CPFO Accounting Exam - GAAFR Review

5.49. Which of the following types of liabilities would be reported in a governmental fund? A. Income tax refunds B. Liability to owners of escheat property C. Both A and B D. Neither A nor B

????C. Both A and B Not on list of not reported

11.15. What is the threshold for concentration risk disclosure? A. 5 percent B. 10 percent C. 15 percent D. 20 percent

A. 5 percent The notes must disclose concentration risk, which is defined as positions of 5 percent or more in the securities of a single issuer.

5.15. Which if the following is a requirement for revenue recognition in the case of a formula grant? A. All eligibility requirements must be met B. Qualifying expenditures must be incurred C. Matching requirements must be met D. All of the above

A. All eligibility requirements must be met Grants based upon some formula should be recognized as revenue as soon as all eligibility criteria have been met and the related amounts become available.

15.23. How are the investments of a 2a-7-like investment pool valued in the external investment pool's report? A. Amortized cost B. Market cost C. Discounted present value of estimated future cash flows D. Separate display is never permitted

A. Amortized cost Securities and Exchange Commission (SEC) 2a7-like pools may report their investments at amortized cost rather than at fair value.

7.18. How should a government report its position in a guaranteed investment pool if the fair value of its underlying share of the investments as of the date of the financial statements is less than the guaranteed value? A. Guaranteed value B. Fair value C. Amortized cost D. Lower the cost or market

A. Guaranteed value If the participating government's share is guaranteed not to fall below a certain level and that guarantee is considered to be reliable, then the participating government may report the guaranteed share value even if its share of the underlying portfolio is a lesser amount.

10.6. Which of the following columns is required in the government-wide financial statements? A. Primary government total column B. Entity-wide total column C. Both A and B D. Neither A nor B

A. Primary government total column GAAP require that the government-wide statement of net assets provide a total column for the primary government. If they wish, governments may present a total column for the entire financial reporting entity.

4.4. Which of the following is NOT evidence of fiscal dependence? A. The potential component unit, like all entities of its type, is precluded from issuing long-term debt B. The potential component unit's budget must be approved by the primary government C. The potential component unit cannot raise taxes without the approval of the primary government D. The potential component unit cannot raise rates without the approval of the primary government

A. The potential component unit, like all entities of its type, is precluded from issuing long-term debt Limitations of special-purpose government that apply equally to all governments of the same type are not arbitrary and therefore would not be considered evidence of fiscal dependence. For example, a blanket limitation on the issuance of bonded debt by certain types of special-purpose governments would not create fiscal dependence.

3.15. Which of the following normally would be considered an eligibility requirement? A. Time requirement B. Purpose restriction C. Both A and B D. Neither A nor B

A. Time requirement One condition of eligibility is a time requirement. An eligibility requirement determines when the effective control of resources is transferred from one party to another, while a purpose restriction simply limits how resources may be used after effective control has been transferred.

6.19. When should revenue from impact or developer fees be recognized? A. When an enforceable legal claim is established B. When collected C. When spent for their intended purpose D. A or C

A. When an enforceable legal claim is established The full amount should be recognized as a receivable and revenue as soon as the government has established an enforceable legal claim (typically at the point the fee becomes nonrefundable).

2.43. Indicate Fund Type: A government collects property taxes on behalf of other governments.

Agency Fund When multiple local governments have the power to levy taxes on the same property, it is common practice for all of the separately levied taxes to be billed and collected by a single government (i.e. the county). The collecting government commonly will use an agency fund to account for the portion of taxes collected on behalf of other governments until those amounts are eventually remitted to the governments that levied them.

10.43. What is the minimum level of detail required for expenditures presented in the governmental fund statement of revenues, expenditures, and changes in fund balances? A. Function B. Function and character C. Program and object D. Character and object

B. Function and character Expenditures should be presented by function and character.

12.17. What does the Government Finance Officers Association recommend as the MINIMUM capitalization threshold for financial reporting? A. $500 B. $1,000 C. $5,000 D. $10,000

C. $5,000 The GFOA recommends that capitalization thresholds never be less than $5,000.

19.1. Which group developed generally accepted auditing standards (GAAS)? A. Governmental Accounting Standards Board (GASB) B. Securities and Exchange Commission (SEC) C. Auditing Standards Board (ASB) D. Government Accountability Office (GAO)

C. Auditing Standards Board (ASB) The basic guidelines for financial audits in the public and the private sectors are provided by generally accepted auditing standards (GAAS). Those basic standards have been set forth and developed in a series of Statements of Auditing Standards (SASs) issued by the Auditing Standards Board of the American Institute of Certified Public Accountants (AICPA).

10.53. Which of the following statements is true regarding how revenues used to secure debt should be reported in the proprietary fund statement of revenues, expenses, and changes in net assets/equity? A. No special identification is require if essentially all revenues of the fund are pledged B. There is no requirement to report separately revenues pledged to support different debt issues C. Both A and B D. Neither A nor B

C. Both A and B GAAP require that revenues used as security for revenue bonds be identified separately. AL the same, no special indication of pledged revenues is required if essentially all revenues of a given proprietary fund are pledged. Also, if different revenues are pledged to support different debt issues, there is no requirement that the different revenues be reported separately (which is the function of segment disclosure).

13.6. At a MINIMUM, to whom should the letter of transmittal be addressed? A. Legislative body B. Mayor C. Citizens D. Both A and B

C. Citizens At a minimum, the letter of transmittal should be addressed to the government's citizens.

13.7. What is the EARLIEST possible date that may be used for the letter of transmittal? A. Fiscal year end B. Start of audit field work C. Date of the independent auditor's report D. Date report made available to the public

C. Date of the independent auditor's report The letter of transmittal should be dated, ideally on the date the CAFR is first made available to the public. In practice, it is common to use some earlier date. It would not be appropriate for the date of the letter to precede that of the independent auditor's report.

15.7. Which of the following treatments is NOT appropriate in connection with conduit debt issued by a state financing authority? A. A liability for conduit debt reported with corresponding receivable B. Neither conduit debt nor corresponding receivable reported C. Delivery of debt proceeds to ultimate recipient reported as expense D. None of the above

C. Delivery of debt proceeds to ultimate recipient reported as expense One approach is to report both the asset and the liability on the authority's statement of position. Another approach is to report neither. Either way, the operating statement would report revenues and expenses only in connection with administrative costs and payments received in excess of future debt service requirements.

5.42. What is the appropriate classification for the proceeds of refunding bonds place in escrow in connection with an advance refunding resulting in defeasance? A. Expenditure B. Transfer C. Other financing use D. Special item

C. Other financing use The proceeds of refunding bonds, whether used for redemption or placed in escrow in connection with an advance refunding resulting in defeasance, should be reported as an other financing use rather than as an expenditure.

6.14. The difference between the carrying amount of refunded debt and its reacquisition price is associated with what period? A. Life of the old debt B. Life of the new debt C. Shorter of A or B D. Longer of A or B

C. Short of A or B Proprietary funds defer and amortize this amount over the shorter of 1) the life of the old debt or 2) the life of the new debt. In the meantime, the unamortized difference between the carrying amount of redeemed or defeased debt and its reacquisition price should be reported as a direct reduction of (or addition to) the amount of refunding debt reported on the statement of position, much like a bond premium or discount. This unamortized balance should "follow the debt" for purposes of calculating the various components of net assets.

5.35. Which of the following would NOT be an appropriate treatment in a governmental fund for the receipt of insurance proceeds? A. Extraordinary item B. Other financing source C. Special item D. None of the above

C. Special item Insurance recoveries should be treated as an other financing source (if not an extraordinary item).

15.20. Which of the following statements is FALSE regarding statistical presentations for pension plans? A. Several mandated statistical presentations are unique to pension plans B. Standard schedules concerning debt capacity normally are not presented C. Standard schedules concerning operating information normally are not presented D. None of the above

C. Standard schedules concerning operating information normally are not presented The standard schedules of demographic and economic information normally to the underlying objective. A PERS should present the regularly required schedules of operating information in addition to the three specialized types of operating information already listed.

1.11. Which of the following is NOT automatically proof that an entity should be classified as a "state or local government" for purposes of the GAAP hierarchy? A. The officers of the entity are popularly elected. B. The entity has the power to enact and enforce a tax levy. C. The entity has the ability to directly issue federally tax-exempt debt. D. A government is able to unilaterally dissolve the entity, with the entity's net assets reverting to the government.

C. The entity has the ability to directly issue federally tax-exempt debt. The entity has the ability to directly issue federally tax-exempt debt (if this is the only criterion met, the presumption that an entity is governmental may be rebutted based upon compelling, relevant evidence).

18.13. What is the purpose of documenting how events and transactions are processed in a control assessment? A. To demonstrate compliance B. To ensure the continued adequacy of the documentation of accounting policies C. To identify potential risks and weaknesses as well as compensating controls D. To provide sufficient, competent evidential matter for the financial statement audit

C. To identify potential risks and weaknesses as well as compensating controls The purpose of documenting the flow of transactions and events is to provide management with a practical tool for identifying potential risks and weaknesses as well as compensating controls.

19.12. What is the expenditure threshold for Single Audits? A. $25,000 B. $100,000 C. $300,000 D. $500,000

D. $500,000 The provisions of the Single Audit Act apply to all governments that expend $500,000 or more per fiscal year in federal awards.

10.42. Which of the following could NOT be reported in the governmental fund statement of revenues, expenditures, and changes in fund balances? A. Expenses B. Gains and losses C. Special items and extraordinary items D. A and B

D. A and B Consistent with the current financial resources measurement focus, the governmental fund statement of activities reports expenditures rather than expenses. Likewise there is no distinction in governmental funds between revenues and gains or between expenditures and losses.

13.23. What ratio should be used to express a government's overall debt burden in the statistical section of the CAFR? A. Total outstanding debt to personal income B. Total debt per capita C. A and B D. A or B

D. A or B Express total outstanding debt burden using one of two ratios: Total outstanding debt to personal income or Total debt per capita.

13.25. What ratio should be reported in connection with debt limitations in the statistical section of the CAFR? A. Outstanding net debt/debt limit B. Legal debt margin/debt limit C. A and B D. A or B

D. A or B One of the two following ratios must be presented: outstanding net debt/debt limit or legal debt margin/debt limit.

10.55. What is the appropriate focus for the proprietary fund statement of cash flows? A. Cash alone B. Cash and cash equivalents C. Working capital D. A or B

D. A or B The focus of the statement of cash flows may be either cash or cash and cash equivalents.

10.46. How should budgetary comparisons mandated in connection with the basic financial statements and RSI be described? A. Statements B. Schedules C. Exhibits D. A or B

D. A or B When the budgetary comparison is presented s part of the basic financial statements, it is properly referred to as a statement, while the term schedule describes this same information when it is presented as RSI.

1.7. Which of the following statements is TRUE? A. Both the Financial Accounting Standards Board (FASB) and the GASB are supported in their work by advisory councils. B. Both the FASB and the GASB have seven members C. Both the FASB and the GASB can approve pronouncements by a simple majority vote. D. All of the above

D. All of the above

3.10. Which of the following should be treated as an other financing use? A. Issuance discount on long-term debt B. Application of the proceeds of refunding bonds C. Reclassification of demand bond as fund liability D. All of the above

D. All of the above GAAP direct that an other financing use be utilized to account for an original issue discount. In the case of both current refundings and advance refundings resulting in the defeasance (the action or process of rendering something null and void) of debt, GAAP direct that the proceeds of the refunding bonds, whether used for redemption or placed in escrow, be reported as an other financing use rather than as an expenditure. It is possible a demand bond that originally met the criteria for classification as long-term debt might at some later time cease to do so. In that case, GAAP direct that the obligation be reclassified as a fund liability in the governmental fund that originally received the proceeds. The journal entry used to effect this reclassification would include an other financing use equal to the amount of the demand bonds henceforth to be reported as a fund liability.

19.13. Which of the following standards is relevant to Single Audits? A. GAAS B. GAGAS C. Office of Management and Budget Circular A-133 D. All of the above

D. All of the above Like all federal audits, Single Audits must be performed in accordance with GAGAS. In addition, Single Audits are subject to the requirements of the Office of Management and Budget's (OMB) Circular A-133, Audits of States, Local Governments, and Non-Profit Organizations.

19.21. Which of the following statements is FALSE concerning audit committees? A. Each committee member should posses the expertise and experience needed to understand and resolve issues raised by the audit B. As a general rule, an audit committee should be composed of no less than three and no more than ten members C. The audit committee should supervise the work of the internal auditors D. All of the above

D. All of the above The members of an audit committee collectively should possess the expertise and experience in accounting, auditing, and financial reporting needed to understand and resolve issues raised by the independent audit of the financial statements. An audit committee should be small enough to operate efficiently, yet large enough to ensure that its members possess all skills necessary to realize the committee's objectives. As a rule, no less than five and no more than seven members should comprise an audit committee. The audit committee should have access to the reports of any internal auditor, as well as access to any annual internal audit work plans, but not supervise the work of internal auditors.

16.1. Which of the following statements is true concerning the role of the budget in the public sector? A. It is a mean of setting public policy B. It is a way for the legislative branch to exercise control over the executive branch C. It is a financial planning tool D. All of the above

D. All of the above The role of the budget is: legislative means of setting public policy, legislative means of exercising control on taxing and spending by the executive ranch, and financial planning tool.

2.1. In accordance with the number of funds principle, when is it appropriate to use a fund other than the general fund? A. When GAAP require the use of some other fund B. When sound financial administration supports the use of some other fund C. When the use of some other fund is legally required D. All of the above

D. All of the above There are at least three compelling reasons to account for a particular activity in some type of fund other than the general fund: 1) in certain instances, GAAP require the use of another fund type, 2) there may be legal requirements that a certain fund type be used to account for a given activity, or 3) the demands of sound financial administration may require the use of a fund other that the general fund.

5.25. Which of the following journal entries best reflects the issuance of $100 face value debt at a premium of $1 with an underwriter's discount of $2? A. Cash $99 Expenditures- underwriter's fees $2 Other financing source - bond proceeds $101 B. Cash $99 Expenditures- underwriter's fees $2 Other financing source - debt issuance $101 C. Cash $99 Expenditures- underwriter's fees $2 Other financing source - bond proceeds $100 Other financing source - premium on bonds $1 D. Cash $99 Expenditures- underwriter's fees $2 Other financing source - debt issuance $100 Other financing source - premium on bonds $1

D. Cash $99 Expenditures- underwriter's fees $2 Other financing source - debt issuance $100 Other financing source - premium on bonds $1 An amount equal to the face value of the debt should be recognized as an other financing source. Any premium should be reported as a separate other financing source. It is best to avoid using terms such as bond proceeds to describe the other financing source resulting from the issuance of long-term debt.

12.40. How should the net effect of a change in accounting principle be treated in the proprietary fund statement of changes in net assets? A. Separate cumulative effect line immediately preceding net changes for the period B. Prior period adjustment C. Nonoperating revenue/expense D. Direct adjustment to beginning net assets

D. Direct adjustment to beginning net assets It is presumed that all changes to equity (such as changes in net assets) should be reported as part of the results of operations for the current period rather than treated as a direct adjustment to equity--beginning of the fiscal year. There are, however, several important exceptions to this rule: prior period adjustments, changes in accounting principle, and changes in inventory balances accounted for using the purchases method.

9.13. Which of the following BEST describes the issuance of a comprehensive annual financial report (CAFR)? A. Authorized B. Required C. Permitted D. Encouraged

D. Encouraged Governments are expressly encouraged to go beyond the minimum requirements of GAAP and to present a comprehensive annual financial report.

16.2. Financial plans are most commonly associated with which of the following fund types? A. General fund B. Special revenue funds C. Capital projects funds D. Enterprise funds

D. Enterprise funds Budgets of proprietary funds most often serve only as financial plans.

5.8. Which of the following statements is FALSE regarding revenue recognition for income taxes in governmental funds? A. Income tax revenues should be reported net of anticipated refunds B. Income taxes and sales taxes are subject to the same revenue recognition criteria C. As a practical matter, income taxes typically are recognized as revenue on a cash basis D. Estimated income tax refunds should be reported as a liability in governmental funds regardless of when payment will be made

D. Estimated income tax refunds should be reported as a liability in governmental funds regardless of when payment will be made Recoveries from future tax audits should be considered in estimating the receivable and the related allowance for doubtful accounts.

7.11. Which of the following is NOT a criterion for a joint venture? A. Contractual arrangement B. Separate and specific activity C. Joint control D. Explicit, measurable equity interest

D. Explicit, measurable equity interest A multi-government arrangement qualifies as a joint venture only if it meets all four of the following criteria: is always the direct product of a contractual arrangement, as a separate and specific activity in its own right, implies two or more participants and must involve at least some degree of joint control, and must create either an ongoing financial interest or an ongoing financial responsibility for the participating governments.

1.8. Which of the following sets GAAP for nonprofit organizations? A. FAF B. AICPA C. GASB D. FASB

D. FASB The jurisdiction of the FASB extends to both private-sector businesses and non-profit organizations.

19.20. Which of the following is NOT considered to be an essential characteristic of an effective audit procurement process? A. Competition B. Preparation of comprehensive request for proposals C. Preparation of a written agreement D. Focus on identifying low bidder

D. Focus on identifying low bidder To avoid a substandard audit, a government's audit procurement process should exhibit four specific characteristics: 1) openess and competition, 2) preparation of a comprehensive request for proposals,3) focus on auditor qualifications, and 4) preparation of a written agreement.

16.5. Which of the following is NOT a budgetary account? A. ESTIMATED REVENUES B. ENCUMBRANCES C. BUDGETARY FUND BALANCE D. Fund balance--reserved for encumbrances

D. Fund balance--reserved for encumbrances No amount of fund balance is reserved for encumbrances, although the government may wish to designate a portion of unreserved fund balance to indicate that such amounts are not available for new spending.

19.2. Which group is responsible for setting generally accepted government auditing standards (GAGAS)? A. GASB B. SEC C. ASB D. GAO

D. GAO These standards are set by the Comptroller General of the United States and are found in the Government Accountability Office's (GAO) publication, Government Auditing Standards, commonly referred to as the Yellow Book.

1.6. Which of the following Types of guidance has the HIGHEST standing on the GAAP hierarchy? A. GASB Technical Bulletins B. GASB Concepts Statements C. GASB Implementation Guides D. GASB Interpretations

D. GASB Interpretations GASB Statements & Interpretations are listed as "Level 1" on the GAAP hierarchy.

10.31. Which of the following would NOT be reported as general revenue in the government-wide statement of activities? A. Tax revenues B. Grants C. Gains on the sale of capital assets D. Gains associated with the impairment of capital assets

D. Gains associated with the impairment of capital assets Gains resulting from the impairment of capital assets should be reported as an adjustment to program expense in the affected function if they do not qualify as a special or extraordinary item. Answer C is incorrect because gains on the sale of capital assets not associated with impairments should be reported as general revenue.

11.9. Which of the following would NOT qualify as a cash deposit for purposes of evaluating custodial credit risk disclosure? A. Nonnegotiable certificates of deposit B. Negotiable orders of withdrawal (NOW accounts) C. Bank investment contracts D. Guaranteed investment contracts

D. Guaranteed investment contracts Cash deposits encompass negotiable order of withdrawal (NOW) accounts, nonnegotiable certificates of deposit, and bank investment contracts. Conversely, cash deposits do not encompass guaranteed investment contracts or negotiable CDs.

1.2. Which of the following groups took the lead in setting generally accepted accounting principles (GAAP) for business enterprises? A. Businesses themselves B. State governments C. Federal governments D. Independent auditors

D. Independent Auditors Independent auditors took the lead in setting GAAP in the private sector, whereas financial statement preparers led the first efforts to define GAAP in the public sector.

8.2. Which of the following items reported in the governmental fund balance sheet must be ELIMINATED in the process of preparing the government-wide statement of net assets? A. Deferred charges for debt issuance costs B. Accrued interest C. Inventories and prepaids D. Liability for earned but unavailable deferred revenue

D. Liability for earned but unavailable deferred revenue The liability for deferred revenue for amounts considered to be unavailable must be eliminated. Specific adjustments can be summarized as follows: include capital assets of the general government, include deferred charges for debt issuance costs, include inventories and prepaids as assets, include unmatured long-term debt, include liability for accrued interest, include liabilities for certain accrued obligations not recognized in governmental funds, and eliminate liability for earned but unavailable deferred revenue.

18.4. What is the key element in a favorable control environment? A. The presence of an effective audit committee B. The presence of an effective internal audit function C. A pattern of regular independent financial audits D. Management's attitude as demonstrated though its actions

D. Management's attitude as demonstrated though its actions The key element in a favorable control environment is management's attitude, as demonstrated through its actions. Management must lead by example, creating a "tone at the top" that set the standard for the entire organization.

10.45. For which of the following governmental funds with an annual (or biennial) appropriated budget would a budgetary comparison be required in connection with the basic financial statements and required supplementary information (RSI)? A. Non major special revenue fund B. Major debt service fund C. Both A and B D. Neither A nor B

D. Neither A nor B A budgetary comparison is presented as part of the basic governmental fund financial statements, it is properly referred to as a statement, while the term schedule describes the same information when it is presented as RSI.

6.5. In which of the following situations would bad debt expense be reported? A. In connection with uncollectible loans B. In connection with uncollectible revenues C. Both A and B D. Neither A nor B

D. Neither A nor B Bad dept expense is properly reported only in connection with non-revenue related accounts (loans receivables)

15.30. In which of the following situations is the presentation of separate government-wide financial statements REQUIRED? A. A single-program government that uses only governmental funds B. A single entity comprising multiple enterprise funds C. A and B D. Neither A nor B

D. Neither A nor B Both are two situations where it is unnecessary to provide separate government-wide and fund financial statements.

7.16. How are jointly governed organizations properly reported in the financial statements of participating governments? A. As a discretely presented component unit B. As a blended component unit C. A or B D. Neither A nor B

D. Neither A nor B Financial reporting for such jointly governed organizations is limited to disclosure in the notes to the financial statements.

10.1. Which of the following must ALWAYS be included in government-wide financial statements? A. Fiduciary activities B. Discretely presented component units C. Both A and B D. Neither A nor B

D. Neither A nor B The government-wide financial statements include all governmental and business-type activities of the primary government but not its fiduciary activities. Likewise, the government-wide financial statements include discretely presented component units, but not those that are fiduciary in character.

15.4. Where should escheat property that is being held on behalf of another government be reported? A. Private-purpose trust fund B. Agency fund C. A or B D. Neither A nor B

D. Neither A nor B When escheat property is held on behalf of another government rather than on behalf of individuals or private organizations, an agency fund should be used rather than a private-purpose trust fund.

15.27. How should a public-entity risk pool account for a premium deficiency? A. Reduction of revenue B. Reduction of unamortized acquisition costs C. Contra-equity account D. None of the above

D. None of the above If a premium deficiency exists, unamortized acquisition costs should be expensed in that period to the extent of the deficiency.

1.5. Which of the following entities is NEVER subject to GASB jurisdiction? A. A hospital B. A college or university C. A utility D. None of the above

D. None of the above In 1989, the FAF categorically affirmed the GASB's jurisdiction over all entitites operating in the public sector, including utilities, hospitals, colleges, and universities.

7.6. Which of the following would properly be accounted for in an investment trust fund? A. Public-entity risk pools B. Venture capital limited partnerships C. Idle funds of joint ventures D. None of the above

D. None of the above Joint ventures for constructing and operating certain facilities should not be considered an external investment pool, even if during the construction phase the joint venture realizes significant investment income from idle construction funds. Other examples of arrangements that would not qualify as external investment pools include public-entity risk pools and venture capital limited partnerships.

16.3. Annual appropriated budgets are LEAST FREQUENTLY encountered in connection with which of the following fund types? A. Special revenue funds B. Debt service funds C. Capital projects funds D. Permanent funds

D. Permanent funds Annual appropriated budgets also are extremely common for special revenue funds. Annual appropriated budgets are less common for debt service funds. Capital projects funds commonly do not have annual appropriated budgets, but instead operate using project-length budgets. Annual legal budgets are even less common for fiduciary funds, where other forms of control (trust agreements) typically are in place. In this regard, permanent funds, although a governmental fund type, operate much like fiduciary funds.

