context of a single audit.

Type A: Larger (exp over $750k) Type B: everything else 2: , any low-risk Type A programs are identified 3: Type B programs are risk assessed

Explain how the financial reporting of fiduciary funds differs from that of governmental funds

Unlike governmental funds, the activities of fiduciary funds are never included in the government-wide financial statements. Instead, their activities are reported in a set of fiduciary fund financial statements. Governmental funds, however, are included in the Governmental Activities column of the government-wide financial statements.

How to the OMB's Uniform Guidance, the OMB Compliance Supplement, and the Gov Accountability Office's Gov Auditing Standards differ? Why are all 3 resources necessary?

While OMB Uniform Guidance is generic for all single audits, the Compliance Supplement provides specific audit requirements and suggested auditing procedures for each individual federal program. The Government Auditing Standards is much broader and provides auditing standards required to be followed when performing a single audit

Identify examples of potential conflicts between the stakeholders. How are these conflicts resolved?

advocates vs. conservers; accuracy vs. political expediency; special interests vs. collective interests; bureaucracy vs. democracy; the budget office vs. departments; and public will vs. public welfare. Conflicts are generally mediated by the government's chief executive officer and resolved through the extensive budget process

financial transparency

all relevant financial information that is fully and freely available to users

4 Types of solvency

cash, budgetary, long-run, service-level

The federal government uses two groups of funds. Identify the two groups in the funds associated with each group.

federal funds and trust funds There are three federal fund types—General Fund, special funds, and revolving funds There are two types of trust funds—trust funds and trust revolving funds.

What are the 3 types of auditor services described in the Gov Accountability Office's Gov Auditing Standards, and how do they differ?

financial audits, attestation engagements, and performance audits performed by auditors: financial audits, attestation engagements, and performance audits. Financial audits provide an auditor's opinion that financial statements present fairly an entity's financial position, changes in financial position, and where applicable, cash flows in conformity with generally accepted accounting principles, and informs users that they can rely on that information. Attestation engagements are examinations, reviews, or agreed-upon procedures on subject matter that provide various levels of assurance on financial or nonfinancial matters depending upon the user's needs. Performance audits provide an auditor's independent assessment (but not an opinion) of the extent to which government officials are efficiently, economically, and effectively carrying out their responsibilities

Describe the components of a balanced scorecard.

financial, customer, internal business processes, and learning and growth

Define GAGAS, and describe how GAGAS differ from GAAS

generally accepted government auditing standards In effect, GAGAS are broader than GAAS and generally encompass and expand on the AICPA's generally accepted auditing standards. GAGAS are required to be used for a single audit engagement but may also be required by contract or law to be used for a financial statement audit

Explain the IRC Sec. 148 rule on arbitrage

limits the amount of interest a government can earn on tax-exempt bond debt proceeds.

What are the 3 components of net position provided by the GASB?

net investment in capital assets, restricted, and unrestricted

Are budgets required to be prepared for proprietary funds?

no

In an enterprise risk management (ERM) analysis, what are the types of risks faced by govs?

physical environment (natural or man-made disasters and infrastructure), legal and ethical environment (laws and legal precedents), operational environment (day-to-day activities and actions within the local government, including services provided and workforce demographics), political environment (legislative activity, elections), social environment (socio-economic composition of the community), economic environment (market trends, interest rates), emerging risks (cybersecurity), and internal environment (the attitude of individuals towards risk)

Under the hierarchy of GAAP, what sources of accounting principles have the most authority for state and local govs, fed gov entities, and nongov entities? Where do accountants and auditors look when a particular item is not covered within a hierarchy?

state and local governments and federal government entity financial reporting is governed by officially established accounting principles, including statements issued by the Governmental Accounting Standards Board (GASB) and the Federal Accounting Standards Advisory Board (FASAB), respectively

Identify different types of custodial funds and explain the purpose of each

tax custodial funds, special assessment debt service funds, pass-through funds, and external investment pool funds. A tax custodial fund serves to collect and distribute tax and other types of revenues for several different governments. A special assessment debt service fund is one in which the government has no obligation to assume the debt service on special assessment debt. A pass-through fund is established when there is no administrative involvement on the part of the government receiving the funds, but it will redistribute the funds to others.. An external investment pool exists if a government is managing the investments of several external parties, without the benefit of a trust agreement