2.3. Which of the following fund types uses the economic resource measurement focus? A. General Fund B. Agency Fund C. Permanent Fund D. Private-Purpose Trust Fund

D. Private-Purpose Trust Fund Governmental fund types focus on changes in current financial resources. Agency funds do not have a measurement focus (i.e., since they do not report equity they cannot present an operating statement reporting changes in equity). Trust funds (e.g., private-purpose trust fund) use the same economic resources measurement focus as do proprietary funds.

10.32. How should contributions to endowments be reported in the government-wide statement of activities? A. Program revenues - capital grants and contributions B. Program revenues - operating grants and contributions C. General revenue D. Separate line item

D. Separate line item Contributions to term endowments, permanent endowments, and permanent fund principal should be reported as a separate line item, immediately following general revenues.

13.19. How many years of trend data TYPICALLY must be presented in the statistical section of a CAFR? A. Three years B. Five years C. Six years D. Ten years

D. Ten years

13.28. For how many years must information be presented regarding a government's principal employers? A. One year B. Two years C. Five years D. Ten years

D. Ten years

10.54. Which of the following items would appear LAST in the proprietary fund statement of revenues, expenses, and changes in net assets/equity? A. Capital contributions B. Extraordinary items C. Special items D. Transfers

D. Transfers Transfers is the last item reported before increase (decrease) in net assets/equity.

2.41. Indicate Fund Type: A government imposes a user charge to cover a substantial portion of the cost of sanitation services.

Enterprise Fund In practice, enterprise funds frequently are used to account for activities whose costs are only partially funded by fees and charges.

10.73. T/F Restricted net assets include those subject to limitations imposed by the government itself, such as earmarked resources.

False A restriction that the government itself can remove is not really a restriction. Accordingly, assets subject to self-imposed "restrictions" ("earmarking" for example) do not qualify as part of restricted net assets.

15.40. T/F A typical school district qualifies as a single-program government.

False A typical school district would not be expected to qualify as a single-program government.

13.44. T/F All of the information presented in the statistical section of the CAFR must be organized around four specific objectives.

False All of the information presented in the statistical section is organized around five specific objectives.

18.18. T/F From the perspective of the segregation of incompatible duties, a duty is considered to be incompatible if an employee can commit an irregularity and then conceal the irregularity with the assistance of another employee.

False Duties are said to be "incompatible" from an internal control perspective if they allow a single individual to commit an irregularity and then conceal it.

5.53. T/F Federal law requires that arbitrage be calculated and rebated every two years.

False Federal law requires that arbitrage be calculated and rebated at the end of each five-year period and at maturity.

2.19. T/F Governments must report all pass-through grants in an agency fund.

False GAAP mandate the use of an agency fund only for pass-through grants that are equivalent to pure cash conduits. As a practical matter, it is rare for a grant to qualify as a pure cash conduit.

6.26. T/F The cumulative effect of a change in accounting principles should be reported as a separate component of changes in net assets in the statement of revenues, expenses, and changes in net assets.

False GAAP specifically indicate that changes in accounting principles or changes in the application of an accounting principle should be reported as restatements of beginning net/assets/fund equity, not as a separately identified cumulative effect in the current-period statement of activities or proprietary fund statement of revenues, expenses, and changes in fund net assets.

16.18. T/F Governments always have the option of reporting required budgetary comparisons for the general fund and major special revenue funds as either a basic financial statement or RSI.

False If the framework used for budgeting is incompatible with the fund structure used for financial reporting (irreconcilable perspective differences), the budgetary comparison must be presented as RSI in a manner consistent with the framework used for budgeting.

10.66. T/F Enterprise funds must always be included as part of business-type activities in the government-wide financial statements.

False In certain situations, a government may conclude that it would better reflect public policy to include an activity reported in an enterprise fund as part of governmental activities.

19.26. T/F In the public sector, audits generally are classified either as financial audits or as operational audits.

False In the public sector, audits generally are classified in one of two categories: financial audits and performance audits.

18.19. T/F Ideally, incompatible duties should be segregated between individuals in the same department.

False Incompatible duties should be segregated - ideally among different departments.

10.87. T/F Cash flows associated with program loans are properly reported as part of cash flows from investing activities.

False Interest receipts rarely qualify for inclusion as part of cash flows from operating activities. The exception to this rule is program loans. The making and collection of program loans also are classified as cash flows from operating activities.

10.78. T/F Investment income never qualifies as program revenue.

False Investment income normally does not qualify as program revenue because it is not considered to be generated by the function associated with the underlying investments. One exception, however, is investment income that is legally restricted for use in a particular function or program.

18.16. T/F A key advantage of a well designed internal control framework is that it often will be sufficient to counteract a poor control environment.

False It is difficult or impossible for even the best-designed internal control framework to function effectively in such an environment.

10.84. T/F The preferred description for budgetary variances is favorable and unfavorable.

False It is recommended that governments minimize the potential for misunderstanding by using neutral or mathematical terminology- such as over/under - to describe variances rather than the more subjective term favorable/unfavorable commonly encountered in private-sector cost accounting.

6.28. T/F All proprietary funds may elect to consistently follow private-sector guidance issued subsequent to the "cut-off date" of November 30, 1989.

False Only enterprise funds have the option of electing to continue to consistently follow more recent pronouncements of the Financial Accounting Standards Boards (FASB), provided that those pronouncements neither conflict with nor contradict GASB guidance.

19.35. T/F There are no substantive differences between financial auditing and performance auditing.

False Performance auditing and financial auditing share many goals and techniques, yet there are some crucial differences between the two audit types.

5.54. T/F Property taxes destined for debt service normally should be recognized as revenue of the period in which the related debt service payment will be made.

False Property taxes destined for debt service normally should be recognized as revenue of the period for which they are levied rather than as revenue of the period in which the related debt service payment will be made.

15.38. T/F Public-entity risk pools may classify interest income as operating revenue.

False Public-entity risk pools should not classify interest income as operating revenue since their primary purpose is risk financing rather than investing.

12.73. T/F Purpose restrictions should be reflected as unearned deferred revenue.

False Purpose restrictions do not affect the recognition of revenue, and therefore should not be reported as a liability for deferred revenue. Instead, purpose restrictions should be reflected in the equity section of the statement of position.

16.14. T/F Expenditures should always equal the amount of the related encumbrance.

False The amount encumbered does not always agree with the amount eventually recorded as an expenditure. The reason for this disparity is that encumbrances sometimes are based upon estimates.

6.34. The amount of tap fees typically is equal to the actual cost of connecting new customers to the system.

False The amount of these fees frequently exceeds the actual cost to connect new customers to the system. This excess often represents a charge to new customers for their share of the capital cost of the system already in place (or the cost of increasing the capacity of the system to meet the additional demand created by the connection of new customers to the system).

9.16. T/F The contents, format, and timing of special-purpose external financial reporting typically are set by management.

False The contents, format, and timing of special-purpose external financial reports depend on the outside party that imposes the requirement.

2.38. T/F The various funds used by state and local governments can be classified in four broad categories.

False The eleven fund types can be grouped into three broad classifications: governmental funds, proprietary funds, and fiduciary funds.

12.41. T/F Because of inherent limitations on its use, restricted cash is not properly included as part of cash in the proprietary fund statement of cash flows.

False The term cash properly encompasses all cash items, regardless of any restrictions that may attach to them.

16.19. T/F All budgetary comparisons within the CAFR should present both the original and the final amended budget.

False There is no requirement to present the original budget for other budgetary comparisons presented within the CAFR (i.e. outside the basic financial statements and RSI), although the original budget may be presented voluntarily to anticipate potential questions that might otherwise arise.

10.81. T/F Reserved fund balance normally should equal restricted net assets - governmental activities.

False These two amounts are likely to differ for several reasons: 1) there is a difference in measurement focus and basis of accounting between the two statements, 2) reserved fund balance focuses on availability as well as restrictions, and 3) no reserved fund balance is reported for restrictions unless they are narrower than the purpose of the fund itself. Thus resources that are not considered reserved from the narrow perspective of an individual governmental fund may be considered restricted from the broader perspective of governmental activities.

6.32. T/F The typical period that landfill operators are required to monitor and maintain sites subsequent to closure is 40 years.

False Various state and federal laws and regulations make governments that operate municipal solid-waste landfills financially responsible for both properly closing the site at the end of tits useful life and then monitoring and maintaining it afterwards, typically for a period of 30 years.

5.58. T/F The use of the other financing sources and uses categories generally is left to the professional judgment of financial statement preparers and auditors.

False GAAP only permit the use of the other financing sources and uses category in certain situations

11.36. T/F The public sector has its own definition of what constitutes a derivative.

False The public sector has adopted the private-sector definition of a derivative.

1.18. T/F There is no "level 2" guidance currently outstanding on the GAAP hierarchy for state and local governments.

False - "Level 2" consists of GASB Technical Bulletins and AICPA Audit Guides and Statements of Position (SOPs) if specifically applicable to state and local governments and cleared by the GASB.

1.16. T/F The Federal Accounting Standards Advisory Board (FASAB), like the FASB and the GASB, operates under the auspices of the FAF.

False - FASAB does not function under the auspices of the FAF. The Treasury Department, the Office of Management and Budget, and the Government Accountability Office each have a veto over proposed FASAB standards.

1.13. T/F The appropriated budget of a government is essentially a financial plan.

False - The appropriated budget of a government is MUCH MORE than just a financial plan. It enjoys the force of law.

2.42. Indicate Fund Type: The government received a restricted grant for operating purposes that it does not wish to account for in the general fund.

Special Revenue Fund Legal restrictions on grant proceeds often require that they be spent only for specified purposes. GAAP provide that special revenue funds may be used to account for the proceeds of specific revenue sources that are legally restricted to expenditure for specified purposes.

13.39. T/F A combining statement should be presented in the CAFR to support each column in the basic financial statements that aggregates data from more than one fund or component unit.

True A combining statement should be presented in the CAFR to support each column in the basic financial statements that aggregates data from more than on fund or discretely presented component unit.

13.38. A statement of changes in assets and liabilities - all agency funds must be presented in a CAFR.

True Combining statements for agency funds need to include a combining statement of changes in assets and liabilities--all agency funds, even though this statement does not support of the basic financial statements.

12.64. T/F An employer should accrue nonvested vacation leave that is expected to vest.

True GAAP require that vacation leave be reported for nonvested amounts that are expected to vest.

3.35. T/F Designations may not be reported on the face of the government-wide statement of net assets.

True GASB Statement No. 34 does not permit the reporting of designations on the face of the government-wide statement of net assets.

15.31. T/F Lotteries typically should be reported in enterprise funds.

True Lotteries typically meet the criteria that mandate the use of enterprise fund accounting.

4.14. T/F A shared governing body is considered to be substantially equivalent to board appointment.

True Since accounting and financial reporting stress substance over legal form, membership on dual boards is considered to be the functional equivalent of board appointment.

6.35. Quite commonly, revenues related to passenger facility charges will need to be estimated.

True Since airports depend on third-party remittances for their information on PFCs, the amount to be recognized may need to be estimated.

12.56. T/F Temporary declines in the service utility of capital assets should not be recognized in the financial statements.

True Temporary impairments of capital assets should not be recognized in the financial statements.

19.31. T/F An independent auditor typically issues three separate audit reports in connection with a Single Audit.

True The auditor prepares one report in an ordinary financial statement audit conducted in accordance with GAAS, two reports in a GAGAS engagement, and three reports in a single audit engagement.

10.70. T/F If the relative order of liquidity approach is used for formatting assets and liabilities, the relative order of liquidity of each class may be determined on the basis of the average liquidity of the entire class, even though individual items within the class may be significantly more or less liquid than the class average.

True The relative order of liquidity for each class of assets and liabilities is determined on the basis of the average liquidity of the entire class, even though individual items within the class may be significantly more or less liquid than the class average.

2.27. T/F GAAP permit, but NEVER require, the use of an internal service fund.

True The use of an internal service fund is never required under GAAP.

19.27. T/F There are three categories of GAAS.

True There are ten basic generally accepted auditing standards, which are traditionally grouped into three categories: general standards, standards of field work, and standards of reporting.

18.23. T/F There is no single right way to subdivide control-related policies and procedures into control cycles.

True There is no single "right" way to subdivide control-related policies and procedures into control cycles, but it is essential that related activities and control be dealt with together.

18.21. T/F Technological innovations (e.g., internal Web sites) may allow a government to forego issuance of a hard-copy accounting policies and procedures manual.

True Traditionally, the documentation of accounting policies and procedures has taken the form of a policies and procedures manual. Thanks to advances in technology, other even more effective methods are now also available for this purpose.

5.56. T/F As a GENERAL RULE, modified accrual accounting and accrual accounting both recognize expenditure/expense when a liability is incurred.

True Under accrual accounting, expenses are recognized as soon as a liability is incurred, regardless of the timing of related cash flows. Modified accrual accounting recognizes revenues when they become available and measurable and, with a few exceptions, recognizes expenditures when liabilities are incurred.

17.15. T/F The GASB may simply decide to provide a set of criteria for reporting SEA for the benefit of those who wish to use them.

True When and if the GASB believes these preliminary conditions are met, the board could take one of several different approaches to mandating SEA reporting. One being, provide SEA criteria for those who wish to use them.

11.37. T/F Associated debt must be disclosed in connection with derivatives that are intended to create a synthetic interest rate.

True When the intended effect of a derivative is to create a synthetic interest rate (e.g., a variable-to-fixed interest rate swap), a government needs to disclose both the derivative's net cash flow and the debt service requirements of the associated debt.

6.27. T/F A surplus that results from setting capital-related charges based upon estimated replacement costs is not considered to violate the rule that internal service funds should operates cost-reimbursement mechanisms.

True A surplus that results from setting capital-related charges based upon estimated replacement costs is not considered to violate the rule that internal service funds should operates cost-reimbursement mechanisms (although it may affect grantors' determination of reimbursable costs).

9.17. T/F GAAP aim at meeting the common information needs of those desiring to assess a government's finances.

True Accountants have set GAAP to meeting the common information needs of those desiring to assess a government's finances.

8.20. T/F In rare instances, interest expense may be treated as a functional expense within governmental activities rather than as a separate line item in its own right.

True (?) All direct costs must be assigned to the appropriated functional category of governmental activities for purposes of government-wide financial reporting, regardless of how those costs are treated in the fund financial statements. In those rare instances "when borrowing is essential to the creation or continuing existence of a program and it would be misleading to exclude the interest from direct expenses of the program," interest expense should be treated as a functional expense.

1.12. T/F Different states have different structures of local government.

True - Each state has its own constitution, which provides for a local level of government. In effect, local governments derive their powers from the states that created them.

1.15. T/F GAAP are designed to provide the basic information needed to assess an entity's finances.

True - GAAP are designed to provide the primary users of general-purpose external financial reports with the basic information needed to assess an entity's finances. It is not always possible, or even desirable,to attempt to meet the information needs of all potential users within a single financial report. The accounting profession has chosen instead to identify minimum standards governing the formatting and contents of general-purpose external financial.

5.3. Which of the following is true statement regarding the recognition of investment income under the modified accrual basis of accounting? A. Changes in the fair value of investments should only be recognized revenue if they are considered to be available (i.e., the investments are sold within the government's regular availability period) B. Realized revenues must be distinguished from unrealized revenues on the face of the financial statements C. Negative investment income should be reported as revenue D. Governments should refrain from netting the various components of investment income (e.g., interest, dividends, increase/decrease in fair value)

???A. Changes in the fair value of investments should only be recognized revenue if they are considered to be available C. Negative investment income should be reported as revenue. All investment income, including changes in the fair value of investments, must be recognized as revenue in the operating statement. Net investment income is always categorized as revenue, even if negative.

5.36. Which of the following statements in TRUE regarding the recognition of receivables in governmental funds? A. Receivables may not be recognized until they are available B. The rules governing the recognition of receivables are the same as those that apply to the recognition of revenue C. There is no difference in receivables recognition between governmental funds and proprietary funds D. Both A and B

???B. The rules governing the recognition of receivables are the same as those that apply to the recognition of revenue C. There is no difference in receivables recognition between governmental funds and proprietary funds A receivable should be recognized for exchange and exchange-like transactions as soon as the underlying exchange occurs. The concept of availability does not affect the recognition of receivables in governmental funds.

5.12. Which of the following is a TRUE statement regarding the proper reporting for escheat-related assets and the effect of that reporting on the general fund? A. Certain revenue should be reported directly in the general fund even if a private-purpose trust fund is used to account for escheat-related assets B. If the general fund is used to account for escheat-related assets, a liability would be reported for the total amount of escheat property legally held in perpetuity C. Both A and B D. Neither A nor B

??D. Neither A nor B States typically remit most escheat property to the general fund. A separate private-purpose trust fund may be used for escheat property that is retained to pay claims from property owners. The general fund should report directly as revenue all escheat property not expected ultimately to be paid to claimants. If a separate fund is not used, escheat revenue must be reported net of the related liability for amounts actually expected to be paid to property owners.

6.9. In which of the following situations would interest incurred during construction NOT be included as part of the historical cost of a capital asset? A. A capital asset reported in an internal service fund included as part of governmental activities B. A capital asset reported in an enterprise fund included as part of governmental activities C. A capital asset originally reported in an enterprise fund, but later reassigned to governmental activities D. All of the above

A. A capital asset reported in an internal service fund included as part of governmental activities (?) Interest should not be capitalized on capital assets reported in internal service funds that are included as part of governmental activities in the governmental-wide financial statements.

5.38. Which of the following may NOT be reported as an asset in a governmental fund? A. A net pension asset B. A receivable for property taxes levied for the current period to an enforceable legal claim C. A receivable in connection with operating leases with scheduled rent increases D. All of the above

A. A net pension asset A net pension asset should not be reported in a governmental fund. The same treatment applies to other postemployment benefits (OPEB).

9.5. What is the paramount objective of general-purpose external financial reporting? A. Accountability B. Relevance C. Reliability D. Understandability

A. Accountability The paramount objective of general-purpose external financial reporting is accountability.

8.9. How should an internally generated surplus or deficit in an internal service fund be treated in the government-wide financial statements? A. Adjustment to expense of internal customers B. Adjustment to revenue of internal customers C. No adjustment required (i.e., interfund services provided and used) D. Direct adjustment to equity

A. Adjustment to expense of internal customers If the remaining revenue and expense accounts are not in balance, any resulting surplus or deficit must be eliminated in the process of consolidation by adjusting the amounts reported as expense by internal customers.

4.3. Which of the following statements is FALSE concerning the primary government? A. All special districts whose board members are selected in a general election qualify as primary governments B. The primary government is the focus of the financial reporting entity C. All general-purpose local governments are automatically primary governments D. To be a primary government, a special district must be a legally separate entity

A. All special districts whose board members are selected in a general election qualify as primary governments A special-purpose government qualifies as a primary government if it meets all three of the following criteria: elected governing body, separate legal status, and fiscal independence.

5.2. Which of the following best describes the proper treatment for revenue collections that are delayed beyond a government's ordinary availability period because of highly unusual circumstances? A. Amounts should be recognized as revenue B. Amounts should be reported as deferred revenue C. Amounts should be disclosed in the notes to the financial statements D. A or B

A. Amounts should be recognized as revenue When Collections are delayed beyond the normal time of receipt because of highly unusual circumstances, it is recommended that the amounts involved still be recognized as revenue of the current period.

10.16. Net assets invested in capital assets net of related debt should reflect which of the following? A. An insignificant portion of capital-related debt B. An interest in a joint venture that reflects an interest in the joint venture's capital assets C. Debt issued to finance a capital grant to another government D. All of the above

A. An insignificant portion of capital-related debt It is common for a small portion of the proceeds of capital-related debt to be expended on items that are ultimately not capitalized. Such amounts need not be deducted from the amount treated as capital-related debt. A government's equity interest in a joint venture is not properly classified as capital for this purpose, even if it reflects an interest in the joint venture's capital assets. Instead such amounts should be classified as unrestricted net assets. Debt that is unrelated to either capital assets or restricted assets (e.g., debt issued by a state to finance a capital grant to local governments) should be included in the calculation of unrestricted net assets.

11.6. Which of the following is not a required disclosure in the SSAP A. Applicability of optional private-sector guidance to internal service funds B. Flow assumption for restricted resources C. Definition of cash and cash equivalents D. Description of program revenues

A. Applicability of optional private-sector guidance to internal service funds Internal service funds do not have the option of voluntarily applying private-sector guidance issued subsequent to the "cutoff date" of November 30, 1989; therefore, there is no need to disclose the "option" selected, as would be the case for enterprise funds.

7.15. How should a participating government's undivided interest in a capital asset of a joint venture be reported? A. As an asset in the participating government's statement of position B. As an asset in the joint venture's statement of position C. As an asset in both the participating government's statement of position and the joint venture's statement of position D. None of the above

A. As an asset in the participating government's statement of position (?) If a government allows a joint venture to use a capital asset to which the government retains ownership (undivided interest), the owner government (not the joint venture) would report the capital asset in its financial statements.

7.1. In which of the following situations may a fiduciary fund be used? A. Assets are held for the direct benefit of outside parties B. Assets are held for programs that assist outside parties C. Assets are held temporarily for funds of the primary government D. All of the above

A. Assets are held for the direct benefit of outside parties GAAP prescribe the use of fiduciary funds to report assets held in a trustee or agency capacity for others and that therefore cannot be used to support the government's own programs.

19.22. Which of the following is an "overarching principle" for evaluating auditor independence under the Yellow Book? A. Auditors may not perform management functions B. Auditors may not provide tools or methodologies to clients C. Auditors may not answer material technical questions D. All of the above

A. Auditors may not perform management functions The Yellow guidance can be summarized in the form of two overarching principles: 1) auditors should not perform management functions or make management decisions; and 2) auditors should not audit their own work or provide non-audit services in situations where the amounts or services involved are significant/material to the subject matter of the audit.

15.25. Which of the following types of risk-financing arrangements results in the pooling or transfer of risk? A. Banking pools B. Account pools C. Both A and B D. Neither A nor B

A. Banking pools Banking pools are arrangements by which monies are made available for pool members in the event of loss on a loan basis. Claims-servicing or account pools are arrangements by which a pool manages separate accounts for each pool member from which the losses of that member are paid.

5.27. Which of the following types of debt often is NOT reported as a liability in the governmental fund receiving the proceeds? A. Bond anticipation notes B. Grant anticipation notes C. Revenue anticipation notes D. Tax anticipation notes

A. Bond anticipation notes The proceeds of bond anticipation notes (BANs) should be treated as an other financing source if "all legal steps have been taken to refinance the BANs and the intent is supported by an ability to consummate refinancing the short-term note on a long-term basis." The governmental fund receiving the proceeds of RANs and TANs should report a fund liability. It is recommended that GANs be treated in the same manner as TANs and RANs.

10.11. When the classified approach is used for the government-wide statement of net assets, what is the appropriate classification for restricted assets and any currently maturing debt (i.e., due within twelve months of the end of the fiscal year) that they are being used to repay? A. Both current assets and liabilities B. Both non current assets and liabilities C. Both in a separate category between current and noncurrent assets and liabilities D. Restricted assets classified as noncurrent and maturing debt classified as current

A. Both current assets and liabilities When restricted assets are being used to repay maturing debt, the appropriate portion of each should be treated as a current asset and a current liability.

15.28. Which of the following typically would appear in the statement of changes in net assets of a public-entity risk pool that did NOT pool or transfer risk? A. Claims-servicing revenue B. Premium revenue C. Claims expense D. All of the above

A. Claims-servicing revenue Pools not involving the transfer or pooling of risk should report claims-servicing revenue and administrative costs.

6.11. Which of the following statements is true concerning the defeasance of debt? A. Debt may be defeased both legally and in-substance in the public sector B. Debt may be defeased both legally and in-substance in the private sector C. Both A and B D. Neither A nor B

A. Debt may be defeased both legally and in-substance in the private sector. The concept of legal defeassance is common to both private-sector and public-sector accounting. The concept of in-substance defeasance, on the other hand, applies only to state and local governments.

3.2. A motor fuel tax is an example of which type of transactions? A. Derived tax revenue B. Imposed nonexchange revenue C. Government-mandated nonexchange transactions D. Voluntary nonexchange transactions

A. Derived tax revenue Derived tax revenues result from assessments governments place on exchange transactions. Common examples include taxes on earnings or consumption (e.g., personal income tax, corporate income tax, sales tax, and motor fuel taxes).

3.6. Personal income tax is an example of which type of transaction? A. Derived tax revenue B. Imposed nonexchange revenue C. Government-mandated nonexchange transactions D. Voluntary nonexchange transactions

A. Derived tax revenue Derived tax revenues result from assessments governments place on exchange transactions. Common examples include taxes on earnings or consumption (e.g., personal income tax, corporate income tax, sales tax, and motor fuel taxes).

19.10. Which of the following statements is true concerning reportable conditions and material weaknesses? A. Every material weakness is also a reportable condition B. Every reportable condition is also a material weakness C. The terms reportable condition and material weakness are mutually exclusive D. The term reportable condition is used in the private sector in place of material weakness

A. Every material weakness is also a reportable condition By definition, all material weaknesses are reportable conditions, while a reportable condition need not be a material weakness.

1.3. Which organization appoints the members of the Governmental Accounting Standards Board (GASB)? A. Financial Accounting Foundation (FAF) B. Governmental Accounting Standards Advisory Council (GASAC) C. American Institute of Certified Public Accountants (AICPA) D. Securities & Exchange Commission (SEC)

A. Financial Accounting Foundation (FAF) FAF appoints the members of both FASB & GASB.

19.7. On what basis does the independent auditor express an opinion in the context of the basic fund financial statements? A. For individual major funds B. For fund types C. For fund categories (i.e., governmental funds, proprietary funds, fiduciary funds) D. Both A and B

A. For individual major funds In the public sector, the independent auditor's report on the basic financial statements offers separate opinions on a series of opinion units. These opinion units are governmental activities, business-type activities, each major governmental fund, each major enterprise fund, and in the aggregate, nonmajor funds and discretely presented component units.

16.9. At what level of detail must budgetary comparisons be presented within the CAFR for a nonmajor special revenue fund with a legally adopted annual budget if a separate budgetary report is issued and referenced in the notes to the financial statements? A. Function B. Activity C. Legal level of control D. None of the above

A. Function In certain extreme cases, the legal level of budgetary control may be so detailed that is not practical to demonstrate compliance within the CAFR itself. In such cases, a separate budgetary report may be issued to demonstrate compliance at the legal level of budgetary control, provided that the CAFR contains a reference to the existence of this separately issued report. This reference to a separately issued budgetary report does not eliminate the need to present budgetary comparisons within the CAFR for all individual governmental funds with legally adopted annual budgets. Rather, the level of detail needed for the individual fund budgetary comparisons need not exceed that associated with the basic financial statements (i.e., expenditures by function).

11.5. For which of the following columns is a generic rather than a specific description required? A. General fund B. Major funds C. Fund type columns D. A and C

A. General fund In the case of the general fund, the columnar description may be more or less generic. For other major funds, however, the description must be specific to the government's circumstances. Specific descriptions also are required for each of the fund-type columns reported in the basic fund financial statements.

18.9. Who is ULTIMATELY responsible for the adequacy of a government's framework of internal control? A. Governing body B. Management C. Internal auditors D. Independent auditors

A. Governing body An entity's governing board oversees management's performance. So while management is primarily responsible for internal control, the governing board is ultimately responsible for ensuring that management fulfills its duty.

12.33. Where should a NEGATIVE NPO or NOPEBO be reported? A. Government-wide statement of net assets B. Governmental fund balance sheet C. Both A and B D. Neither A nor B

A. Government-wide statement of net assets A negative NPO/NOPEBO should be reported as an asset in the government-wide statement of net assets and in connection with proprietary and fiduciary funds. Conversely, a negative NPO/NOPEBO is not considered a represent a financial asset and therefore is not properly reported in a governmental fund.

12.32. Where should a net pension obligation (NPO) or net other postemployment benefits obligation (NOPEBO) be reported? A. Government-wide statement of net assets B. Governmental fund balance sheet C. Both A and B D. Neither A nor B

A. Government-wide statement of net assets An NPO/NOPEBO is not properly reported as a liability in the governmental funds. An expenditure is recognized in the governmental funds only as the NPO/NOPEBO is actually liquidated. An NPO/NOPEBO should be reported as a liability in the government-wide statement of net assets and in connection with proprietary and fiduciary funds.

7.19. In which of the following situations is a capitalization contribution to a public-entity risk pool properly treated as a deposit, net of any related liability? A. If there is no transfer or pooling of risk B. If it is probable that the contribution will ultimately be refunded C. Both A and B D. Neither A nor B

A. If there is no transfer or pooling of risk If there is no transfer or pooling of risk, then the capitalization contribution should be reported as a deposit, net of any related liability for estimated claims payable.

12.2. How should a government report an internal investment pool? A. In each participating fund B. In an agency fund C. In an investment trust fund D. None of the above

A. In each participating fund Each fund's position in the pool should be reflected in the participating fund as an asset.

3.16. Which of the following would constitute eligibility requirements in connection with an expenditure-driven grant? A. Incurrence of a qualifying expenditure B. Fulfillment of administrative obligations C. Both A and B D. Neither A nor B

A. Incurrence of a qualifying expenditure In the case of expenditure-driven (reimbursement) grants it is an eligibility requirement that qualifying expenditures first be incurred. On the other hand, purely administrative obligations (such as filing periodic grantor reports) should not be treated as eligibility requirements.

12.4. If an individual fund draws out resources in excess of its position in an internal investment pool, how would this situation normally be reflected in the statement of position? A. Interfund payable B. Transfer C. Negative cash balance D. Contra-equity account

A. Interfund payable Sometimes an individual fund will overdrew its share of pooled cash. When this situation occurs it should be reflected as an interfund liability rather than as a credit balance in an asset account (negative cash).

8.5. A separate column may be used for which of the following types of eliminations? A. Intra-activity B. Interactivity C. Both A and B D. Neither A nor B

A. Intra-activity All interfund receivable and payables between governmental funds should be netted in the governmental activities column, while all interfund receivables and payables between enterprise funds should be netted in the business-type activities column. One approach is to include an eliminations column immediately preceding the total column in the fund financial statements so that a zero balance is reported in the latter.

15.15. Which of the following statements is FALSE concerning the statement of changes in plan net assets for a public employee retirement system? A. Investment expenses should be reported in the deductions category B. Contributions from employers should be reported separately from contributions from plan members, even if the latter are transmitted by the employer C. Total administrative expenses should exclude investment-related expenses D. None of the above

A. Investment expenses should be reported in the deductions category Deductions to plan net assets should be reported in the following categories. 1. Benefits and refunds paid to plan members and beneficiaries and 2. Total administrative expense (excluding investment-related expenses)

10.8. In which of the following situations must comparative data be presented? A. Management's discussion and analysis B. Government-wide financial statements C. Fund financial statements D. B and C

A. Management's discussion and analysis Governments are required to present comparative data only in connection with management's discussion and analysis.

10.13. If a government has a capital asset, but that asset is not reported on the statement of net assets (e.g., certain assets acquired prior to implementation of the new reporting model), how should related debt be reflected in net assets? A. Net assets invested in capital assets net of related debt B. Restricted net assets C. Unrestricted net assets D. B or C

A. Net assets invested in capital assets net of related debt Outstanding debt related to these unreported capital assets still should be considered to be capital-related.

11.21. Which of the following situations typically would result in the greatest number of required pension disclosures for an employer? A. Participation in an agent multiple-employer defined benefit plan B. Participation in a cost-sharing multiple-employer defined benefit plan C. Participation in a defined contribution plan D. Participation in an insured plan

A. Participation in an agent multiple-employer defined benefit plan Additional disclosures are required for employers that participate in either single-employer or agent multiple-employer defined benefit plans.

10.29. What is the proper classification of special assessment revenues in the government-wide statement of activities? A. Program revenues - capital grants and contributions B. Program revenues - operating grants and contributions C. General revenues - grants D. Either A or B

A. Program revenues - capital grants and contributions Operating-type special assessments should be treated as charges for services and capital-type special assessments should be treated as capital grants and contributions.

13.11. Which of the following would be provided or addressed in the letter of transmittal rather than in MD&A? A. Prospects for the local economy B. Condensed, government-wide comparative financial data C. A discussion of significant differences between the original budget for the general fund and the final amended budget D. Currently know facts, decisions, or conditions that are expected to have a significant effect on financial positions or results of operations

A. Prospects for the local economy Letter of transmittal contains information useful in assessing the government's economic condition including local economy.

5.22. What is the appropriate accounting treatment when commodities are recognized as supplies inventories in governmental funds? A. Recognize revenues when commodities are received B. Recognize revenues when commodities are consumed C. Either A or B D. Neither A nor B

A. Recognize revenues when commodities are received Commodities (e.g., surplus agricultural products) technically may be classified as supplies inventories, in which case, revenue should be recognized at the time of receipt.

10.9. Which approach to presenting assets and liabilities is PREFERRED for the government-wide statement of net assets? A. Relative order of liquidity approach B. Classified approach C. A or B, depending upon the specific circumstances D. Neither A nor B

A. Relative order of liquidity approach The preferred approach is to present assets and liabilities in the relative order of their liquidity. Alternatively, assets and liabilities may be classified simply as current or noncurrent.

12.36. Which of the following must ALWAYS be treated as current liabilities (enterprise funds) or fund liabilities (governmental funds) in the fund receiving the proceeds? A. Revenue anticipation notes B. Grant anticipation notes C. Bond anticipation notes D. All of the above

A. Revenue anticipation notes TANs and RANs should be classified as current liabilities whenever a classified statement of position is presented. TANs and RANs associated with governmental funds should be reported as fund liabilities in the governmental fund that initially received the proceeds. It is recommended that the treatment described for TANs and RANs be applied to grant anticipation notes as well. BANs may be reported as a long-term liability (in government-wide and proprietary fund financial statements) or as an other financing source (in governmental funds) if all legal steps have been taken to refinance the bond anticipation notes and the intent is supported by an ability to consummate refinancing the short-term note on a long-term basis.

15.24. Which of the following statements is TRUE concerning realized gains an losses of external investment pools? A. Separate display is permitted in separately issued reports B. Separate display is permitted in sponsor reports C. A and B D. Separate display is never permitted

A. Separate display is permitted in separately issued reports Realized gains and losses may be reported separately from unrealized gains and losses on the face of the statement of changes in net assets in the separately issued financial statements of governmental external investment pools.

11.12. In which of the following circumstances would there be a potential for custodial credit risk? A. Sold investments after the sale date, but prior to the settlement date B. Purchased investments after the sale date, but prior to the settlement date C. Both A and B D. Neither A nor B

A. Sold investments after the sale date, but prior to the settlement date A government faces no custodial credit risk for investments prior to settlement. Therefore, purchases recorded on the balance sheet prior to settlement date are no subject to custodial credit risk disclosure. Conversely, governments continue to face custodial credit risk in connection with sold investments prior to settlement. Accordingly, such securities remain subject to custodial credit risk disclosure, even though they no longer appear on the balance sheet.

10.20. Which of the following statements BEST describes The treatment of depreciation expense in the government-wide statement of activities? A. Sometimes a direct cost B. Always a direct cost C. Never a direct cost D. Only a direct cost in business-type activities

A. Sometimes a direct cost Direct expenses include depreciation on capital assets that are clearly associated with a given functional activity. It would not be appropriate, however, to allocate depreciation expense on capital assets that serve essentially all of the government's functional activities. Instead, depreciation on such overhead capital assets should be reported either as part of the general government functional activity, or as a separate line item.

10.65. What should be included within the BASIC financial statements for agency funds? A. Statement of fiduciary net assets B. Statement of changes in fiduciary net assets C. Statement of changes in assets and liabilities - agency funds D. A and C

A. Statement of fiduciary net assets Agency funds are included in the statement of fiduciary net assets, but are excluded altogether from the statement of changes in fiduciary net assets because they do not report net assets (and therefore cannot report changes in net assets). All the same, agency funds must include a statement of changes in assets and liabilities within the comprehensive annual financial report although they may not do so within the basic financial statements.

2.8. Which of the following is a basic financial statement of a proprietary fund? A. Statement of revenues, expenses, and changes in net assets B. Statement of revenues, expenses, and changes in retained earnings C. Statement of revenues, expenditures, and changes in net assets D. Statement of revenues, expenditures, and changes in retained earnings

A. Statement of revenues, expenses, and changes in net assets Proprietary funds report net assets rather than retained earnings and expenses rather than expenditures. Proprietary funds, like private-sector businesses, are required to present three basic financial statements whose formats are somewhat different from those of their private-sector counterparts: statement of net assets, statements of revenues, expenses, and changes in net assets, and statement of cash flows.

13.22. Which of the following types of governments is NEVER required to report information on overlapping governments in the statistical section of the CAFR? A. States B. Counties C. Both A and B D. Neither A nor B

A. States The concept of overlapping governments does not apply to state governments. Regional governments and counties are encouraged rather than required to present such information.

13.4. Which of the following is NOT a recommended element of the letter of transmittal? A. Summary financial data B. Profile of the government C. Information useful in assessing economic condition D. Awards and acknowledgements

A. Summary financial data It is recommended that the letter of transmittal contain four sections: formal transmittal of CAFR, profile of the government, information useful in assessing the government's economic condition, and awards and acknowledgements.

4.1. Which of the following is NOT taken into consideration in determining whether a special-purpose government qualifies as a primary government? A. Tax-exempt status of debt B. Fiscal dependence C. Elected governingbody D. Separate legal status

A. Tax-exempt status of debt A special-purpose government qualifies as a primary government if it meets all three of the following criteria: elected governing body, separate legal status, and fiscal independence.

6.22. What ORDINARILY is the measure of pension expense when an enterprise fund sponsors a single-employer defined benefit plan? A. The actuarially determined annual required contribution B. Contractually required contributions C. Actual contributions D. Related benefit payments

A. The actuarially determined annual required contributions If a proprietary fund sponsors its own defined benefit plan for employees, expense normally will be the actuarially determined annual required contributions (ARC).

13.8. What is the point of reference for the opinion offered in the independent auditor's report? A. The financial statements of the financial reporting entity, taken as a whole B. The financial statements of the primary government, taken as a whole C. Activity, major fund, other data in the aggregate D. Fund types (and component units)

A. The financial statements of the financial reporting entity, taken as a whole At a minimum, the independent auditor's report offers an opinion on the fair presentation of the various "opinion units" that make up the basic financial statements: governmental activities, business-type activities, individual major governmental funds, individual major enterprise funds, other funds in the aggregate, and discretely presented component units in the aggregate.

10.26. In which function should charges for services be reported in the government-wide statement of activities if they are generated in one function but legally restricted for use in another? A. The function in which generated B. The function to which legally restricted C. Either A or B, depending on the government's policy D. Either A or B, depending upon which function is considered predominant

A. The function in which generated Charges for services are always reported as program revenue of the function in which they are generated, even if they are used for some other purpose.

12.20. What is the practical effect of a government electing to use the modified approach for infrastructure reporting? A. The government need not report depreciation expense on infrastructure assets B. The government need not report infrastructure assets in the financial statements C. The government need not report improvements to infrastructure assets D. All of the above

A. The government need not report depreciation expense on infrastructure assets GAAP allows government to forego reporting depreciation in connection with one or more networks or subsystems of infrastructure assets, provided that the government has made a commitment to maintain those particular networks or subsystems at a predetermined condition level of its own choosing and has established an asset management system that it adequate for the purpose (modified approach).

15.14. Which of the following statements is FALSE concerning the statement of plan net assets for a public employer retirement system (PERS)? A. The statement should include the actuarial accrued liability calculated using the actuarial cost allocation method used for funding purposes B. Costs typically associated with the sale of investments should be deducted from the fair value of investments C. Allocated insurance contracts and related liabilities should be excluded D. The caption net assets held in trust for pension benefits should be accompanied by a parenthetical reference to the schedule of funding progress

A. The statement should include the actuarial accrued liability calculated using the actuarial cost allocation method used for funding purposes The statement of plan net assets should report only accounting (rather than actuarial) liabilities.

14.2. Which of the following is an objective of the Certificate Program? A. To assist governments to prepare and publish an easily readable and understandable comprehensive annual financial report (CAFR) B. To provide an independent evaluation of a government's financial health C. To avoid the need to rely exclusively upon the work of the independent auditor D. All of the above

A. To assist governments to prepare and publish an easily readable and understandable comprehensive annual financial report (CAFR) Objectives are to encourage governments to prepare and publish an easily readable and understandable CAFR, to assist governments to meet the previous goal by providing educational material, comments, and suggestions for improvements, and to recognize governments and individuals that have met the challenge of preparing and issuing a high-quality CAFR.

11.19. Which of the following BEST describes when a guarantee of indebtedness must first be disclosed? A. When payment pursuant to the guarantee is remotely possible B. When payment pursuant to the guarantee is reasonably possible C. When payment pursuant to the guarantee is probable D. When payment pursuant to the guarantee occurs

A. When payment pursuant to the guarantee is remotely possible Any guarantee of indebtedness should be disclosed, even if there is only a remote chance that the government will be called on to honor its guarantee.

16.6. When do generally accepted accounting principles (GAAP) require that fun balance be reserved for encumbrances? A. Whenever a lapse period is used for encumbrances B. Whenever encumbrances lapse an are automatically reappropriated C. Both A and B D. Neither A nor B

A. Whenever a lapse period is used for encumbrances GAAP require that fund balance be reserved for encumbrances outstanding at the end of the fiscal year whenever a government uses the lapse period approach, assuming that the government still intends to honor the encumbrances.

15.2. Assume that a state collects $150,000 in escheat property of which the eventual return of $25,000 to property owners is considered probable. If a state accounts for escheat resources in the GENERAL FUND, what amount would be reported as a liability to property owners? A. $150,000 B. $25,000 C. $0 D. A or B

B. $25,000 States typically remit most escheat property to the general fund, where it is unused to finance the government's regular operations. In that case, a liability must be recognized for any amounts expected eventually to be paid out to individuals or private organizations, regardless of the timing of the payments.

14.6. Which of the following is NOT eligible for submission to the Certificate Program? A. A CAFR with financial statements audited in conformity with generally accepted auditing standards rather than generally accepted government auditing standards B. A CAFR with a qualified opinion resulting from inadequate accounting records C. A CAFR postmarked five months after the end of the fiscal year D. None of the above

B. A CAFR with a qualified opinion resulting from inadequate accounting records The financial section of the CAFR must include the report of an independent auditor on the fair presentation of the financial statements. The auditor must have performed the audit in accordance with either generally accepted auditing standards or generally accepted government auditing standards. The scope of the independent auditor's opinion must encompass, at a minimum, the fair presentation of the basic financial statements. In most cases, a qualified opinion or a disclaimer of opinion based upon the inadequacy or unavailability of the government's accounting records will render a report ineligible, as will the omission of a fund type, individual fund, or component unit from the scope of the auditor's opinion. The application must be postmarked no later than six months after the end of the government's fiscal year.

12.38. Which of the following statements is TRUE concerning conduit debt, INCLUDING NO-COMMITMENT SPECIAL ASSESSMENT OBLIGATIONS? A. A liability must always be reported B. A liability may never be reported C. Sometimes a liability must be reported D. Sometimes a liability must not be reported

B. A liability may never be reported Sometimes governments report both the conduit debt and the related asset (the receivable from the third party that obtained the proceeds) on their statement of position. More commonly, neither conduit debt nor the related asset is reported. The proper treatment of special assessment debt depends on whether the government is obligated in some manner, however limited, for payment. GAAP direct governments to refrain from reporting on the statement of position any special assessment debt for which they are not obligated in any manner (no-commitment).

14.9. Which of the following types of popular reports would be eligible for submission to the Popular Annual Financial Reporting Program? A. A simplified, cash basis annual financial report B. A simplified report based on the CAFR of a government in the Certificate Program C. A report streamlined by the removal of narrative or graphical analysis D. All of the above

B. A simplified report based on the CAFR of a government in the Certificate Program Participation in a PAFR Program is limited to governments that submit their CAFR to the Certificate of Achievement Program.

1.9. Which of the following organizations has designated the GASB as the authoritative standard-setting body for state and local governments? A. FAF B. AICPA C. GAO (Government Accountability Office) D. SEC

B. AICPA The AICPA has officially designated the FASB, the GASB, and the FASAB as the authoritative standard-setting bodies for GAAP in thier respective sectors.

5.41. Which of the following liabilities may NOT be recognized in a governmental fund until it is due and payable? A. Salaries payable B. Accrued interest C. Vendor payables D. Vacation leave

B. Accrued interest Accrued liabilities normally finance in future periods. Expenditures and liabilities related to certain obligations should be recognized in governmental funds only when they mature (when due).

15.8. When should an asset be recognized for amounts to be received in connection with the master settlement agreement between the states and the major tobacco companies? A. As of the date of the settlement (estimated net present value) B. As of the date of shipment of qualifying tobacco products C. As of the date of sale of tobacco-related debt by a financing authority D. B or C

B. As of the date of shipment of qualifying tobacco products It is not acceptable to recognize either a receivable or revenue for tobacco-related revenues until the underlying shipments have actually taken place.

6.21. Which of the following statements is FALSE concerning contributions of capital assets within the primary government? A. Assets contributed by the general government to an enterprise fund should be reported as capital contributions B. Assets contributed to the general government by an enterprise fund should be reported as "negative" capital contributions C. The net book value of a capital asset would not change as a result of its subsequent reassignment to another fund or activity D. The government-wide financial statements would report equal amounts of transfers in and transfers out for capital assets contributed between activities

B. Assets contributed to the government by an enterprise fund should be reported as "negative" capital contributions Donations of capital assets to the general government should be reported as transfers in both the proprietary fund and government-wide financial statements.

11.8. Which amount should be used when evaluating custodial credit risk for deposits? A. Book balance B. Bank balance C. A or B D. None of the above

B. Bank balance For purposes of disclosing custodial credit risk, the bank balance rather than the book balance is relevant.

10.35. Which of the following types of assets could NOT appear in a governmental fund balance sheet? A. Inventories B. Capital assets used in operations C. Prepayments D. All of the above

B. Capital assets used in operations Examples of assets that should not be reported in governmental funds because they are not financial in nature include general capital assets (i.e. assets used in operations rather than acquired for resale).

12.21. Which of the following is NOT, of itself, an indicator that a capital asset may be impaired? A. Change in legal or environmental factors B. Change in demand C. Change in manner or duration of use D. Change in technology

B. Change in demand The carrying value of a capital asset must also be adjusted, even though it will remain in service, if its service utility has been significantly impaired in any of the following circumstances: physical damage, changes in legal or environmental factors, technological changes or obsolescence, changes in manner or duration of use, and constructions stoppage. Reduced demand should not, of itself, be treated as a capital asset impairment.

10.49. How should assets and liabilities be presented in the proprietary fund statement of position? A. Relative order of liquidity approach B. Classified approach C. Either A or B, A preferred D. Either A or B, B preferred

B. Classified approach GAAP require that the proprietary fund statement of net assets/balance sheet classify assets and liabilities as current and noncurrent, whereas use of the relative order of liquidity approach is encourages for the government-wide statement of net assets.

18.7. Which of the following is a PERVASIVE CHARACTERISTIC of a sound internal control framework? A. Control environment B. Communication C. Control-related policies and procedures D. Monitoring

B. Communication To emphasize its importance, communication usually is treated as a separate control-framework element in its own right. As a practical matter, however, communication really is a pervasive characteristic that must permeate all elements of the internal control framework if the framework is to function effectively.

18.3. To which of the following is the notion of "corporate culture" most closely related? A. Control-related policies and procedures B. Control environment C. Continuing assessment of risk D. None of the above

B. Control environment Control environment describes what is commonly referred to in the private sector as an entity's "corporate culture."

11.14. If a government participates in a bond pool that invests exclusively in securities that are explicitly guaranteed by the U.S. government, what credit rating needs to be disclosed? A. None B. Credit rating of pool C. Credit rating of underlying securities D. Either B or C

B. Credit rating of pool When a debt security is held by a pool or mutual fund, it is the rating of the pool or fund that should be disclosed, not the rating of the underlying debt securities.

4.9. In which of the following situations would the potential component unit in question be included as part of the financial reporting entity based upon the criterion of board appointment? A. The primary government selects board members from a narrow list of pre-selected candidates B. Current board members select their successors, but the primary government has the power to unilaterally dissolve the unit C. The primary government must approve a single list of candidates selected by others D. The primary government appoints a majority of board members, but not the two-thirds majority required to approve the issuance of debt

B. Current board members select their successors, but the primary government has the power to unilaterally dissolve the unit Sometimes a government makes only the initial board appointments and the appointees are responsible for the selection of their successors. In that case, GAAP indicate that successive boards also would be considered to meet the "board appointment" test, provided the government that made the initial appointment has the unilateral power to dissolve the organization. Responses A and C are incorrect because the appointment process must itself be substantive, reflecting a real choice on the part of the appointing government. If a primary government's "power of appointment" is limited to approveing a single list of candidates selected by others, or the appointing government may be required to select board members from a narrow list of pre-selected candidates, board appointment would be formal rather than substantive and would not provide a sufficient basis for classifying a legally separate entity as a component unit of the primary government. Response D is incorrect because GAAP consider true control to have been achieved by the primary government only if that government has appointed sufficient board members to produce the "voting majority" (in contrast to "simple majority") needed in such situations.

12.37. Which of the following types of debt instruments normally is associated with a "take-out" agreement? A. Deep discount debt B. Demand bonds C. Refunding bonds D. Certificate of participation

B. Demand bonds Take-out agreements mentioned in all criteria

10.38. Which of the following statements is TRUE? A. Reservations may not exceed total fund balance. B. Designations may not exceed unreserved fund balance. C. Reservations and designations may have negative fund balance D. All of the above

B. Designations may not exceed unreserved fund balance Reservations of fund balance are intended to reflect demands or limitations on net current financial resources. Consequently, it is possible for a government to have reservations of fund balance in excess of total fund balance (reflecting commitments of current financial resources in excess of amounts available). To the contrary, designations of fund balance are intended to represent accumulations of resources. Therefore, it is not appropriate to report designations in excess of available resources (that is, unreserved fund balance). Naturally, any reservations or designations reported must have a positive balance.

11.22. If a government has long-term debt outstanding for the next nineteen years, how many lines, at a minimum, must appear in the debt service to maturity schedule? A. Six B. Eight C. Ten D. Nineteen

B. Eight GAAP require that a government disclose debt service to maturity for all outstanding debt. This disclosure should present debt service principal and interest separately for each of the succeeding five fiscal years (i.e., 5 lines) and in at least five-year increments there after) (i.e., year 10, year 15, and year 19=3 lines).

5.45. What is the proper categorization of the nonreciprocal movement of resources from the primary government to a discretely presented component unit? A. Transfer B. Expenditure C. Other financing use D. Capital contribution

B. Expenditure Transfers of current financial resources to other funds of the primary government should be classified as expenditures because these are not considered to be interfund transactions.

5.28. What is an appropriate journal entry for debt service principal payments related to demand bonds reported as a liability of a governmental fund? A. Demand bonds payable $100 Cash $100 B. Expenditures - debt service principal $100 Other financing sources - demand bond Principal payment $100 C. Both A and B D. Neither A nor B

B. Expenditures - debt service principal $100 Other financing sources - demand bond Principal payment $100 The issuance of demand bonds should be treated as an other financing source if certain criteria are met. Otherwise, demand bonds are reported as a liability of a governmental fund receiving the proceeds. When demand bonds are reported as liabilities of a governmental fund, an other financing source should be reported in connection with debt service principal payments so that the full amount of those payments can be reflected as an expenditure.

11.3. The SSAP should indicate that which of the following has been omitted from the government-wide financial statements? A. Entity-wide total columns B. Fiduciary funds C. Comparative data D. All of the above

B. Fiduciary funds To avoid any potential confusion regarding the scope of the government-wide presentations, the SSAP should disclose the omission of fiduciary funds and fiduciary-type component units.

19.18. In the public sector, how are internal control weaknesses typically communicated? A. Management letter B. Findings C. Letter of transmittal D. Management's discussion and analysis

B. Findings When audits are conducted in accordance with GAGAS, reportable conditions and instances of noncompliance with applicable laws and regulations are presented in a special format known as an audit finding.

19.24. What is the recommended size of an audit committee? A. Three to five members B. Five to seven members C. Seven to ten members D. Five to ten members

B. Five to seven members An audit committee should be small enough to operate efficiently, yet large enough to ensure that its members possess all skills necessary to realize the committee's objectives. As a rule, no less than five and no more than seven members should comprise an audit committee.

12.39. In which financial statement may designations be reported? A. Government-wide statement of net assets B. Governmental fund balance sheet C. Proprietary fund statement of net assets D. All of the above

B. Governmental fund balance sheet. Designations should be reported only on the governmental fund balance sheet. There is no equivalent equity designation that may be used for government-wide financial reporting or for proprietary fund and fiduciary fund financial reporting to reflect the intended use of resources.

3.3. Fines and forfeits normally are an example of which type of transactions? A. Derived tax revenue B. Imposed nonexchange revenue C. Government-mandated nonexchange transactions D. Voluntary nonexchange transactions

B. Imposed nonexchange revenue Imposed non exchange revenues result from assessments by governments on non-governmental entities, including individuals, other than assessments on exchange transactions. Common examples include property taxes, ad valorem taxes on personal property, and most fines and forfeits.

3.5. An ad valorem tax on personal property is an example of which type of transaction? A. Derived tax revenue B. Imposed nonexchange revenue C. Government-mandated nonexchange transactions D. Voluntary nonexchange transactions

B. Imposed nonexchange revenue Imposed non exchange revenues result from assessments by governments on non-governmental entities, including individuals, other than assessments on exchange transactions. Common examples include property taxes, ad valorem taxes on personal property, and most fines and forfeits.

3.1. Property taxes are an example of which type of transactions? A. Derived tax revenue B. Imposed nonexchange revenue C. Government-mandated nonexchange transactions D. Voluntary nonexchange transactions

B. Imposed nonexchange revenue Imposed nonexhange revenues result from assessments by governments on non-governmental entities, including individuals, other than assessments on exchange transactions. Common examples include property taxes, ad valorem taxes on personal property, and most fines and forfeits.

3.13. Which of the following typically is associated with the funding of one or more specific fiscal periods? A. Derived tax revenues B. Imposed nonexchange revenues C. Government-mandated nonexchange transactions D. Voluntary nonexhange transactions

B. Imposed nonexchange revenues Imposed nonexchange revenues typically are associated with the funding of one or more specific fiscal periods.

3.14. For which of the following would the criteria for recognizing a receivable differ from the criteria for recognizing revenue under the accrual basis of accounting? A. Derived tax revenues B. Imposed nonexchange revenues C. Government-mandated nonexchange transactions D. Voluntary nonexhange transactions

B. Imposed nonexchange revenues Only an enforceable legal claim is require for receivables recognition for imposed nonexchange revenues, whereas such amounts may not be recognized as revenue until the associated period even if there is an enforceable legal claim.

5.10. Which of the following statements is FALSE concerning revenue recognition for property taxes in governmental funds? A. Normally the availability period for property taxes cannot exceed 60 days B. In some circumstances, property taxes may be recognized as revenue even before there is an enforceable legal claim C. Revenues cannot be recognized prior to the period for which the property tax is levied, even if available D. Governments with a highly unusual property tax calendar may recognize revenue for collections beyond the normal 60-day availability period

B. In some circumstances, property taxes may be recognized as revenue even before there is an enforceable legal claim Property tax revenues may not be recognized before the period they are intended to finance, even if an enforceable legal claim to the resources exists and those resources are otherwise available to finance expenditures of the current period.

5.50. If a portion of property taxes is dedicated to financing pension benefits accounted for in a pension (and other employee benefit) trust fund, where should those revenues be reported? A. In the pension (and other employee benefit) trust fund B. In the general fund C. A or B D. Neither A nor B

B. In the general fund Dedicated taxes used to fund pensions should not be treated as a direct revenue of a pension (and other employer benefit) plan, because to do so would preclude the employer from reporting pension cost.

11.28. Which of the following is required disclosure in the case of debt refundings? A. Legally defeased debt outstanding B. In-substance defeased debt outstanding C. Details of the escrow arrangement for defeased debt outstanding D. All of the above

B. In-substance defeased debt outstanding Any amounts of debt defeased in substance, but still outstanding as of the end of each fiscal year, should be disclosed in the notes.

9.14. Which of the following is NOT a basic section of a typical CAFR? A. Introductory section B. Investment section C. Statistical section D. None of the above

B. Investment section A CAFR has three major sections: introductory, financial, and statistical.

18.8. Who is PRIMARILY responsible for the adequacy of a government's framework of internal control? A. Governing body B. Management C. Internal auditors D. Independent auditors

B. Management Management is primarily responsible for the effectiveness of internal control, just as it is accountable for all other aspects of its performance.

19.11. Who is primarily responsible for the fair presentation of the financial statements? A. Governing board B. Management C. Independent auditor D. Audit committee

B. Management Regardless of the assistance provided by the independent auditor, the financial statements always remain the management's responsibility. That is, financial statements are management's representations concerning the government's finances, and management cannot transfer its responsibility for its own representations to a third party.

11.7. Which of the following budgetary disclosures would be reported in the notes to the financial statements even if budgetary comparisons were presented as RSI? A. Budgetary expenditures in excess of appropriations B. Material violations C. Basis of budgeting D. Reconciliation between the basis of budgeting and GAAP

B. Material violations Whenever budgetary comparisons are presented as required supplementary information (RSI) rather than as a basic governmental fund financial statement, most related disclosures would be reported as notes to RSI rather than as part of the notes to the financial statements. The disclosure of material violations, on the other hand, would always be included in the notes to the financial statements.

10.2. Which formatting approach is PREFERRED for the government-wide statement of net assets? A. Balance sheet approach B. Net assets approach C. A or B, depending upon the specific circumstances D. Neither A nor B

B. Net assets approach Governments are encouraged to present the government-wide statement of position in a format that displays assets less liabilities equal net assets, although the traditional balance sheet format (assets equal liabilities plus net assets) may be used.

6.23. How should airports treat passenger facility charges? A. Operating revenue B. Nonoperating revenue C. Capital contribution D. Special item

B. Nonoperating revenue PFCs qualify as exchange-like transactions and should be recognized as a nonoperating item when earned.

10.21. Which of the following statements BEST describes the treatment of interest expense within governmental activities in the government-wide statement of activities? A. Sometimes a separate line item B. Normally a separate line item C. Always a separate line item D. Never a separate line item

B. Normally a separate line item In almost all cases, interest on debt associated with governmental activities cannot meaningfully be associated with individual functions, and so should be reported as a separate line within governmental activities on the government-wide statement of activities. Nonetheless, in those rare instances "when borrowing is essential to the creation of continuing existence of a program and it would be misleading to exclude the interest from direct expenses of that program" it should be treated as a functional expense.

10.5. Which of the following statements BEST describes how enterprise funds of the primary government should be reported in government-wide financial statements? A. Always include within business-type activities B. Normally include within business-type activities C. Include within either governmental or business-type activities D. Report in the same way as discretely presented component units

B. Normally include within business-type activities In general, business-type activities include activities reported as enterprise funds in the proprietary fund financial statements. In certain situations, however, a government may conclude that it would better reflect public policy to include an activity reported in an enterprise fund as part of governmental activities.

18.15. Which of the following is the most significant factor in promoting fraud? A. Pressure B. Opportunity C. Incentive D. Attitude

B. Opportunity Opportunity not only permits fraud to occur, but actually promotes fraud by creating a potential trap for otherwise honest individuals.

5.30. If a government issues debt to finance capital acquisition by other governments and the proceeds of the debt are delivered directly to the intended beneficiaries, how should the related long-term debt be reflected in a governmental fund? A. Other financing source and other financing use B. Other financing source and expenditures C. Not reported because there are no actual flows of financial resources D. None of the above

B. Other financing source and expenditures The appropriate accounting and financial reporting treatment in both cases is to report an other financing source and expenditure in the financial statements of the government issuing the debt.

5.31. If the primary government issues debt that will be repaid by general taxpayers and arranges to have the proceeds delivered directly to an enterprise fund (i.e., capital contribution), how should the debt issuance be reflected in the governmental funds? A. Other financing source and expenditure B. Other financing source and transfer C. Not reported because there are no actual flows of financial resources D. None of the above

B. Other financing source and transfer If debt is used to finance a capital contribution from the general government to a proprietary fund, the governmental funds should report an other financing source and a transfer, even if the proceeds of the debt are delivered directly to the recipient proprietary fund.

5.46. How should the proceeds of refunding bonds used to redeem debt (i.e., current refunding) be categorized in the statement of revenues, expenditures, and changes in fund balances? A. Expenditure B. Other financing use C. Special item D. A and B

B. Other financing use The proceeds of refunding bonds, whether used for redemption or placed in escrow in connection with an advance refunding resulting in defeasance, should be reported as an other financing use rather than as an expenditure.

5.47. How should the proceeds of bonds used to redeem bond anticipation notes be categorized in the statement of revenues, expenditures, and changes in fund balances? A. Expenditure B. Other financing use C. Special item D. A and B

B. Other financing use The proceeds of refunding bonds, whether used for redemption or placed in escrow in connection with an advance refunding resulting in defeasance, should be reported as an other financing use rather than as an expenditure.

17.5. Which of the following statements is TRUE regarding GASB's views on output and outcome measures? A. There is no practical difference between the two terms B. Output measures focus on quantity C. The GASB contemplates requiring only output measures D. The GASB contemplates requiring only outcome measures

B. Output measures focus on quantity The GASB has identified three categories of SEA measures and believes that all three ideally should be included within the scope of general-purpose external financial reporting: measures of efforts (financial and nonfinancial), measures of accomplishment (output measures focus on quantity & outcome measures emphasize results), and measures that relate efforts to accomplishments. SEA indicators need to be accompanied by appropriate explanatory data.

17.4. According to the GASB, which of the following types of accountability does NOT fall within the scope of general-purpose external financial reporting? A. Probity and legality accountability B. Policy accountability C. Performance accountability D. Program accountability

B. Policy accountability Traditionally, financial reporting for state and local governments has focuses on demonstrating a government's "probity and legality" in handling public funds. The GASB believes that general-purpose external financial reporting should help users to assess a government's "performance accountability" (efficiency and economy) and its "program accountability" (effectiveness). The GASB has formally rejected any role in general-purpose external financial reporting for measures of "policy accountability" (justification of the selection of one among several possible options).

10.28. How should a government classify in the government-wide statement of activities a grant it receives that could be used either for capital or operating purposes in a particular function if the proceeds ultimately are expended to acquire capital assets? A. Program revenues - capital grants and contributions B. Program revenues - operating grants and contributions C. General revenues - grants D. Either A or B

B. Program revenues - operating grants and contributions Grants and contributions that may be used for either capital or operating purposes should be treated as operating grants or contributions.

10.27. How should a government classify a pass-through capital grant ultimately intended for use by some other government in the government-wide statement of activities? A. Program revenues - capital grants and contributions B. Program revenues - operating grants and contributions C. General revenues - grants D. Either A or B

B. Program revenues - operating grants and contributions Pass through grant to finance capital acquisition by a sub-recipient should be treated as operating grants and contributions by the primary recipient.

3.18. The category interfund services provided and used is properly employed in connection with which of the following? A. Allocations of overhead B. Program-related services C. Both A and B D. Neither A nor B

B. Program-related services It is important to distinguish interfund services provided and used from reimbursements. The former category is used from program-related services (e.g., water provided by the water department to the parks department). Allocations of indirect costs (overhead) are properly classified as reimbursements.

13.9. Which of the following statements is TRUE regarding RSI and the independent auditor's report? A. RSI must always be mentioned B. RSI must sometimes be mentioned C. RSI need never be mentioned D. RSI may not be mentioned

B. RSI must sometimes be mentioned RSI need not be mentioned in the independent auditor's report unless it has been inappropriately omitted or the auditor's limited procedures associated with RSI indicate that the presentation might in some way be deficient. All the same, many auditors voluntarily choose to describe their association with RSI in their report.

12.5. Which of the following types of investments would NOT be subject to fair value reporting for entities other than external investment pools? A. Equity securities B. Real estate C. Position in an external investment pool D.Debt securities

B. Real estate For entities other than governmental external investment pools, the following types of investment normally must be reported at fair value: interest-earning investment contracts, positions in mutual funds, debt securities, equity securities (if fair value is readily determinable), option contracts (if fair value is readily determinable), stock warrants (if fair value is readily determinable), stock rights (if fair value is readily determinable).

6.12. Which of the following terms would MOST LIKELY be encountered in connection with a CURRENT REFUNDING? A. Defeasance B. Redemption C. Crossover date D. Contingent liability

B. Redemption In some situations, the proceeds of refunding bonds can be applied immediately to redeem the existing debt that is to be refunded (i.e., current refunding).

10.25. Program revenues ALWAYS include which of the following? A. Dedicated taxes B. Reimbursement grants C. Multipurpose grants D. Earnings on investment

B. Reimbursement grants Reimbursement grants always qualify as program revenue. Multipurpose grants do so only if the amount attributable for each program is identified in either the grant award or the grant application. All taxes, even those that are levied for a specific purpose, are general revenues. Investment income normally does not qualify as program revenue because it is not considered to be general by the function associated with the underlying investments.

4.10. If a new component unit only qualifies for inclusion at the end of the tenth month of the reporting entity's fiscal year, what is the appropriate treatment of the new component unit in the reporting entity's year-end financial statements? A. Report only two months of operations B. Report a full twelve months of operations C. A or B (with appropriated disclosure) D. Note disclosures only until the completion of one full component unit fiscal year

B. Report a full twelve months of operations When an entity that qualified as a component unit one year no longer qualifies the next, the following year's financial statements should report beginning net assets as though the component unit had never been included within the financial reporting entity. Conversely, when a legally separate entity that did not qualify as a component unit one year does so the next, the following year's financial statements should report beginning net assets as though the component unit had always been included within the financial reporting entity. In short, 1) the exclusion or inclusion of a component unit is based entirely upon its status in relation to the primary government as of the financial reporting date; and 2) if a component unit is included, it must report operations for the entire period.

19.17. Which of the following auditor's reports typically would NOT contain an opinion? A. Report on the fair presentation of the financial statements B. Report on internal controls and compliance over financial reporting C. Report on compliance and internal controls over compliance applicable to each major federal award program D. None of the above

B. Report on internal controls and compliance over financial reporting In a GAGAS audit, auditors are required to report on internal control tested as part of the financial statement audit. This report does not offer the auditor's opinion on the overall design and operation of the government's internal control framework. In a GAGAS audit, auditors are also obliged to report on compliance with applicable laws and regulations. One again, this report does not offer an opinion on whether the government complied with applicable laws and regulations.

13.20. Which of the following is NOT required as part of the financial trend schedules reported in the statistical section of the CAFR? A. Net assets by category B. Reserved fund balance by fund type C. Unreserved fund balance by fund type D. Debt service expenditures as ratio/percentage of total noncapital expenditures

B. Reserved fund balance by fund type No requirement to present components of reserved fund balance. Present unreserved fund balance by fund type.

10.17. How should resources generated by enabling legislation NORMALLY be reflected in net assets? A. Net assets invested in capital assets net of related debt B. Restricted net assets C. Unrestricted net assets D. A or C

B. Restricted net assets Unless there is cause for reconsideration (e.g., the subsequent diversion of resources to some other purpose), it may reasonably be presumed that enabling legislation is tantamount to an implicit contract with taxpayers, thereby justifying the reporting of such amounts as restricted net assets.

12.22. What normally is the appropriate manner for calculating a capital asset impairment associated with obsolescence? A. Restoration cost approach B. Service units approach C. Deflated depreciated replacement cost approach D. B or C

B. Service units approach The amount of an impairment loss should be calculated using one of three methods: restoration cost approach (physical damage), service units approach (changes in legal or environmental factors, technological changes or obsolescence ,changes in manner or duration of use), and deflated depreciated replacement cost approach (change in manner or duration of use).

10.3. Which of the following is the appropriate title for the government-wide statement of position? A. Balance Sheet B. Statement of net assets C. Statement of financial position D. A or B, depending upon the formatting approach taken

B. Statement of net assets Regardless of format, the government-wide statement of position is referred to as the statement of net assets (rather than balance sheet).

3.9. Which of the following criteria applies to special items but NOT to extraordinary items? A. Unusual in nature B. Subject to management control C. Infrequent in occurrence D. None of the above

B. Subject to management control Special items are significant items that meet one, but not both of the criteria used for identifying extraordinary items. It is important to emphasize that special items, unlike extraordinary items, must also be subject to management control.

10.50. Which of the following statements is TRUE regarding major fund reporting for proprietary funds? A. Major fund reporting is applicable to both enterprise funds and internal service funds. B. The 10 percent and 5 percent criteria should be applied to both operating and nonoperating revenues and expenses. C. The 10 percent and 5 percent criteria should be applied to both special items and extraordinary items. D. All of the above

B. The 10 percent and 5 percent criteria should be applied to both operating and nonoperating revenues and expenses. The 10 percent and 5 percent criteria should be applied to all operating statement revenues and expenses (both operating and nonoperating). GAAP indicate that internal service funds are never to be reported as major funds. The criteria should be applied to special items but not extraordinary items.

13.5. Which of the following BEST describes who should sign the letter of transmittal? A. Both the chief financial officer (CFO) and the chief executive office (CEO) must sign B. The CFO must sign, but the CEO ideally should sign as well C. The CEO must sign, but the CFO ideally should sign as well D. Only the CFO should sign

B. The CFO must sign, but the CEO ideally should sign as well Ideally the letter of transmittal should be a join communication of the CFO and either the CEO or COO. If it is not possible, the CFO should issue separate letters. If neither is feasible, then the letter should, at a minimum, be signed by the CFO.

6.16. Which of the following statements is FALSE concerning the proper accounting and financial reporting for landfill closure and postclosure care costs? A. Closure and postclosure care costs, by definition, include only charges incurred near or after the close of a landfill B. The annual estimate of total closure and postclosure care costs should be based upon their anticipated net present value C. The calculation of expense for each period should be based upon the allocation of total estimated cost D. The allocation of landfill closure and postclosure care costs should be based upon landfill usage rather than the passage of time

B. The annual estimate of total closure and postclosure care costs should be based upon their anticipated net present value. The first step in meeting this requirement is to estimate the total cost of landfill closure and postclosure care based on current costs.

13.14. Which of the following is NOT a requirement to use the modified approach for infrastructure reporting? A. The government must make an annual estimate of the amount needed to maintain and preserve infrastructure assets at a condition level established and disclosed by the government B. The government must expend the amount estimated to be needed to maintain and preserve infrastructure assets at or above the condition level established and disclosed by the government C. The government must document that infrastructure assets are being preserved at or above the condition level established and disclosed by the government D. A and C

B. The government must expend the amount estimated to be needed to maintain and preserve infrastructure assets at or above the condition level established and disclosed by the government Each year the government must estimate the amount needed to maintain and preserve infrastructure assets at a condition level established and disclosed by the government. The government must document that infrastructure assets are being preserved at or above the condition level established and disclosed by the government.

11.26. Which of the following statements is TRUE concerning the required reconciliation that must be presented for the claims and judgments liability? A. The reconciliation is required for the most recent period B. The reconciliation is required for the two most recent periods C. The reconciliation is required for the three most recent periods D. The reconciliation is only required if there has been a change in methodology

B. The reconciliation is required for the two most recent periods A tabular reconciliation of the claims liability is required for both the current fiscal year and the prior fiscal year.

15.12. Which of the following statements is true concerning the inclusion of foundations as component units of school districts? A. The significance of foundations should be assessed in the aggregate B. The significance of foundations should be assessed individually C. Both A and B D. Foundations are specifically excluded from the financial reporting entity

B. The significance of foundations should be assessed individually Some have argued that numerous small foundations should be classified as component units on the grounds that their aggregate effect is significant to the district. GAAP, however, expressly direct that the assessment of significance focus on each individual organization rather than on organizations in the aggregate.

2.13. Which of the following uses of a capital projects fund would NOT be appropriate? A. To account for a major capital acquisition financed through borrowing B. To accumulate resources for future capital improvements C. To account for a major capital acquisition financed through contributions D. None of the above

B. To accumulate resources for future capital improvements The focus of capital projects fund is on construction and acquisition; they should not be used as a sort of "reserve account" to accumulate resources for future capital improvements.

3.20. When is the use of the term transfer NOT appropriate? A. To describe activity between funds of the primary government and blended component units B. To describe activity between the primary government and discretely presented component units C. Both A and B D. Neither A nor B

B. To describe activity between the primary government and discretely presented component units In connection with financial reporting, the term transfer should be used exclusively in connection with interfund activities, that is, activities between funds of the primary government (including blended component untis). Transactions between the primary government and parties outside the financial reporting entity, as well as transactions between the primary government and its discretely presented component units, should be reported as revenues and expenses/expenditures rather than as transfers.

19.4. Which of the following is a key goal of the independent auditor of the financial statements? A. To ensure the accuracy of the data presented in the financial statements B. To provide reasonable assurance concerning the reliability of the financial statements C. To serve as guarantor for the information presented in the financial statements D. To meet the duty of due diligence imposed by law

B. To provide reasonable assurance concerning the reliability of the financial statements The goal of the auditor is to obtain reasonable - not absolute - assurance that the financial statements are fairly presented.

19.14. How many reports does the independent auditor typically issue in connection with a financial audit performed in conformity with GAGAS (other than Single Audits)? A. One B. Two C. Three D. Four

B. Two The auditor prepares one report in an ordinary financial statement audit conducted in accordance with GAAS, two reports in a GAGAS engagement, and three reports in a single audit engagements.

10.40. At a minimum, how should fund balance for nonmajor governmental funds be reported in the governmental fund balance sheet? A. Reserved fund balance by fund type B. Unreserved fund balance by fund type C. Total fund balance by fund type D. A and B

B. Unreserved fund balance by fund type GAAP require that the column used to report nonmajor governmental funds report unreserved fund balance by fund type, rather than just in the aggregate.

2.5. The operating statement of the proprietary fund should answer which of the following questions? A. What transactions and events during the period have increased or decreased the resources available for spending in the near future? B. What transactions and events during the period have increased or decreased the fund's total economic resources? C. Have current financial resources increased or decreased during the period? D. Have cash balances increased or decreased?

B. What transactions and events during the period have increased or decreased the fund's total economic resources? A proprietary fund's operating statement will include all transactions and events that increase or decrease net assets. Conversely, the operating statement would not report: issuance of debt, debt service principal payments, or capital outlay.

11.18. At what point must significant contingent liabilities first be disclosed? A. When they are remotely possible (i.e., conservatism convention) B. When they are considered to be reasonably possible C. When they are considered to be probable D. When they are realized (i.e., actually occur)

B. When they are considered to be reasonably possible GAAP require that the notes to the financial statements disclose any situations where there is at least a reasonable possibility that assets have been impaired or that a liability has be incurred (pending litigation, for instance).

10.41. Where should the reconciliations between the governmental fund financial statements and the governmental activities columns of the government-wide financial statements be located? A. With the government-wide financial statements' B. With the governmental fund financial statements C. Either A or B D. Both A and B

B. With the governmental fund financial statements These reconciliations may be presented on the face of the governmental fund financial statements or as an accompanying schedule.

2.2. In which of the following circumstances is the use of an agency fund appropriate? A. When assets are held for other funds of the reporting government B. When assets are held for other governments in an investment pool C. When assets are held for third parties other than the reporting government D. When assets are held for Internal Revenue Code Section 457 deferred compensation plans

C is correct because agency funds are purely custodial. A is incorrect because GAAP expressly limit the use of fiduciary funds, including agency fund, to assets held in a trustee or agency capacity for others and cannot be used to support the government's own programs. B is incorrect because GAAP require that a government report any external investment pool that it sponsors as an investment trust fund. D is incorrect because in those limited instances where a sponsor of an IRC Section 457 deferred compensation plan, it should be accounted for in a pension trust fund.

15.1. Assume that a state collects $150,000 in escheat property of which the eventual return of $25,000 to property owners is considered probable. If a state accounts for escheat resources in a PRIVATE-PURPOSE TRUST FUND, what amount would be reported as a liability to property owners? A. $150,000 B. $25,000 C. $0 D. A or B

C. $0 Usually, only a portion of such assets is retained to pay claims by property owners. Some states prefer to account for escheat resources in a separate fund, in which case a private-purpose trust fund should be used. Only that portion of escheat resources whose eventual payment to claimants is considered to be probable may be reported in the fund. Escheat resources not expected eventually to be paid to claimants should be reported directly as revenue of the general fund. No liability to eventual claimants should be reported in the fund.

15.3. Assume that a state collects $150,000 in escheat property of which the eventual return of $25,000 to property owners is considered probable. If a state accounts for escheat resources in a PRIVATE-PURPOSE TRUST FUND, what is the maximum amount of assets that can be reported in that fund? A. $150,000 B. $125,000 C. $25,000 D. A or B

C. $25,000 Usually, only a portion of such assets is retained to pay claims by property owners. Some states prefer to account for escheat resources in a separate fund, in which case a private-purpose trust fund should be used. Only that portion of escheat resources whose eventual payment to claimants is considered to be probable may be reported in the fund. Escheat resources not expected eventually to be paid to claimants should be reported directly as revenue of the general fund. No liability to eventual claimants should be reported in the fund.

7.12. Which of the following is considered to be evidence of an ongoing financial interest or responsibility for purposes of identifying a joint venture? A. Ability to cause the joint venture to undertake desired projects B. Continued existence of the activity depends upon the government's continuing participation C. A and B D. Neither A nor B

C. A and B An ongoing financial interest can be either direct (a right to the joint venture's surpluses) or indirect (the ability to cause the joint venture to undertake desired projects). Ongoing financial responsibility can take the form of being obligated in some manner for the joint venture's debt. Financial responsibility also arises when a joint venture's continued existence depends upon a government's continuing participation.

3.7. What amount(s) should be reported in the other financing sources category in connection with the issuance of debt in a governmental fund? A. Face value of the debt B. Premium C. A and B D. None of the above

C. A and B GAAP call for the issuance of debt to be reported separately as an other financing source. The amount to be reported should equal the face value of the debt. If the debt is issued at a premium, the premium should be reported as a separate other financing source in its own right.

8.10. Which of the following does NOT need to be removed in the process of consolidation? A. Administrative overhead component of a charge for a given centralized service B. Indirect costs of the general government charged to enterprise funds C. A and B D. Neither A nor B

C. A and B If a government has centralized a given service and the charges made to the various benefiting functions include an administrative overhead component, that component need not be eliminated as part of the process of consolidation. Governments are not required to remove indirect costs of the general government charged to enterprise funds, although they are free to do so.

5.11. When should payments in lieu of taxes be recognized as revenue? A. As service is provided, if available B. As soon as there is an enforceable legal claim, if available C. A or B D. Neither A nor B

C. A or B An entity not subject to taxation may make payments in lieu of taxes to compensate a government for services it receives. It is important to distinguish payments in lieu of taxes that are reasonably equivalent to the value of the service provided from that that are levied on a more or less arbitrary basis. In the former case, revenue would be recognized as the related service is provided, subject of the availability criterion. In the latter case, revenue would be recognized based upon the establishment of an enforceable legal claim and the availability of the amounts in questions.

9.12. Where should RSI be located? A. Preceding the basic financial statements B. Following the notes to the financial statements C. A or B D. In the statistical section

C. A or B Because MD&A are designed, in part, to introduce the basic financial statements, they are presented before the basic financial statements. Other RSI is presented immediately following the notes to the financial statements.

11.11. To what items should the notion of custodial credit risk be applied in the case of securities lending arrangements? A. Collateral B. Underlying securities C. A or B D. None of the above

C. A or B In the case of securities lending arrangements, the notion of custodial credit risk applies either to the collateral (when reported as an asset) or to the underlying securities (when collateral is not reported as an asset).

5.7. Which of the following statements is true regarding research grants? A. Research grants are an exchange or exchange-like transaction B. Research grants are voluntary nonexchange transactions C. A or B D. Neither A nor B

C. A or B Some research "grants" actually represent the exchange of equal or almost equal value and should therefore be treated as exchange or exchange-like transactions. Conversely, research grants that do not involve the exchange of equal or almost equal value should be treated as voluntary nonexchange transactions. If a single research grant has elements of both an exchange and nonexchange transactions, those elements should be treated separately.

6.20. How should payments in lieu of taxes be classified? A. Expense B. Transfer C. A or B D. Neither A nor B

C. A or B When the amount of payments in lieu of taxes is reasonably equivalent in value to the services provided, the payment should be classified as interfund services used and reported as an expense. Otherwise, payments in lieu of taxes should be classified as transfers.

10.52. Which of the following statements BEST describes the classification of investments income in the proprietary fund statement of revenues, expenses, and changes in net assets/equity? A. Classify as nonoperating revenue B. Classify as operating revenue C. A or B, but normally A D. A or B, but normally B

C. A or B, but normally A Investment income should only be classified as operating revenue if an entity's primary activity is investing.

8.8. How should internal service funds be incorporated into the government-wide financial statements? A. As part of governmental activities B. As part of business-type activities C. A or B, but normally A D. A or B, but normally B

C. A or B, but normally A It should be presumed that internal service funds will be consolidated as part of governmental activities. However, if an internal service fund provides services exclusively to enterprise funds, it should be consolidated as part of business-type activities.

3.11. The term transaction CANNOT properly be used to describe which of the following? A. Activity between the primary government and a discretely presented component unit B. Activity between discretely presented component units C. Activity between blended component units D. All of the above

C. Activity between blended component units The term "transaction" describes actions involving either outside parties or a government's discretely presented component units. "Interfund activity" describes transaction-like activities between a government's various funds and blended component units.

10.64. How should changes be classified in the statement of changes in fiduciary net assets? A. Revenues/expenses B. Revenues/expenditures C. Additions/deductions D. Increases/decreases

C. Additions/deductions The statement of changes in fiduciary net assets is unique in that all changes in net assets are classified as either additions or deductions.

7.5. How should the reassignment of asset balances between pension plans be reported? A. Transfers in/transfers out B. Revenues/expenses C. Additions/deductions D. Direct equity adjustment

C. Additions/deductions When account asset balances are reassigned between pension plans to reflect changes in employment, these reassignments should be reported as additions and deductions for each of the plans involved rather than as transfers among plans.

19.16. What type of opinion would an independent auditor most likely render if a government were to fail to present fund financial statements for a general-purpose government? A. Unqualified opinion B. Qualified opinion C. Adverse opinion D. Disclaimer of opinion

C. Adverse opinion Governments failure to accompany the government-wide financial statements with required fund financial statements would result in an adverse opinion.

10.19. Which of the following statements BEST describes the amount that must always be reported as basic functional expense in the government-wide statement of activities? A. Direct and indirect costs B. At least direct costs C. All and only direct costs D. Full cost

C. All and only direct costs Each function included in governmental activities should report all its direct costs and only its direct costs.

6.10. Which of the following statements is FALSE concerning proprietary fund debt? A. General obligation debt, by its very nature, is never properly reported as proprietary fund debt B. A proprietary fund should not report debt for which that general government is contingently liable C. All debt related to a proprietary fund should be reported in that fund, even if repayment will be made from some other source D. All of the above

C. All debt related to a proprietary fund should be reported in that fund, even if repayment will be made from some other source Debt should be reported in a proprietary fund if both of the following criteria are met: the debt is directly related to the proprietary fund and the debt is expected to be paid from the proprietary fund.

13.24. Net general obligation debt is calculated by subtracting which of the following from total general obligation debt? A. Amounts accumulated for debt service principal payments B. Amounts accumulated for debt service principal and interest payments C. Amounts externally restricted for debt service principal payments D. Amounts externally restricted for debt service principal and interest payments

C. Amounts externally restricted for debt service principal payments If resources have been externally restricted for the repayment of the principal of that debt, show those amounts as a deduction to arrive at net general bonded debt.

3.8. Which of the following normally would be reflected as part of reserved fund balance? A. Amounts designated by management for contingencies B. Resources set aside for equipment replacement C. An amount equal to the balance of long-term loans receivable D. All of the above

C. An amount equal to the balance of long-term loans receivable A long-term loan receivable, such as an advance to another fund, is not available for current spending. Consequently, fund balance needs to be reserved to reflect that fact. Answers A and B are incorrect because designations, rather than reserves, are used to represent management's intended future use of resources (e.g.contingencies, equipment replacement).

5.6. Which of the following best describes how revenue should be recognized in governmental funds in connection with special assessments? A. As soon as the project is completed B. When due, regardless of availability following completion of the project C. As soon as they become available following completion of the project D. Special assessment payments are treated as a reduction of the related receivable rather than as revenue

C. As soon as they become available following completion of the project Upon completion of the project, related special assessments qualify as revenue in a governmental fund to the extent they are considered to be "available."

11.24. Which of the following statements is FALSE regarding required disclosures for capital assets? A. Nondepreciating capital assets should be reported separately from depreciating capital assets B. The amount of depreciation expense charge in the current period to each function within governmental activities should be disclosed. C. At a minimum, accumulated depreciation must be reported in total, although reported by asset class is preferred. D. Information on changes in capital assets by major asset class must be presented.

C. At a minimum, accumulated depreciation must be reported in total, although reported by asset class is preferred. Accumulated depreciation must be reported separately for each major class of depreciable capital assets (rather than just in total).

2.14. Which of the following does NOT distinguish trust funds from agency funds? A. Degree of management involvement B. Length of time resources are held C. Availability of resources to support government programs D. None of the above

C. Availability of resources to support government programs Fiduciary funds (i.e. trust and agency) should be used to report assets held in a trustee or agency capacity for others and that therefore cannot be used to support the government's own programs. The key distinction between trust funds and agency funds is that the former normally are subject to a trust agreement that affects the degree of management involvement and the length of time that the resources are held.

9.9. What term is used to describe the minimum information that must be included within a financial report for an independent auditor to assert that the government has complied with GAAP? A. General-purpose financial statements B. Condensed financial statements C. Basic financial statements D. Consolidated financial statements

C. Basic financial statements The basic financial statements represent the minimum information that must be included within a financial report of a state or local government for an independent auditor to issue a "clean" audit opinion, assuring report users that the government has complied with GAAP.

8.1. Which of the following must occur as part of the process of preparing government-wide financial statements? A. Indirect cost allocations must be reversed B. Direct costs included as part of general government must be allocated to the appropriate function C. Both A and B D. Neither A nor B

C. Both A and B Allocations of indirect costs must be reversed as part of the process of preparing the government-wide statement of activities so the only direct costs are reported in each of the governmental functions. All direct costs must be assigned to the appropriate functional expense category of governmental activities for purposes of government-wide financial reporting, regardless of how those costs are treated in the fund financial statements.

9.6. Which of the following is concerned with existing resources? A. Financial position B. Economic condition C. Both A and B D. Neither A nor B

C. Both A and B Financial position in concerned with a government's existing resources and claims to those resources. Economic condition involves both existing and future resources.

11.29. When do GAAP specifically require disclosure of whether maturities of investments made with the proceeds of debt generally match the terms of the debt? A. Reverse repurchase agreements B. Securities lending transactions C. Both A and B D. Neither A nor B

C. Both A and B For both reverse repurchase agreements and securities lending agreements an indication is required whether the maturities of the investments made with the agreements' proceeds generally are matched to the agreements' maturities, as well as the extent of such matching at the end of the fiscal period.

6.2. Which of the following statements is TRUE regarding the use of enterprise fund? A. Sometimes the use of an enterprise fund is required by GAAP B. GAAP always permit the voluntary use of enterprise funds C. Both A and B D. Neither A nor B

C. Both A and B GAAP mandate the use of an enterprise fund when legal requirements or management policy require that the full cost of providing services (including capital costs) be recovered through fees and charges. GAAP also permit the use of an enterprise fund to report any activity for which a fee is charged to external users for goods or services, regardless of whether it is the government's intent to fully recover the cost of the goods or services provided.

6.1. In which of the following situations could the use of an internal service fund be appropriate? A. An activity that serves both the government and outside parties B. A public-entity risk pool C. Both A and B D. Neither A nor B

C. Both A and B Internal service funds primarily provide benefits to other funds, departments, or agencies of the primary government and its component units, or to other governments. If the government itself is the predominant participant in the activity, then the activity should be classified as an internal service fun. Normally, public-entity risk pools are accounted for in an enterprise fund. If the government itself is the predominant participant, the pool should be accounted for in an internal service fund.

4.8. How should the relationship between a component unit and its primary government be disclosed in the component unit's separately issued report? A. On the cover of the report B. In the notes to the financial statements C. Both A and B D. Disclosure of the relationship is not required

C. Both A and B The relationship between the component unit issuing the separate report and its own primary government needs to be disclosed on the cover of the financial report as well as in the notes to the financial statements.

10.10. In which of the following situations would it always or sometimes be necessary to report the current and noncurrent portions of liabilities separately? A. Relative order of liquidity approach B. Classified approach C. Both A and B D. Neither A nor B

C. Both A and B Under the relative order of liquidity approach, if a reported liability account has an average maturity of greater than one year, GAAP require that the current and non current portions be reported separately within that reported liability account. Under the classified approach, all assets and liabilities typically are categorized as either current or noncurrent.

16.4. Which of the following types of information will be furnished automatically by an integrated budget? A. Unrealized revenue B. Uncommitted appropriations C. Both A and B D. Either A or B

C. Both A and B When an accounting system has been designed to automatically provide timely information concerning the uncommitted balance of appropriations and unrealized revenues, it is said to have integrated the budget.

16.10. In which of the following situations is a reconciliation between GAAP and the basis of budgeting NOT required? A. Budgetary comparisons presented as basic financial statements B. Budgetary comparisons presented as RSI C. Budgetary comparisons presented within the CAFR outside of the basic financial statements and RSI D. None of the above

C. Budgetary comparisons presented within the CAFR outside of the basic financial statements and RSI Often there are significant differences between GAAP and the budgetary basis of accounting. In the case of budgetary comparisons presented in connection with the basic financial statements, a reconciliation between the two bases of accounting is required. There is no similar requirement for budgetary comparisons presented elsewhere within the CAFR. However, whenever the budgetary basis of accounting differs from GAAP, this fact should be clearly indicated on the title of the individual fund budgetary comparisons.

10.44. Which of the following is NOT a character classification? A. Current B. Debt service C. Capital contributions D. Intergovernmental

C. Capital contributions Capital contributions is not a character classification for expenditures. The four character classifications are: current, debt service, capital outlay, and intergovernmental.

10.60. Which of the following would NOT be reported in the investing activities category of the proprietary fund statement of cash flows? A. Interest receipts B. Loans made to others C. Capital outlay D. None of the above

C. Capital outlay Capital outlays are classified as part of cash flows from capital and related financing activities. This treatment differs substantially from that prescribed under FASB statement No. 95, where capital outlays are classified as cash flows from investing activities.

12.15. Which of the following items does NOT necessarily qualify for inclusion as part of the historical cost of a capital asset? A. Ancillary charges necessary to place the asset in its intended location B. Ancillary charges necessary to place the asset in its intended condition for use C. Capitalized interest D. None of the above

C. Capitalized interest The historical cost of a capital asset should include all of the following: ancillary charges necessary to place the asset in its intended location, ancillary charges necessary to place the asset in its intended condition for use, and capitalized interest (only for enterprise funds and internal service funds that are reported as part of business-type activities).

11.10. To what extent are a government's deposits considered to be collateralized if a single-institution collateral pool is used to secure those deposits? A. Full collateralized B. Uncollateralized C. Collateralized to the extent of the government's pro rata share of the pool's assets D. Contingently collateralized

C. Collateralized to the extend of the government's pro rata share of the pool's assets A government depositor should consider its uninsured deposits to be collateralized only to the extent of its pro rata claim to a single-institution collateral pool's assets.

4.7. Which of the following does NOT meet the minimum requirements of generally accepted accounting principles for presenting data on major individual discretely presented component units? A. Separate columns in the financial statements B. Condensed financial statements in the notes to the financial statements C. Combining statements included within a subsection of the comprehensive annual financial report D. Combining statements included within the basic financial statements

C. Combining statements included within a subsection of the comprehensive annual financial report GAAP require that information on each major discretely presented component unit be presented separately within the basic financial statements

6.8. Which of the following statements concerning the capitalization of interest is FALSE? A. Interest capitalization may be required even if there is no borrowing directly associated with a given construction project B. The capitalization of interest should be suspended if construction is voluntarily suspended C. Construction financed with tax-exempt debt automatically falls within the scope of FASB Statement No. 62 D. More than one approach may need to be taken to the capitalization of interest on a single project

C. Construction financed with tax-exempt debt automatically falls within the scope of FASB Statement No. 62 The applicability of FASB Statement No. 2 is limited to tax-exempt borrowings that are externally restricted to finance acquisition of specified qualifying assets or to service the related debt. FASB Statement No. 62 governs the capitalization of interest for the portion of the project being financed with the proceeds of new tax-exempt debt (presuming that the proceeds are externally restricted to the acquisition of specified qualifying assets).

6.17. Which of the following should NOT be included as part of estimated landfill closure and postclosure care costs? A. Cost of final cover B. Cost of postclosure maintenance C. Cost of capital assets acquired throughout the life of the landfill for the purpose of facilitating postclosure monitoring D. None of the above

C. Cost of capital assets acquired throughout the life of the landfill for the purpose of facilitating postclosure monitoring The cost of equipment and facilities that will be acquired near the time the landfill stops accepting waste or after for the purpose of postclosure care and monitoring.

15.17. To what is the unfunded actuarial liability compared in the schedule of funding progress for pension plans? A. Operating expenses B. Annual contributions C. Covered payroll D. Investment income

C. Covered payroll Ratio of the total unfunded actuarial liability to annual covered payroll.

12.27. In which of the following situations would the use of early recognition option for debt service expenditure recognition NOT be appropriate? A. Debt is due 30 days subsequent to fiscal year end B. The transfer of resources to the fund making the payment is nondiscretionary C. Debt service is made from a special revenue fund D. None of the above

C. Debt service is made from a special revenue fund The early cognition approach is only applies to: situations where debt service payments are made from a debt service fund, the non-discretionary transfer of dedicated resources to a debt service fund; and payments due within one month.

6.13. What is the appropriate accounting treatment in the public sector for the difference between the carrying amount of refunded debt and its acquisition price? A. Gain or loss B. Extraordinary gain or loss C. Deferred charge/amoritization D. Prior period adjustment

C. Deferred charge/amoritization Proprietary funds defer and amortize this amount over the shorter of 1) the life of the old debt or 2) the life of the new debt. In the meantime, the unamortized difference between the carrying amount of redeemed or defeased debt and its reacquisition price should be reported as a direct reduction of (or addition to) the amount of refunding debt reported on the statement of position, much like a bond premium or discount. This unamortized balance should "follow the debt" for purposes of calculating the various components of net assets.

11.17. Specialized derivatives disclosures are required for which of the following? A. Derivatives reported at fair value B. Derivatives embedded in non-derivative-type contracts C. Derivatives embedded in derivative-type contracts D. All of the above

C. Derivatives embedded in derivative-type contracts Specialized disclosure requirements for derivatives do not apply to derivatives already reported on the face of the statement of position at fair value. They also generally do not apply to derivatives that are embedded in a contract that is not itself a derivative. Options embedded in a derivative contract, however, must be disclosed.

2.9. Which of the following is the appropriate measurement focus and basis of accounting for trust funds? A. Current financial resources measurement focus/modified accrual basis of accounting B. Economic resources measurement focus/modified accrual basis of accounting C. Economic resources measurement focus/accrual basis of accounting D. Current financial resources measurement focus/accrual basis of accounting

C. Economic resources measurement focus/accrual basis of accounting All trust funds employ the same economic resources measurement focus and accrual basis of accounting as do proprietary funds.

5.44. What amount should be reported as an expenditure in a governmental fund in connection with trade-ins involving capital assets? A. Cash paid (i.e., "boot") B. Cash paid plus an additional amount representing the trade-in value C. Either A or B D. Neither A nor B

C. Either A or B Any cash paid must be reported as an expenditure. An additional expenditure or other financing source may be reported to reflect the de facto sale of the existing capital asset and the application of what would have been the sale proceeds to the acquisition of a new capital asset.

5.24. Which of the following best describes the appropriate treatment in governmental funds for discounts arising in connection with the issuance of long-term debt? A. Discounts should be reported as an other financing use B. Discounts should be reported as an expenditure C. Either A or B D. Discounts do not involve outflows of current financial resources and so should not be reported in governmental funds

C. Either A or B Discounts resulting from the withholding of underwriter's fees should be reported as expenditures. Discounts resulting from a disparity in interest rates should be treated as an other financing use.

7.17. How should a government that participates in a public-entity risk pool treat the premiums it pays to the pool? A. In the same manner as premiums paid to a private insurance enterprise B. As a deposit, net of any related liability for estimated claims payable C. Either A or B D. Neither A nor B

C. Either A or B If a pool transfers or pools the risk of participating governments, required premiums to the pool should be treated in the same way as an insurances premium paid to a private insurance enterprise. If a pool does not transfer or pool the risk of participating governments, payments to the pool amount essentially to deposits that should be reported as an asset, net of any related liability for estimated claims payble.

15.13. How should the discretely presented component unit of a stand-alone multi-fund business-type activity be reported? A. To the right of the total column in a combining-style presentation B. In a separate, government-wide presentation C. Either A or B D. Note disclosure only

C. Either A or B One option is to report discretely presented component units to the right of the total column of a combining-style presentation. Another option is to create additional statements that combined the total column from combining-style presentations with one or more columns for the discretely presented component units.

10.48. How should a government describe the proprietary fund statement of position? A. Balance sheet B. Statement of net assets C. Either A or B, depending upon the formatting approach selected D. Either A or B, regardless of the formatting approach selected

C. Either A or B, depending upon the formatting approach selected In the case of the government-wide financial statements, the statement title (statements of net assets) should be the same, regardless of the formatting option selected. In the case of proprietary funds, however, the basic statement of position may be described as a balance sheet if the balance sheet format is used.

5.37. In which of the following circumstances would a receivable NOT be recognized in a governmental fund? A. Undelivered bond proceeds following the closing date but prior to the settlement date B. Amounts refundable from grant recipients based on an estimate of probable noncompliance C. Endowments not yet received D. A deficit guaranteed by another fund

C. Endowments not yet received No receivable should be reported for endowments.

15.26. What is the appropriate fund type for the separately issued report of a public-entity risk pool? A. General fund B. Special revenue fund C. Enterprise fund D. Investment trust fund

C. Enterprise fund The enterprise fund type should be used to report the activities of public-entity risk pools, including those that involve the transfer or pooling of risk.

5.26. What journal entry should be made in a governmental fund at the inception of a capital lease if the present value of minimum lease payments is $96? A. Capital assets $96 Leases payable $96 B. Expenditures $96 Revenues $96 C. Expenditures $96 Other financing sources $96 D. No journal entry required (no flow of current financial resources)

C. Expenditures $96 Other financing sources $96 GAAP require that a governmental fund report at the inception of a capital lease both an other financing source and an expenditure equal to the net present value of the minimum lease payments.

12.14. If a capital asset is first donated to a discreetly presented component unit, then later to an enterprise fund of the primary government, and finally to the general government, how should it be ultimately valued? A. Fair value as of the date of donation to the component unit B. Fair value as of the date of donation to the enterprise fund C. Fair value as of the date of donation to the general government D. Historical cost of the original donor

C. Fair value as of the date of donation to the general government Capital assets should be reported at their historical cost. Assets donated by discretely presented component units or by parties outside the financial reporting entity should be reported at their fair value on the date the donation is made. When capital assets are moved from one fund or activity to another, the recipient fund or activity should continue to report those assets at their historical cost as of the date they were acquired by the primary government.

14.4. Which of the following types of entities is NOT eligible to participate in the Certificate Program? A. Public college B. State government C. Federal agency D. Public employee retirement system

C. Federal agency The report submitted to the program must be the published CAFR of a state or local governmental entity, which includes special-purpose entities such as public employee retirement systems, public colleges and universities, government investment pools, and stand-alone business-type activities.

19.23. What is the recommended length of an audit contract? A. One year B. Two years C. Five years D. Ten years

C. Five years GFOA recommends that governmental entities enter into multi-year agreements of at least five years in duration when obtaining the services of independent auditors.

10.39. Which of the following statements is FALSE concerning major fund reporting for governmental funds? A. The general fund (or its equivalent is automatically considered to be a major fund. B. Governments are free to classify any individual governmental fund as a major fund. C. For purposes of applying the 10 percent test, an individual governmental fund's totals should be compared to similar totals for all governmental funds plus all enterprise funds. D. The 5 percent test need be applied only to specific items that met the 10 percent test.

C. For purposes of applying the 10 percent test, an individual governmental fund's totals for all governmental funds plus all enterprise funds. The 10 percent test applies only to the total for all governmental funds. It is the 5 percent test that applies to the total for both governmental funds and enterprise funds.

9.4. If a single presentation cannot demonstrate compliance with both finance-related legal and contractual provisions and GAAP, how should the situation be handled? A. GAAP should take priority over demonstrating compliance B. Demonstrating compliance should take priority over GAAP C. GAAP financial reporting should be supplemented to demonstrate legal compliance as well D. Legal compliance should take precedence, with appropriate note disclosure of the necessary departure from GAAP

C. GAAP financial reporting should be supplemented to demonstrate legal compliance as well If GAAP financial reporting is not sufficient to demonstrate legal compliance, then additional schedules should be provided as needed. In no case, however, do legal requirements justify supplementing GAAP information with information presented on some other basis.

19.3. Which of the following statements BEST describes the relationship that exists between GAGAS and GAAS? A. GAGAS replace GAAS in the public sector B. GAAS govern financial audits while GAGAS govern performance audits C. GAGAS incorporate and supplement certain GAAS standards D. GAGAS are limited to Single Audits

C. GAGAS incorporate and supplement certain GAAS standards GAGAS incorporate all of the GAAS standards of fieldwork AND reporting (unless specifically excluded) and supplement those standards with additional GAGAS standard of field work.

17.3. In which pronouncement did the GASB commit itself in theory to expanding general-purpose external financial reporting to encompass service efforts and accomplishments (SEA) reporting? A. GASB Statement No. 34 B. GASB Interpretation No. 6 C. GASB Concepts Statement No. 2 D. None of the above

C. GASB Concepts Statement No. 2 In 1994, the GASB issued Concepts Statement No. 2, Service Effots and Accomplishments Reporting, which formally committed the board in theory to expanding the scope of financial reporting to encompass SEA.

1.4. Which of the following has the LOWEST authoritative status on the GAAP hierarchy? A. Widely recognized and prevalent practices B. NCGA Interpretations C. GASB concepts statements d. The AICPA's audit and accounting guide State and Local Governments

C. GASB Concepts Statements GASB concepts statements are considered to be more authoritative than any other source of guidance as they are included in "Other Sources" instead of an actual level of hierarchy.

15.22. Which of the following is NOT an appropriate treatment for assets held for the payment of future OPEB? A. Pension (and other employee benefit) trust fund B. Agency fund C. General fund (designated fund balance) D. None of the above

C. General fund (designated fund balance) Assets held in trust or equivalent arrangements are to be accounted for in a pension (and other employee benefit) trust fund. Assets of multiple-employer plans not held in trust or equivalent arrangements are to be accounted for in an agency fund (any excess of plan assets over related liabilities in the aggregate to be reported as a liability to employers).

10.30. What is the proper classification of tax-increment revenues in the government-wide statement of activities? A. Program revenues - capital grants and contributions B. Program revenues - operating grants and contributions C. General revenues - grants D. Either A or B

C. General revenues - grants Tax revenues associated with tax-increment financing, despite certain superficial similarities with special assessments, remain taxes and should be classed as general revenue rather than as program revenues.

14.1. Who sponsors the Certificate of Achievement for excellence in Financial Reporting Program (Certificate Program)? A. Governmental Accounting Standards Board B. Financial Accounting Foundation C. Government Finance Offices Association D. American Institute of Certified Public Accountants

C. Government Finance Offices Association In 1945, the Municipal Finance Officers Association (now GFOA) established a program to encourage and assist governments to prepare CAFRs of the highest quality in conformity with GAAP.

3.4. A grant to local government for state-mandated road upgrading is an example of why type of transactions? A. Derived tax revenue B. Imposed nonexchange revenue C. Government-mandated nonexchange transactions D. Voluntary nonexchange transactions

C. Government-mandated nonexchange transactions Government-mandated nonexchange transactions are essentially "funded mandates." That is, a higher level government (provider) requires a lower level government (recipient) to undertake some action and provides funding to help it do so. Examples include grants to local governments for state-mandated road upgrading and federal grants for mandated drug and alcohol abuse prevention programs.

5.9. What is the proper classification of shared sales taxes from the perspective of their ULTIMATE RECIPIENT? A. Derived tax revenues B. Imposed nonexhcange revenues C. Government-mandated or voluntary nonexchange transactions D. A or C

C. Government-mandated or voluntary nonexchange transactions Shared sales taxes are properly classified by the recipient as either a government-mandated or voluntary nonexchange transactions.

19.6. How should quantitative materiality be assessed in the context of the government-wide financial statements? A. Financial reporting entity, taken as a whole B. Primary government, taken as a whole C. Governmental activities separately from business-type activities D. A or B

C. Governmental activities separately from business-type activities In the private sector,quantitative materiality normally is assessed in relation to the financial statements taken as a whole. Auditors traditionally have taken a very different approach in assessing quantitative materiality for state and local governments with their unique blend of fund accounting and government-wide financial reporting: 1) in the government-wide financial statements, quantitative materiality should be assessed separately for governmental activities and business-type activities; and 2) in the find financial statements, quantitative materiality should be assessed separately for each major governmental and enterprise fund.

12.31. Which of the following statements is FALSE concerning the proper accounting and financial reporting for claims and judgments? A. The amount of the liability should reflect incurred but not reported claims B. Structured settlements may be reported at either their gross amount or their present value C. Governmental funds should not report an expenditure until amounts are due and payable D. Incremental claims adjustment expenses should be included in the calculation of the liability

C. Governmental funds should not report an expenditure until amounts are due and payable Normally, governments have the option of valuing their liability for claims and judgments at either the anticipated final gross amount of the payments or the present value of that amount. Present value must be used, however, for structured settlements.

12.3. If a government sponsors an investment pool that includes both the government's own resources and those of other governments, how should the external portion of the pool be reported? A. In an agency fund B. In a permanent fund C. In an investment trust fund D. In an enterprise fund

C. In an investment trust fund In a mixed pool, the portion of the pool representing the government's own investments should be reported as a line item across its various funds, while the portion of investments belonging to outside parties should be reported in a separate investment trust fund.

10.4. Which of the following statements BEST describes how individual internal service funds should be reported in the government-wide financial statements? A. Include within governmental activities B. Include within business-type activities C. Include within the same activity as its predominant customers D. Divide proportionately between governmental and business-type activities based on customer usage

C. Include within the same activity as its predominant customers The residual balances of an internal service fund should be reported in the same activities column as its predominant customers.

2.6. Which of the following would be reflected in the operating statement of a proprietary fund? A. Issuance of debt B. Debt service principal payments C. Incurrence of interest D. Capital outlay

C. Incurrence of interest A proprietary fund's operating statement will include all transactions and events that increase or decrease net assets (i.e. interest). Conversely, the operating statement would not report: issuance of debt, debt service principal payments, or capital outlay.

18.2. Which of the following is NOT one of the essential elements of a comprehensive framework of internal control? A. Communication B. Monitoring C. Independent audit D. A and C

C. Independent audit A comprehensive framework of internal control mus: 1) provide a favorable control environment; 2) provide for the continuing assessment of risk; 3) provide for the design, implementation, and maintenance of effective control-related policies and procedures; 4) provide for the effective communication of information; and 5) provide for ongoing monitoring of the effectiveness of control-related policies and procedures, as well as the resolution of any potential problems identified.

13.2. Which of the following distinguishes the contents of the cover of the CAFR from the contents of the CAFR's title page? A. Use of the full term "comprehensive annual financial report" B. Reference to the primary government (if component unit) C. Indication of the department responsible for preparing the CAFR D. None of the above

C. Indication of the department responsible for preparing the CAFR The cover should include "comprehensive annual financial report", reference to primary government if component unit, state located, and fiscal period covered. The title page contains all of the cover page items along with the department responsible for preparing the CAFR, and sometimes listing their principal officials.

18.12. Which of the following is a key consideration in a vulnerability assessment? A. Design of controls B. Implementation of controls C. Inherent risk D. Redundancy

C. Inherent risk A vulnerability assessment functions on the premise that governments should evaluate high-risk control cycles before low-risk control cycles. A control cycle's degree of risk can be assessed based on two questions: 1) If a control failure were to occur, how significant would the potential effect be? and 2) How likely is it that a control failure will occur? The answer to the first question often is determined on the basis of management's assessment of the inherent risk connected with a particular control cycle. The answer to the second question typically is based on management's assessment of the quality of the control environment.

6.6. Which of the following is a true statement regarding the capitalization of interest for the portion of a construction project financed with a grant that is externally restricted to the acquisition of specified qualifying assets? A. Interest should be capitalized in conformity with FASB Statement No. 34 B. Interest should be capitalized in conformity with FASB Statement No. 62 C. Interest should not be capitalized D. A or B, depending upon the circumstances

C. Interest should not be capitalized FASB statement No. 62 prohibits the capitalization of interest on any portion of a capital asset financed with grants (and interest on invested grant proceeds that are externally restricted to the acquisition or construction of specified, qualifying assets.

3.12. Which of the following is an example of nonreciprocal interfund activity? A. Interfund loans B. Interfund services provided or used C. Interfund reimbursements D. None of the above

C. Interfund reimbursements Nonreciprocal interfund activity can be divided into two subclasses: interfund transfers and interfund reimbursements.

15.21. Which of the following statements is FALSE concerning the substantive plan used as a basis for projecting costs related to other postemployment benefits (OPEB)? A. It is the plan as understood by plan members B. It is the plan as understood by participating employers C. It includes both realized and contemplated amendments D. None of the above

C. It includes both realized and contemplated amendments Financial statement preparers need to focus on the substantive plan. Defined as "the plan as understood by the participating employer(s) and plan members" as of the actuarial valuation date. Excludes factors such as contemplated amendments to plan terms.

9.10. Which of the following is NOT a form of required supplementary information (RSI)? A. Management's discussion and analysis B. Trend data on infrastructure condition C. Letter of transmittal D. Claims development data for a public-entity risk pool

C. Letter of transmittal Required supplementary information includes management's discussion and analysis, budgetary comparisons, trend data on infrastructure condition, trend data on the funding of pension and other post-employment benefits, and claims development data for public-entity risk pools.

13.12. Which of the following BEST describes the location of MD&A within the CAFR? A. Located with other RSI B. Located immediately following the notes to the financial statements C. Located immediately preceding the financial statements D. A and B

C. Located immediately preceding the financial statements In most cases, RSI is located immediately following the notes to the financial statements. However, because MD&A should serve as a narrative introduction to the basic financial statements, it should be placed in front of those statements rather than behind them.

1.1. Which of the following groups normally would not be considered a primary user of a state or local government's general purpose external financial statements? A. Citizens B. Legislative & Oversight Bodies C. Management D. Investor & Creditors

C. Management Primary users of a state or local government's general purpose external financial statements are citizens, legislative & oversight bodies, and investors & creditors. While Management is a user, they have direct access to internal accounting information.

13.27. The presentation of which of the following types of demographic and economic information is purely VOLUNTARY in the statistical section of the CAFR? A. Per capita personal income B. Unemployment rate C. Median age D.All of the above

C. Median age Demographic and economic indicators include population, total personal income, per capital personal income, unemployment rate and other voluntary including median age, education level, and school enrollment.

7.14. How would a government report in the basic financial statement participation in a joint venture involving its governmental activities? A. Asset in the government-wide statement of net assets B. Asset in the government-wide statement of net assets and the governmental fund balance sheet C. No asset reported D. All of the above

C. No asset reported (?) If there is an explicit measurable equity interest in a joint venture, the government's investment in the joint venture should be reported as a single line item in the government-wide and proprietary fund financial statements. Governmental funds do not report assets used in operations (most investments in joint ventures).

12.6. Which of the following investment must be reported at fair value by entities other than external investment pools? A.Short-term money-market securities acquired within one year of maturity B. Short-term interest-earning investment contracts acquired within one year of maturity C. Participating interest-earning investment contracts D. None of the above

C. Participating interest-earning investment contracts In certain circumstances, even some of the items just listed may be reported at amortized cost rather than at fair value: Nonparticipating interest-earning investment contracts since some cases interest-earning investment contracts are unaffected by market fluctuations (market fluctuations are irrelevant if the contract cannot be sold prior to maturity); Short-term money market securities are highly liquid it is highly unlikely that their fair value would depart materially from their amortized cost (provided that they ace acquired within one year of maturity); and Short-term interest-earning investment contracts acquired within one year of maturity may be reported at amortized cost since the potential effect of a change in interest rates naturally diminishes as debt approaches maturity.

2.15. Which of the following should NOT be reported in an agency fund? A. Debt service transactions related to no-commitment special assessment debt B. Other post employment benefit plans that do not qualify as a trusts or equivalent arrangements C. Pell Grants D. None of the above

C. Pell Grants GAAP require the use of an agency fund to account for debt service transactions involving special assessment debt for which the government is not obligated in any manner. (thus, answer A is incorrect). GAAP also require that postemployment benefit plans other than pension plans that do not qualify as trusts or equivalent arrangements be reported in an agency fund (thus, answer B is incorrect). However because of their degree of administrative involvement with Pell Grant requirements, colleges and universities should not use agency funds to account for these grants.

7.7. Which of the following is NOT a criterion for identifying an external investment pool? A. Investment focus B. Participants as beneficiaries C. Permanency D. None of the above

C. Permanency There are four key criteria that need to be met for an arrangement to qualify as an external investment pool: commingling of assets, external participation, investment focus, and participants as beneficiaries. Pools need not be permanent arrangements.

2.4. Which of the following fund types uses the current financial resources measurement focus? A. Enterprise Fund B. Agency Fund C. Permanent Fund D. Investment Trust Fund

C. Permanent Fund Governmental fund types (e.g., permanent fund) focus on changes in current financial resources. Proprietary funds (e.g., enterprise funds) focus on changes in economic resources. Agency funds do not have a measurement focus. Trust funds (e.g., investment trust fund) use the same economic resources measurement focus as do proprietary funds.

12.19. Which of the following statements BEST describes the appropriate application of composite depreciation in the public sector? A. Permitted for any grouping of capital assets B. Restricted to groupings of similar assets C. Permitted for groupings of dissimilar assets within the same class D. Permitted for related assets of different classes

C. Permitted for groupings of dissimilar assets within the same class Governments may elect to use composite depreciation methods for certain types of capital assets rather than depreciated them individually. Composite depreciation can be applied to groups of dissimilar assets withing the same capital asset class, but not to different classes of capital assets.

13.30. Which of the following should be the focus of the statistical section of the CAFR? A. Governmental funds B. Governmental activities/funds C. Primary government D. Financial reporting entity

C. Primary government

19.19. What term is used to describe amounts that the independent auditor determines may be subject to refund a grantor? A. Disallowed costs B. Contingent costs C. Questioned costs D. Unallowable costs

C. Questioned costs Amounts that the auditor determines may be subject to refund to the grantor are known as questioned costs.

11.23. What interest rate should be used for variable rate debt in the debt service to maturity schedule? A. Original rate B. Maximum rate C. Rate in effect at year end D. Rate in effect when financial statements are issued

C. Rate in effect at year end GAAP direct that interest payments on variable-rate debt be calculated using the rate in effect at the financial statement date (even though some different rate might be in effect at the time the financial statements are issued).

12.1. Which of the following is NOT an acceptable method to demonstrate the traceability of cash and cash equivalents between the statement of net assets and the statement of cash flows? A. Parenthetic disclosure for the cash and cash equivalents component of restricted assets in the statement of net assets B. Parenthetic disclosure of the amount of restricted cash and cash equivalents in the statement of cash flows C. Reconciliation provided in the notes to the financial statements D. Separate reporting of the cash and cash equivalents component of restricted assets in the statement of net assets

C. Reconciliation provided in the notes to the financial statements There are four practical ways to comply with the GAAP requirement for traceability. Report the different components of restricted assets separately on the statement of position. Parenthetically disclose the cash and cash equivalents component of restricted assets on the statement of position. Parenthetically disclose the amount of restricted cash and cash equivalents in the statement of cash flows. Provide a reconciliation on the face of the statement of cash flows. A simple reconciliation disclosed in the notes to the financial statements would not meet the requirement for traceability.

15.11. Which of the following statements is TRUE concerning the proper accounting and financial reporting for student activity funds? A. Student activity funds sometimes should not be reported in fiduciary funds B. The proper fiduciary fund type for reporting student activity funds is always an agency fund C. Related activities should always be reported in the same manner D. All of the above

C. Related activities should always be reported in the same manner It would not be appropriate to classify student activity funds that support instructional activities as fiduciary funds. The inclusion of a given student activity fund in the school district's budget argues against reporting the activity in a fiduciary fund. A high degree of management involvement is incompatible with the use of an agency fund. Agency funds should be used for resources that qualify for fiduciary reporting when administrative involvement is limited (as is often the case). It is entirely possible that related activities may be reported differently.

11.20. Which of the following statements BEST describes the disclosure of lapsing encumbrances that the government intends to honor in the subsequent year? A. Permitted but never required by GAPP B. Permitted by GAAP if amounts are not designated C. Required by GAAP if amounts are not designated D. Always required

C. Required by GAAP if amounts are not designated Many governments allow encumbrances to lapse at year-end and then automatically reappropriate them as part of the subsequent year's budget. In that situation, GAAP require that the balance of encumbrances outstanding be disclosed in the notes to the financial statements (if not reported as a designations).

13.16. Which of the following statements is TRUE concerning the schedule of funding progress for pension plans and other postemployment benefit (OPEB) plans that use the aggregate actuarial cost allocation method for funding purposes? A. Required for both pension plans and OPEB plans B. Required for pension plans but not OPEB plans C. Required for OPEB plans, but not pension plans D. Required for neither pension plans nor OPEB plans

C. Required for OPEB plans, but not pension plans For pension plans, no schedule of funding progress need be presented when a pension plan uses the aggregate actuarial cost method. In the case of OPEB plans, this schedule must be provided even if the aggregate actuarial cost method is used, in which case the entry-age actuarial cost method should be used to provide the additional data needed to produce the schedule.

4.2. Which of the following is NOT taken into consideration in determining whether a legally separate entity qualifies as a component unit? A. Fiscal dependence B. Board appointment C. Residual claim to assets D. Omission results in incomplete or potentially misleading financial reporting

C. Residual claim to assets A residual claim to the assets of a separate organization upon dissolution is not relevant because it must be presumed, under the going-concern assumption, that the separate organizations will continue to operate.

12.10. In what situation are restricted assets most commonly encountered in the public sector? A. Encumbrances B. Advances C. Revenue bonds D. Inventories

C. Revenue bonds In practice, restricted assets are encountered most commonly in connection with the various special accounts mandated by revenue bond indentures.

6.25. Assume that an internal service fund is used to account for risk financing activities. Probable measurable losses of the period are determined to be $40,000. Premiums charged to other funds amount to $42,000, with the difference reflecting a reasonable provision for anticipated catastrophe losses. How should the receipt of the premium be treated in the internal service fund? A. Revenue of $40,000; capital contribution of $2,000 B. Revenue of $42,000 C. Revenue of $40,000; interfund transfer of $2,000 D. Interfund transfer of $42,000

C. Revenue of $40,000; interfund transfer of $2,000 If a government chooses to use an internal service fund to account for its risk-financing activities, interfund premiums should be classified as interfund services provided. As a result, premiums received by the internal service fund should be reported as revenues. This treatment, however, can only be followed to the extent that any excess of premiums charged over probable and measurable losses can be justified as follows: the excess represents a reasonable provision for anticipated catastrophe losses or the excess is the result of a systematic funding method designed to match revenues and expenses over a reasonable period of time. Otherwise, any portion of premiums in excess of probable and measurable losses incurred must be reported as a transfer rather than as revenue.

5.21. What is the proper accounting and financial reporting for states participating in the federal food stamp program? A. The food stamp program has no effect on governmental funds because they are not a financial resource B. Revenues and expenditures should be recognized when participant eligibility is determined C. Revenues and expenditures should be recognized when a food purchase occurs D. None of the above

C. Revenues and expenditures should be recognized when a food purchase occurs In the case of food stamps, revenues and expenditures should be reported when the underlying transaction (the food purchase) occurs.

5.5. Which of the following best describes how revenue should be recognized in governmental funds in connection with capital leases when the government is the lessor? A. Ratably over the lease period B. Revenues should be recognized when due, regardless of the availability criterion C. Revenues must be recognized as soon as they become available D. Lease payments are treated as a reduction of the related receivable rather than as revenue

C. Revenues must be recognized as soon as they become available For capital leases, both the principal and interest portions of lease receipts should be recognized as revenue as soon as they become available.

18.5. Which of the following statements is FALSE regarding risk assessments? A. Change is a key factor resulting in increased levels of risk B. Risk assessment needs to address both internal and external factors C. Risk assessment should take a primarily macro approach to ensure adequate coverage while avoiding unnecessary detail D. None of the above

C. Risk assessment should take a primarily macro approach to ensure adequate coverage while avoiding unnecessary detail Effective risk assessment must include both macro and micro components and necessarily involves managers at all levels.

10.61. Where may the reconciliation between cash flows from operating activities and operating income be reported? A. Face of the proprietary fund statement of revenues, expenses, and changes in net assets/equity B. Notes to the financial statements C. Schedule accompanying the statement of cash flows D. A or C

C. Schedule accompanying the statement of cash flows This reconciliation should be presented either on the face of the statement of cash flows (not the statement of revenues, expenses, and changes in net assets/equity) or as a schedule accompanying that statements.

11.13. For which of the following types of investments must a credit rating be disclosed? A. Securities of the U.S. government B. Securities explicitly guaranteed by the U.S. government C. Securities implicitly guaranteed by the U.S. government D. None of the above

C. Securities implicitly guaranteed by the U.S. government Credit ratings must be disclosed for obligations of U.S. government instrumentalities, which are only implicitly guaranteed by the U.S. government. Examples of such securities would include those of the Federal National Mortgage Association (FNMA), the Federal Home Loan Banks (FHLB), the Federal Home Loan Mortgage Corporation (FHLMC), the Federal Farm Credit Banks (FFCB), and the Student Loan Marketing Association (SLMA).

7.20. How should a government value its participation in an investment pool that operates in accordance with SEC Rule 2a7? A. Fair value B. Lower of cost or market C. Share price D. Net present value of anticipated future cash flows

C. Share price When a government participates in a pool that operates in accordance with SEC Rule 2a7, a participating government should report its position in the pool based upon the pool's share price, which may be based upon the amortized cost of the portfolio.

15.16. Required supplementary information for pension plans typically is presented for how many years? A. Three years B. Five years C. Six years D. Ten years

C. Six years Defined benefit pension plans are required to present data as of the plan's reporting date for the past six consecutive fiscal years (plans with biennial valuations need not present duplicate information for the intervening years).

15.5. Which of the following statements BEST describes the proper use of an agency fund for pass-through grants? A. All pass-through grants should be reported in a agency fund B. Most pass-through grants should be reported in an agency fund C. Some pass-through grants should be reported in an agency fund D. No pass-through grants may be reported in an agency fund

C. Some pass-through grants should be reported in an agency fund Agency funds are used to account for those rare pass-through arrangements where a state functions as a pure cash conduit. The state must have no administrative involvement with the program and the state may have no direct financial involvement with the grant program. If grants do not qualify as pure cash conduits, states should recognize revenue as soon as all eligibility requirements have been met, even though amounts may not have yet been remitted to sub-recipients. In the interim, the associated purpose restriction should be reported as restricted net assets.

2.10. Which of the following is NOT a basic government-wide financial statement? A. Statement of net assets B. Statement of activities C. Statement of cash flows D. None of the above

C. Statement of cash flows There are two basic government-wide financial statements: the statement of net assets and the statement of activities.

13.18. Which of the following statements is TRUE concerning a reference to the notes to the financial statements in combining and individual fund financial statements? A. Such a reference is always necessary B. Such a reference is always permitted, but never necessary C. Such a reference is never permitted D. None of the above

C. Such a reference is never permitted References to the notes to the financial statements are not appropriate for combining and individual fund presentations that are covered by only an in-relation-to opinion from the independent auditor.

9.11. Which of the following statements is TRUE regarding the responsibilities of the independent auditor toward RSI? A. RSI must always be addressed in the independent auditor's report B. RSI never would be addressed in the independent auditor's report C. The absence of RSI would not affect the independent auditor's opinion on the fair presentation of the basic financial statements as such D. The auditor must give an "in-relation-to" opinion on RSI

C. The absence of RSI would not affect the independent auditor's opinion on the fair presentation of the basic financial statements as such Because RSI is not part of the basic financial statements, its absence does not affect the auditor's opinion on the fair presentations of the basic financial statements.

19.8. Which of the following best describes the independent auditor's responsibility for required supplementary information (RSI)? A. The auditor must render an opinion on its fair presentation B. The auditor must render an in relation to opinion on its fair presentation C. The auditor must perform certain limited procedures D. The auditor has no responsibility for RSI

C. The auditor must perform certain limited procedures By definition, required supplemental information (RSI) falls outside the scope of the financial statement audit. Nonetheless, GAAS have established certain limited procedures that ordinarily must be performed by the independent auditor in connection with RSI.

12.18. Which of the following statements BEST describes the appropriate application of a government's capitalization threshold to groups of smaller items? A. The capitalization threshold should be applied to individual items rather than to groups of items B. The capitalization threshold should be applied to groups of items rather than to individual items C. The capitalization threshold normally should be applied to individual items rather than to groups of items D. The capitalization threshold normally should be applied to groups of items rather than to individual items

C. The capitalization threshold normally should be applied to individual items rather than to groups of items Governments normally are discouraged from capitalizing as a group smaller items that would not individually meet their capitalization threshold.

12.11. Which of the following is NOT a sufficient basis for recording an asset for pension contributions receivable? A. An appropriation by the employer B. A consistent payment pattern based on a funding policy that attributes C. The employer's recognition of a liability for its net pension obligation D. A formal commitment by the employer to make the contribution

C. The employer's recognition of a liability for its net pension obligation The existence of an employer liability for a net pension obligation or a net OPEB is not a sufficient basis for a pension plan to report a corresponding receivable. GAAP indicate that a receivable for employer contributions may only be recognized if there is a formal commitment on the part of the employee to make the contribution such as the following: an appropriation by the employer of a specific contributions or a consistent pattern of the employers making payments after the plan's reporting date pursuant to an established funding policy that attributes those payment to the preceding plan year.

7.2. Which of the following would NOT be evidence that a government is HOLDING assets in a fiduciary capacity? A. The government performs the investment function for the assets B. The government has significant administrative involvement C. The government remits predetermined amounts to third parties D. None of the above

C. The government remits predetermined amounts to third parties A government is considered to be holding assets for which it performs the investment functions or has significant administrative involvement (e.g., involvement that goes beyond the mere remittance of predetermined amounts to a third party).

12.29. Which of the following statements is FALSE concerning an employer's liability for compensated absences? A. The liability normally should be valued using current salary rates B. The liability should include salary-related payments C. The liability normally would include unused sick leave D. The liability may include sabbaticals

C. The liability normally would include unused sick leave Sick leave does not qualify as a compensated absence because it is contingent upon a future event that is beyond the control of both the employer and the employee. Accordingly, sick leave should not be accrued as a liability. When unused sick leave is payable upon termination, it is no longer contingent upon a future event outside the control of both the employer and the employee, and must be included as part of the liability for compensated absences. The liability for vacation leave should include salary-related payments. The liability for vacation leave should be calculated using pay or salary rates in effect at the date of the statement of position. Employees may not be compensated for leave on the basis of their current salary in some unusual situations. GAAP require that sabbatical leave given as reward for past service be accrued like any other vacation leave.

4.5. Which of the following is NOT evidence that the primary government has a relationship of financial benefit or burden with a potential component unit? A. The primary government is legally entitled to the potential component unit's assets B. The potential component unit provides benefits to a component unit of the primary government, but no the primary government itself C. The main source of revenue of the potential component unit is exchange transactions with the primary government D. The potential component unit benefits from tax-increment financing of the primary government

C. The main source of revenue of the potential component unit is exchange transactions with the primary government Exchange transactions and exchange-like transactions, because they involve the exchange of equal and almost-equal value, are not considered to constitute a financial benefit, regardless of circumstances.

12.30. What portion of an employer's liability for compensated absences outstanding at year end should be reported as an expenditure in a governmental fund? A. The portion of the leave balance expected to be paid within one year of the date of the balance sheet B. The portion of the leave balance expected to be paid within the availability period C. The portion payable to separated employees as of year end D. No portion of the leave balance outstanding at year end would ever be reported as an expenditure

C. The portion payable to separated employees as of year end No expenditure or liability should be reported in the governmental funds in connection with compensated absences until they are paid or in the case or separation payments for unused leave, due for payment.

19.15. What is the MINIMUM number of paragraphs in any independent auditor's report on the fair presentation of financial statements? A. One B. Two C. Three D. Four

C. Three The independent auditor's report has at least three paragraphs.

18.1. Which of the following BEST describes the purpose of a comprehensive framework of internal control? A. To facilitate the independent audit of the financial statements B. To minimize the possibility of fraud C. To ensure that management will meet its various responsibilities D.To reduce costs and increase productivity

C. To ensure that management will meet its various responsibilities The fulfillment of management's responsibilities cannot be left to chance. Management must create a framework of internal control to ensure that it will meet its responsibilities.

5.48. Which of the following types of liabilities would be reported in a governmental fund? A. Unmatured balance of compensated absences B. Landfill closure and postclosure care costs C. Vendor payables due more than 60 days after the close of the fiscal year D. None of the above

C. Vendor payables due more than 60 days after the close of the fiscal year or D. None of the above The first 2 options are listed as normally not reported in governmental funds.

5.19. When should revenue be recognized in a governmental fund in connection with contributions to endowments? A. When an enforceable legal claim is established B. When an enforceable legal claim is established (subject to availability) C. When contributions are received D. When resources are disbursed in conformation with the terms of the endowment

C. When contributions are received Contributions to either permanent or term endowments should be classified as revenue and recognized only when received.

5.20. When should revenue be recognized in a governmental fund in connection with pass-through grants? A. As of the date of the grant contract B. When resources are received C. When resources are transmitted to their intended final recipient D. A or B

C. When resources are transmitted to their intended final recipient Pass-through resources provided to other governments should be recognized as revenue when the resources are transmitted to their intended final recipient.

5.16. Which of the following statements is TRUE regarding reimbursement grants? A. Generally revenue recognition cannot occur before appropriation by the grantor B. Revenue recognition can occur before appropriation by the grantor if reimbursements to grantees can legally be authorized prior to appropriation C. Appropriation by the grantor is irrelevant to revenue recognition by the recipient D. A and B

D. A and B As a general rule, revenue should not be recognized before appropriation by the grantor (unless grant payments may be legally authorized prior to appropriation).

12.28. Which of the following is a consideration in determining whether debt should be reported as a liability of a proprietary fund? A. The debt is related to the fund B. The debt is expected to be repaid by the fund C. The debt is backed by the full faith and credit of the government D. A and B

D. A and B Debt is properly considered to be a proprietary fund liability only if it meets both of the following criteria: it must be directly related to a given proprietary fund and there must be the intent of repaying the debt from proprietary fund resources.

11.1. Which of the following statements is true concerning the summary of significant accounting policies (SSAP)? A. The SSAP may be formatted as the first of the notes to the financial statements. B. The SSAP may be formatted as a separate presentation immediately preceding the notes to the financial statements. C. The SSAP may be formatted as required supplementary information (RSI) D. A and B

D. A and B The SSAP may be formatted either as the first note to the financial statements, or as a separate presentation immediately preceding the notes.

15.18. How must employers' contributions to a pensions to a pension plan be expressed in the schedule of employer contributions for a pension plan? A. Dollars B. Constant dollars C. Percentage of annual required contributions D. A and C

D. A and C Annual required contributions (in dollars) based on the parameters set by GAAP. Percentage of annual required contributions recognized as contributions from employers in the plan's statement of changes in plan net assets.

14.10. Which of the following individuals would NOT be eligible to serve as a judge for a report submitted to either the Certificate Program or the Popular Annual Financial Reporting Program? A. A judge from the same state as the government submitting the report B. A judge from the same level of government as the government submitting the report C. A judge from the same audit firm that audited the CAFR D. A and C

D. A and C As a matter of policy, reports are never assigned to a reviewer from the same state as the report under review, nor to a review from the same audit firm that audited the report.

6.15. Which of the following TYPICALLY would NOT result in the immediate elimination of refunded debt from the statement of net assets? A. Advance refunding B. Current refunding C. Crossover refunding D. A and C

D. A and C Unlike other types of advance refundings, the escrow account in a crossover refunding transaction is not immediately dedicated exclusively to debt service principal and interest payments on the old debt. It is only at a predetermined future date, known as the crossover date, that the resources in the escrow account come to be dedicated exclusively to the payment of principal and interest on the old debt. Until that time, both the old debt and the assets in the related escrow account must continue to be reported on the face of the statement of position, as no defeasance is considered to have occurred.

12.35. Which of the following is NOT a true statement concerning special termination benefits? A. They may result in increased pension cost B. No expenditure is recognized in a governmental fund until amounts are due and payable C. A liability must be recognized for any lump sum payment D. A liability must be recognized for the net increase in pension cost

D. A liability must be recognized for the net increase in pension cost Employers should recognize a liability as soon as employees accept the offer and the amount of the liability can be reasonably estimated. The liability for special termination benefits should reflect any lump-sum payments and the present value of any expected future payments. The increase in pension/OPEB cost resulting from special termination benefits automatically is taken into account as part of the calculation of the ARC for pension/OPEB cost. No expenditure or liability is recognized in governmental funds in connection with special termination benefits until those benefits become due and payable. A liability is recognized, however, in accrual based statements of position.

13.26. How should information on pledged revenue be presented in the statistical section of the CAFR if the coverage formula specified by contract differs from the coverage formula set by the Governmental Accounting Standards Board (GASB)? A. Use GASB formula B. Use contractual formula C. A and B D. A or B

D. A or B Often a revenue bond contract prescribes a specific formula to be used to calculate the coverage ratio. That formula may differ in certain particulars from the generic formula just described. Governments are free to use either formula to present the information in this schedule. As a practical matter, the use of the generic formula may allow a government with a significant number of individual revenue bond issues to simplify its presentation.

10.62. Where may the "traceability" requirement associated with the proprietary fund statement of cash flows be met? A. Face of the statement of cash flows B. Face of the statement of position C. Notes to the financial statements D. A or B

D. A or B One of four approaches must be taken when cash and cash equivalents are included as part of restricted assets: 1) report the portion of restricted assets that represents cash and cash equivalents as a separate line item on the statement of position, 2) report the amount of cash and cash equivalents included as part of restricted assets parenthetically on the statement of position, 3) report the amount of cash and cash equivalents included as part of restricted assets parenthetically on the statement of cash flows, or 4) provide a reconciliation on the face of the statement of cash flows.

10.15. How should any portion of the proceeds of capital-related debt that is set aside for debt service be reflected in net assets? A. Restricted net assets B. Unrestricted net assets C. Net assets invested in capital assets net of related debt D. A or B

D. A or B Upon completion of a capital project, all of the remaining debt (including any portion used to fund restricted debt service accounts) would be considered to be capital-related and included as part of future calculations of net assets invested in capital assets net of related debt.

8.6. Which of the following BEST describes the proper reporting for internal balances between activities in the government-wide statement of net assets? A. Use of a single line for internal receivables and payables B. Use of separate lines for internal receivables and internal payables C. A or B D. A or B, provided zero balances are reported in the primary government's total column

D. A or B, provided zero balances are reported in the primary government's total column The simplest approach is to report both the receivable and payable on the same line, so that a zero balance is automatically reported in the primary government total column. Alternatively, a government could report the internal receivable and payable as separate line items, provided a zero balance was still reported in the primary government total column. In the latter case, financial statement preparers must disclose on the face of the statement why receivables and payables do not crossfoot.

8.7. Which of the following statements is FALSE concerning the consolidation of fund data for inclusion in the government-wide statement of activities? A. Intra-activity transfers must be eliminated B. Transfers between activities must be eliminated from the primary government total column C. A separate column may be used in the fund financial statements for purposes of intra-activity eliminations D. All interfund activity must be eliminated in the process of consolidation

D. All interfund activity must be eliminated in the process of consolidation GAAP prohibit the elimination of interfund services provided and used between different governmental activities.

13.29. Which of the following types of information must be presented as operating indicators in the statistical section of the CAFR? A. Number of government employees B. Indicators of demand or level of service C. Indicators of the volume, usage, or nature of capital assets D. All of the above

D. All of the above

18.10. Which of the following is an example of an inherent limitation on the effectiveness of internal control? A. Cost/benefit considerations B. Potential for management override of controls C. Risk of collusion D. All of the above

D. All of the above A key limitation on internal control is that cost considerations will prevent management from ever installing a "perfect" system. A second important limitation of internal control is that control-related policies and procedures are potentially subject to management override. The risk of collusion is the third limitation of internal control.

11.27. Which of the following statements regarding segment disclosure is TRUE? A. Revenue-supported debt must be outstanding at year end to qualify as a segment B. Condensed financial statements are not required in the case of segments that are already reported as individual funds in the basic financial statements C. Segment disclosure may not be made voluntarily for activities that do not meet the definition of a segment D. All of the above

D. All of the above A segment must have revenue-supported debt outstanding as of the end of the fiscal period. Only the disclosure concerning the types of goods and services provided is required in the case of segments that are already reported as a separate column in the basic financial statements. GAAP specifically preclude governments from voluntarily including information on "segment-like" activities as part of their regular segment disclosure note.

12.16. Which of the following is an acceptable method of estimating the historical cost of capital assets? A. Direct costing B. Normal costing C. Standard costing D. All of the above

D. All of the above A variety of methods can be used to estimate the historical cost of capital assets for which invoices and similar documentation of historical cost (direct costing) are no longer available. One method is to use historical sources, such as old vendor catalogs, to establish the average cost of obtaining the same or a similar asset at the time of acquisition (standard costing). Another approach is to deflate the current cost of the same or a similar asset using an appropriate price index (normal costing or backtrending).

3.19. Which of the following statements is TRUE regarding transfers of capital assets reported in the government-wide statement of activities? A. A capital contribution may be reported instead in the fund financial statements B. No transfer at all would be reported in the governmental fund financial statements C. Differences between the government-wide and fund financial statements can result from differences in measurement focus and basis of accounting D. All of the above

D. All of the above Because of the difference in measurement focus and basis of accounting between governmental funds and proprietary funds, reclassification may be necessary between the fund financial statements and the government-wide financial statements. Assume for example, that a capital asset of the general government is reassigned to an enterprise fund. The government-wide statement of activities would reflect the reassignment as a transfer between governmental activities and business-type activities. Such a transfer is not possible, however, at the fund level, because governmental funds did not report the capital assets being reassigned to begin with. Instead, the reassignment would be reflected at the fund level solely in the recipient enterprise fund, which would report a capital contribution.

16.7. In which of the following locations could a budgetary comparison for the general fund be found? A. Basic financial statements B. Required supplementary information (RSI) C. Financial section of the comprehensive annual financial report (CAFR) (outside of the basic financial statements and RSI) D. All of the above

D. All of the above Budget-to-actual comparisons are required in connection with the basic financial statements for both the general fund and any major individual special revenue funds for which annual budgets are legally adopted. These comparisons normally may be presented either as one of the basic financial statements for governmental funds or as required supplementary information. (GFOA recommends presentation as a basic financial statement.) Budget-to-actual comparisons must be presented at the legal level of budgetary control within the CAFR for all individual governmental funds with legally adopted annual budgets (including capital projects funds, debt service funds, permanent funds, and nonmajor special revenue funds.)

5.14. Which of the following statements is TRUE concerning eligibility requirements? A. A requirement that resources be sold, disbursed, or consumed during a particular period is referred to as a time requirement B. A requirement that resources not be used prior to a particular period is referred to as a time requirement C. If a time requirement is not specified by a governmental grantor, it must be imputed D. All of the above

D. All of the above Eligibility requirements include time requirements. There may be a requirement that the resources provided by a nonexchange transaction be sold, disbursed, or consumed during a particular period. There may be restriction on using the resources prior to a particular period. When the provider is a government and no time requirement is specified, a time restriction should be imputed and automatically assumed to apply to the start of the provider's fiscal year.

8.3. Which of the following items reported in the governmental fund statement of revenues, expenditures, and changes in fund balances must be ELIMINATED in the process of preparing the government-wide statement of activities? A. Expenditures for capital outlay B. Expenditures for debt service principal payments C. Revenues and expenditures related to prior periods D. All of the above

D. All of the above Expenditures must be replaced by expenses, and timing must be eliminated as a recognition criterion. Specific adjustments can be summarized as follows: eliminate expenditures that represent the acquisition of capital assets, eliminate expenditures for debt service principal payments, eliminate other financing sources, uses, and expenditures associated with debt issuance, include donations of capital assets, restate sales of capital assets on an accrual basis, restate sales of fund assets on an accrual basis, eliminate revenue and expenditures related to prior periods, and make all regular accrual adjustments.

5.13. Which of the following statements is TRUE regarding fines and forfeitures (presuming related revenue is considered to be available)? A. Uncontested fines should be recognized as revenue when paid B. Contested fines should be recognized as revenue when imposed by a court C. Revenue from contested fines should be recognized net of estimated refunds upon appeal D. All of the above

D. All of the above Fines and forfeitures should be recognized when they are legally enforceable (either when the party pays or when imposed by a court). In the latter case, revenues should be recognized net of estimated refunds from appeals, if material.

11.25. Which of the following BEST describes the level of detail required for the disclosure of interfund receivables and payables? A. In the aggregate for nonmajor governmental funds and for nonmajor enterprise funds B. Fund type C. Major fund D. All of the above

D. All of the above GAAP require that the details of interfund receivables and payables be disclosed in the notes to the financial statements at the level of detail of the columns that appear in the basic financial statements (e.g., major governmental funds, nonmajor governmental funds in the aggregate, fiduciary funds by fund type).

7.4. In what case should a pension (and other employee benefit) trust fund report a receivable for unpaid employer contributions? A. When there is a formal commitment from the employer to make the contribution B. When there is a statutory commitment to make the contribution C. When there is a contractual requirement for the employer to make the contribution D. All of the above

D. All of the above GAAP specifically indicate that a pension (and other employee benefit) trust fund may only report a contribution receivable pursuant to formal commitments as well as statutory or contractual requirements.

5.39. In which of the following situations would it be INAPPROPRIATE to recognize an expenditure in the current fiscal period for debt service principal and interest payments due early in the subsequent fiscal period? A. The early transfer of resources is discretionary B. Debt service payments are made from the general fund C. Payment is due between 30 and 60 days of the close of the fiscal year D. All of the above

D. All of the above GAAP specifically permit governments to recognize an expenditure in the current fiscal period for debt service principal and interest payments due early in the subsequent fiscal period if all of the following criteria are met: the government uses a debt service fund to account for debt service payments, the advance provision of resources to the debt service fund is mandatory rather than discretionary, and payments is due within a short time period (usually one to several days and not more than one month).

15.29. How should a public-entity risk pool account for capitalization contributions? A. Liability to participants B. Liability for unearned premiums C. Netted with other amounts collected or due from pool participants and paid or to be paid to settle claims D. All of the above

D. All of the above If it is probable that capitalization contributions will be returned to pool participants, the pool should report a liability to participants. If not, a liability for unearned premiums should be reported and premium revenue should be recognized over the periods during which the pool is providing coverage. If the pool does not transfer risk, the liability associated with capitalization contributions should be netted with other amounts collected or due from pool participants and paid or to be paid to settle claims.

10.34. Which of the following is an important consideration when using the cost data presented in the government-wide statement of activities for decision making? A. Avoidable costs need to be distinguished from unavoidable costs in the context of privatization decisions. B. Accrual data cannot be used indiscriminately for purposes of setting rates. C. Accrual data cannot be used indiscriminately for purposes of setting charges. D. All of the above

D. All of the above In considering privatization or other forms of external competition, a government should distinguish avoidable costs from unavoidable costs, because only the former are relecant to a privatization dicision. Accural accounting, by definition, does not take the timing of cash flows into consideration for purposes of revenue and expense recognition. Therefore, accrual-based data cannot be used indiscriminately for purposes of setting rates and charges.

10.23. Which of the following treatments is appropriate for the gain or loss resulting from the sale of a capital asset related to governmental activities (other than as the result of a capital asset impairment) in the government-wide statement of activities? A. Inclusion within general government B. Inclusion within general revenue C. Adjustment to depreciation expense D. All of the above

D. All of the above Losses on the sale of capital assets used in governmental activities, if material, should be reported as an expense in the general government function rather than in the function reporting related depreciation expense. Immaterial losses may be handled as an adjustment to the current period's depreciation expense. Likewise, gains on the sale of capital assets associated with governmental activities, if material, should be reported as general revenue. Once again, immaterial gains may be handled as an adjustment to the current period's depreciation expense.

12.24. Which of the following normally would NOT be capitalized as part of the cost of software developed for internal use? A. Training costs B. Costs of data conversion C. Costs associated with the preliminary project stage D. All of the above

D. All of the above Not all costs associated with the acquisition of internal-use software qualify for capitalization. Cost associated with the preliminary project stage should be expensed as incurred. Likewise, training costs and data conversion cost normally should be expensed as incurred.

6.18. How should tap fees, system development fees, and connection fees be reported? A. Operating revenues B. Capital contributions C. Nonoperating revenues D. All of the above

D. All of the above Tap fees and similar fees are exchange transactions for the portion of the fee that is intended to recover the cost of connecting new customers to the system. Accordingly, that portion of the fee should be recognized as a receivable and operating revenue as soon as the connection is made. The portion of a tap fee or similar fee in excess of the cost of connecting new customers is properly classified as an imposed nonexchange revenue. Accordingly, a receivable and revenue should be recognized as soon as the government has established an enforceable legal claim to the payment. Such amounts, however, should not be classified as operating revenues, but rather as either capital contributions or nonoperating revenues.

11.2. As a basic rule, the SSAP should contain which of the following? A. Any selection of an accounting treatment when more than one approach is permitted under generally accepted accounting principles (GAAP) B. Accounting practices unique to state and local governments C. Unusual or innovative applications of GAAP D. All of the above

D. All of the above The SSAP should address: 1) any selection of an accounting treatment when GAAP permit more than one approach, 2) accounting practices unique to state and local governments, and 3) unusual or innovative applications of GAAP.

2.11. In which of the following situations would the use of an internal service fund be justified? A. The cost of capital assets is recovered by setting charges based upon depreciation expense. B. The cost of capital assets is recovered by setting charges based on debt service requirements. C. The cost of capital assets is recovered by setting charges based on the estimated replacement cost of the assets. D. All of the above

D. All of the above The cost of capital assets can be charged out to internal service fund customers in a variety of ways. One method is to set the amount of the charge based on depreciation expense. If debt is used to acquire capital assets, however, the amount of the charge may be set based on debt service requirements. Another approach is to set charges for capital assets based on the replacement cost of those assets rather than their historical costs.

13.3. Which of the following would NOT appear in the introductory section of a CAFR? A. Independent auditor's report B. Management's discussion and analysis (MD&A) C. Required supplementary information (RSI) D. All of the above

D. All of the above The introductory section consists of the Certificate of Achievement for Excellence in Financial Reporting, list of principal officials, organization chart, letter of transmittal, and is not included within scope of the independent audit.

17.1. Which of the following statements is true regarding performance measurements in the public sector? A. Financial statements have not played the same role in assessing performance in the public sector as in the private sector B. There is considerable disagreement on the need for performance measurement in the public sector C. Service quality, a key governmental objective, is an inherently financial concept D. All of the above

D. All of the above The primary objective of governments is to provide services: 1. Service quality, unlike profit, is not inherently a financial concept. 2. Consequently, financial statements have not played the same role in assessing performance in the public sector as they have in the private sector. Because there is no profit motive, there is almost universal agreement on the value and need for performance measurement in the public sector. The key issue has been how, in practical terms, to best realize the full promise of performance measurement for state and local governments.

5.34. Which of the following would be an appropriate treatment in a governmental fund for the proceeds of the sale of capital assets? A. Revenue B. Other financing source C. Special item D. All of the above

D. All of the above The proceeds of the sales of capital assets normally should be reported as an other financing source rather than as revenue, if material. When the amounts of such sales become significant, there is also the possibility that the sale may qualify as a special item. Amounts frequently are immaterial and so properly included as part of miscellaneous revenues.

7.8. Which of the following statements is TRUE regarding the proper use of private-purpose trust funds? A. Private-purpose is best understood as the absence of a public purpose B. Specific benefits accrue to specific individuals C. The government has virtually no discretion in determining what specific amount accrues to which specific individual D. All of the above

D. All of the above The term private-purse is best understood as referring to the absence of a public purpose rather than to the presence of a private benefit. The use of private-purpose trust funds normally should be limited to situations where specific benefits accrue to specific individuals, organizations, or governments and there is virtually no discretion in determining what specific amount accrues to which specific individual.

10.57. Which of the following could qualify as a cash flow for purposes of the proprietary fund statement of cash flows? A. The issuance of a check or warrant B. The creation or increase of a negative position in pooled cash C. A change in the fair value of investments D. All of the above

D. All of the above There are some exceptions to the basic rule that only cash (and cash equivalents) are reported on the statement of cash flows. One exception is checks and warrants, which as a matter of convenience, are considered cash flows when issued rather than when presented for payment. Likewise, a cash balance cannot be less than zero; therefore a negative position in a cash account should be treated as tantamount to a borrowing and reported as cash flow. Finally, changes in the fair value of investments subject to fair value reporting and classified as cash equivalents should be recognized as cash flows from investing activities when they occur.

10.51. When is a reconciliation required between the proprietary fund financial statements and the business type activities columns of the government-wide financial statements? A. Whenever there is a "crossover balance" outstanding as a result of the "look-back" adjustment for internal service funds B. Whenever direct costs included in the general government function are subsequently allocated to business-type activities C. Whenever an enterprise fund is included within governmental activities D. All of the above

D. All of the above Three situations may require a reconciliation between the total column for enterprise funds and the business-type activities column: 1) "crossover" internal balances resulting from the "look-back" adjustment made both in the current year and in past years in connection with the consolidation of internal service funds, 2) the voluntary assignment to business-type activities of direct costs incurred by governmental funds on behalf of enterprise funds reported as business-type activities, and 3) the election to report one or more enterprise funds as governmental activities rather than as business-type activities for purposes of government-wide financial reporting.

17.8. According to the GASB, which of the following approaches might the board take in mandating the reporting of SEA indicators? A. Require the presentation of SEA measures for all major services, but refrain initially from mandating any specific SEA measures B. Establish a minimum set of specific SEA measures for certain common major services, but keep the reporting of SEA measures for other activities on a voluntary basis C. Establish a minimum set of specific SEA indicators for certain common activities, but require the presentation of unspecified SEA indicators for other major services D. All of the above

D. All of the above When and if the GASB believes these preliminary conditions are met, the board could take one of several different approaches to mandating SEA reporting. Require the presentation of SEA measures for all major services, but refrain initially from mandating any specific SEA measures. Establish a minimum set of specific SEA measures for certain common major services, but keep the reporting of SEA measures for other activities on a voluntary basis. Establish a minimum set of specific SEA indicators for certain common activities, but require the presentation of unspecified SEA indicators for other major services. Provide SEA criteria for those who wish to use them.

10.24. Which of the following statements is true regarding the allocation of indirect expenses in the government-wide statement of activities? A. Allocation is require in the regular functional expense column. B. Allocation is permitted in the regular functional expense column C. Allocation is required in a separate column D. Allocation is permitted in a separate column

D. Allocation is permitted in a separate column GAAP permit governments to allocate their indirect expenses. I a government elects to do so, however, it should use a separate column for that purpose.

18.6. Which of the following often is the only practical means of determining if data in the financial statements are complete? A. Properly designed records B. Periodic reconciliations C. Periodic reviews D. Analytical review

D. Analytical review Analytical review is particularly important because it is often the only practical means of determining if data in the financial statements are complete.

9.3. How often do governments typically prepare a general-purpose external financial report in conformity with generally accepted accounting principles (GAAP)? A. Monthly B. Quarterly C. Semiannually D. Annually

D. Annually In most cases, governments prepare just the annual general-purpose external financial report in conformity with GAAP. While governments also often issue quarterly financial reports, these are primarily for internal use, and normally are prepared in conformity with the basis of budgeting rather than GAAP.

5.4. When should an expenditure be recognized in a governmental fund in connection with the incurrence of rebatable arbitrage? A. As soon as a liability is incurred B. Ratably throughout the construction period C. Ratably throughout the period during which proceeds are reinvested D. As amounts become due and payable to the federal government

D. As amounts become due and payable to the federal government Federal law requires that arbitrage be calculated and rebated at the end of each five-year period and at maturity. Governmental funds should not report either an expenditure or a liability in connection with rebatable arbitrage until payment is made or the liability has become due and payable.

7.3. Which of the following would NEVER be an appropriate treatment for an Internal Revenue Code Section 457 deferred compensation plan? A. Reporting plan assets in a pension (and other employee benefit) trust fund B. Reporting plan assets in a private-purpose trust fund C. Not reporting plan assets D. B and C

D. B and C If a state or local government is, in fact, considered to be holding the plan's assets, those assets would be reported in a pension (and other employee benefit) trust fund.

12.7. Which of the following statements is FALSE concerning the proper reporting of investment-related income? A. It is presumed that investment income is reported in the same fund as the underlying investments B. Normally the various components of investment income must be reported separately C. If net investment income is negative, it should be reported as an expenditure or expense rather than as a "negative revenue" D. B and C

D. B and C Is is presumed that income on investments is to be reported in the same fund as the underlying investments. However, if income legally accrues directly to the benefit of some other fund it should be reported in that fund. Normally, investment income is reported as a net amount, but the various components may be reported separately. If the various components are reported separately, interest revenue should be reported at the stated rate of interest. If net investment income is negative, it should be reported as negative revenue rather than as an expense or expenditure.

7.10. Which of the following may be accounted for in an agency fund? A. Unexpended balance of non-pass-through reimbursement grants to other governments B. Cash collections related to no-commitment special-assessment debt C. Escheat resources held for other governments D. B and C

D. B and C No-commitment special assessment debt: GAAP prescribe that an agency fund be sued to account for assessments collected prior to remittance. Agency funds used for this purpose should report only cash collected and delinquent receivables balances. An agency fund should be used for escheat resources held on behalf of another government.

18.11. Which of the following is a key advantage of identifying control cycles in the process of evaluating control-related policies and procedures? A. Consistency B. Efficiency C. Effectiveness D. B and C

D. B and C There are two key advantages in using control cycles to evaluate control - related policies and procedures. Using control cycles: 1) promotes efficiency by avoiding the duplication that can result when a single policy or procedure benefits multiple related activities; and 2) highlights the natural links that exist among policies and procedures, thereby improving the effectiveness of the evaluation process.

13.13. As of what date should component unit data be presented in the reporting entity's financial statements if the component unit has a fiscal year end of December 31, 2010, and the primary government has a fiscal year end of September 30, 2010? A. September 30, 2010 B. December 31, 2009 C. December 31, 2010 D. B or C

D. B or C If one or more component units included within the financial reporting entity has a different fiscal year end than that of the primary government, the data presented for such units should be the data for the last fiscal year ended prior to the fiscal year of the primary government. If a component unit has a fiscal year that ends within three months of the close of the primary government's fiscal year end, the financial reporting entity has the option of either 1. using the data for the component unit's fiscal year that ended during the primary government's fiscal year or 2. using the data for the fiscal year of the component unit ending during the first quarter of the primary government's subsequent fiscal year.

10.14. How should the unspent proceeds of debt to be used to finance capital acquisition be reflected in net assets? A. Net assets invested in capital assets net of related debt B. Restricted net assets C. Unrestricted net assets D. B or C

D. B or C The unspent proceeds of debt are not considered to be a capital asset until they are actually spent. Therefore, only construction-in-progress and a portion of debt equal to that amount should be part of the calculation of net assets invested in capital assets net of related debt until construction is actually completed. Meanwhile, unspent debt proceeds would be included in the calculation of restricted net assets or unrestricted net assets, as appropriate.

4.6. Which of the following statements if FALSE regarding blended component units? A. The general fund of a blended component unit should be reclassified as a special revenue fund in the report of the financial reporting entity B. Blending should occur if the board of the component unit is substantively the same as that of the primary government C. Blending should occur if the component unit provides services exclusively, or almost exclusively, to the primary government D. Blending should occur if the component unit provides services exclusively, or almost exclusively, to citizens of the primary government

D. Blending should occur if the component unit provides services exclusively, or almost exclusively, to citizens of the primary government The data of a component unit should be blended with the data of the primary government if the component unit either 1) provides service entirely or almost entirely to the primary government; or 2) otherwise exclusively or almost exclusively benefits the primary government even though it does not provide services directly to it. These criteria are aimed at identifying situations where component units function much like internal service funds (i.e., providing goods and services to the government itself as an administrative entity rather than to citizens).

10.12. Where must depreciating capital assets be distinguished from capital assets that are not being depreciated if the latter are significant? A. On the face of the statement of net assets B. In the notes to the financial statements C. Either A or B D. Both A and B

D. Both A and B Capital assets that are being depreciated must be reported separately on the face of the statement of net assets from those that are not being depreciated. Not disclosure is required as well.

15.6. Where are transactions involving state unemployment benefit plans accounted for? A. General fund B. Enterprise fun C. Either A or B D. Both A and B

D. Both A and B State unemployment compensation benefit plans should be accounted for in an enterprise fund. Administrative costs should be accounted for in the general fund or some other fund (if legally required). State unemployment compensation plans should not be treated as public-entity risk pools.

12.9. What assets should a government report in a reverse repurchases agreement? A. Collateral securities provided to lender B. Cash proceeds and subsequent reinvestment C. Either A or B D. Both A and B

D. Both A and B The government should continue to report the securities provided to the broker or dealer as collateral in the statement of position, while at the same time reporting the cash proceeds of the loan (and any resulting investments) as an asset, along with a corresponding liability to the lender (obligations under reverse repurchase agreements).

12.8. What assets should a government report in a securities lending transaction? A. Lent securities B. Collateral securities that can be pledged or sold C. Either A or B D. Both A and B

D. Both A and B The underlying or lent securities must continue to be reported on the lending government's statement of position. In the case of securities lending agreements that are collateralized by cash or by securities that can be sold or pledged, even without a default by the broker or dealer, these additional amount must also be reported as assets in the statement of position, along with a corresponding liability.

6.4. Which of the following statements best describes the applicability to proprietary funds of private-sector pronouncements issued subsequent to the "cut-off Date" of November 30, 1989? A. Mandatory B. Optional C. Not an option D. Both B and C

D. Both B and C Both enterprise funds and internal service funds are required to follow all private-sector guidance issued prior to December 1, 1989, provided that such guidance does not conflict with or contradict the standards of the GASB.

2.7. Which of the following would always be reflected in the operating statement of a governmental fund? A. Depreciation expense B. Amortization expense C. All revenues earned during the period D. Capital outlay

D. Capital outlay The operating statement of a governmental fund will include all transactions and events that affect the fund's current financial resources, even though they may have no effect on net assets: issuance of debt, debt service principal payments, and capital outlay. Capital outlays are a use of current financial resources, and therefore are reported in the governmental fund operating statement. Depreciation expense and amortization expense affect net assets, but not current financial resources, and therefore are not reported in the governmental fund operating statement. Revenue is recognized in a governmental fund only to the extent that it is available to liquidate expenditure of the current period (modified accrual)

10.18. What is the MINIMUM level of detail at which business-type activities must be reported in the government-wide statement of activities? A.Segments B. Functions C. Programs D. Different identifiable activities

D. Different identifiable activities For a government's business-type activities, direct expenses should be presented separately, at a minimum, for different identifiable activities.

15.10. Which of the following statements is FALSE regarding the proper treatment of school lunch programs? A. School lunch programs may be reported in either a special revenue fund or an enterprise fund B. Donated commodities should be recognized as revenue when received in the government-wide financial statements C. Donated commodities should be recognized as expenses when consumed in the government-wide financial statements D. Donated commodities should not be reported in a special revenue fund because they are not financial resources

D. Donated commodities should not be reported in a special revenue fund because they are not financial resources Student lunch programs may be reported in either an enterprise fund or a governmental fund (special revenue fund). In either case, donated commodities are recognized in both the fund and government-wide financial statements as revenue when all eligibility requirements are met (typically in the period received), and as expense/expenditure when consumed.

1.10. Which of the following BEST describes the purpose of GASB's "due process" procedures? A. Obtain approval for proposed guidance from key constituents B. Persuade constituents of the soundness of proposed guidance C. Permit oversight and regulatory bodies to veto or amend proposed guidance D. Ensure the board has considered all relevant facts and points of view before issuing final guidance

D. Ensure the board has considered all relevant facts and points of view before issuing final guidance The purpose of due process is not to poll the board's constituents regarding their preferences, but rather to ensure that the board has considered all relevant facts and points of view prior to arriving at a conclusion.

10.58. In which of the following categories of cash flows would interest receipts NORMALLY be reported? A. Operating activities B. Noncapital financing activities C. Capital and capital-related financing D. Investing activities

D. Investing activities Cash flows from investing activities include the receipt of interest (except on program loans, where it is included as part of cash flows from operating activities).

13.21. Information on revenue capacity presented in the statistical section of the CAFR should focus on which of the following? A. All major revenue sources B. All significant revenues sources C. Largest single revenue source (regardless of type) D. Largest single own-source revenue

D. Largest single own-source revenue

16.8. At what level of detail must budgetary comparisons be presented within the CAFR for a nonmajor special revenue fund with a legally adopted annual budget? A. Function B. Activity C. Object D. Legal level of control

D. Legal level of control Budget-to-actual comparisons must be presented at the legal level of budgetary control within the CAFR for all individual governmental funds with legally adopted annual budgets (including capital projects funds, debt service funds, permanent funds, and nonmajor special revenue funds.)

17.2. Which group established a comprehensive framework for budgeting in the public sector that specifically acknowledges the importance of evaluating performance? A. American Institute of Certified Public Accountants B. Governmental Accounting Standards Board (GASB) C. Government Finance Officers Association D. National Advisory Council on State and Local Budgeting

D. National Advisory Council on State and Local Budgeting The goal of the NACSLB was to create a comprehensive framework for public-sector budgeting that could be used by state and local governments as an ideal against which to measure and improve the quality of their own budget practices.

13.10. Which of the following statements is true concerning MD&A? A. Governments may voluntarily address topics not mandated B. Governments may voluntarily provide additional detail on mandated topic C. Both A and B D. Neither A nor B

D. Neither A nor B Because MD&A constitute RSI, a government may not address additional topics not found on this list as part of MD&A. However, a government is free to provide whatever level of detail it deems appropriate in addressing the specific MD&A topics identified by GAAP.

5.18. In which of the following situations would the donation of a capital asset that a government intends to resell be reported in a governmental fund? A. The donated capital asset is sold after the end of the fiscal year, but prior to the issuance of financial statements B. The donated capital asset remains unsold at the time financial statements are issued C. Both A and B D. Neither A nor B

D. Neither A nor B Donations of capital assets are reported as revenues in governmental funds, however, if either of the following conditions are met: the asset is sold prior to the end of the fiscal period and the proceeds of the sale are considered to be available or the asset is sold (or the government has entered into a contract to sell the asset) prior to the issuance of the financial statements and the proceeds of the sale are considered to be available.

5.17. Which of the following statements is TRUE regarding the appropriate financial reporting treatment on the part of employers for on-behalf benefit payments? A. On-behalf payments should be recognized by the employer only if the employer is legally obligated to provide the benefit B. The amount recognized should reflect only amounts actually received by the third party (e.g., pension plan) C. Both A and B D. Neither A nor B

D. Neither A nor B Employers are required to reflect in their own financial statements any payments of salaries or fringe benefits made by others to a third party (e.g., a pension plan) on behalf of their employees, even if the employer is not legally obligated in any way for the payment. Revenue related to such on-behalf payments should be recognized for all amounts that were either received or receivable by the third party as of the end of the fiscal year.

5.29. How should a governmental fund report a long-term loan from another fund or from a component unit? A. Other financing source B. Fund liability C. A or B D. Neither A nor B

D. Neither A nor B Interfund loans may not be treated as an other financing source, despite their long-term character. Borrowings from discretely presented component units should be treated in the same fashion as other long-term debt.

19.9. Which of the following sections of a comprehensive annual financial report (CAFR) typically would contain audited data? A. Statistical section B. Introductory section C. Both A and B D. Neither A nor B

D. Neither A nor B Like RSI, the contents of the CAFR's introductory and statistical sections also fall outside the scope of the independent audit of the financial statements.

12.34. Which of the following statements is TRUE regarding pension-related debt or pension obligation bonds (POBs) used to finance an employer's unfunded actuarial accrued liability (UAL)? A. Pension-related debt, like the UAL it replaces, is NOT reported as a liability in the employer's financial statements B. POBs, like the UAL they replace, are NOT reported as a liability in the employer's financial statements C. Both A and B D. Neither A nor B

D. Neither A nor B Pension obligation bonds/OPEB obligation bonds should be reported as a liability in the government-wide statement of position, even though the obligation they replaced (i.e., the unfunded actuarial accrued liability) was not reported in that statement. Any resulting payment to the plan to reduce or eliminate the UAL should be reflected in the government-wide statement of position as an asset.

14.7. Which of the following types of CAFRs must include one or more sections in addition to the three basic sections required of any CAFR to be eligible for submission to the Certificate Program? A. Governments subject to a Single Audit B. Colleges and universities C. A and B D. Neither A nor B

D. Neither A nor B The CAFR of a public employee retirement system (PERS) must include both an actuarial and an investment section in addition to the three basic sections required in any CAFR. Investment pools are required to represent an investment section in addition to the three basic sections required in any CAFR.

5.43. How should unfunded pension contributions or unfunded OPEB contributions be reported in the financial statements? A. Liability on government-wide statement of net assets B. Liability on governmental fund balance sheet C. Both A and B D. Neither A nor B

D. Neither A nor B The accrual-based liability for the cumulative effect of current and past underfunding of the annual required contribution for pensions is known as the net position obligation (NPO). No expenditure or liability is reported in the governmental fund financial statements.

3.17. Which of the following is an appropriate treatment for an interfund loan? A. Classification as an investment by the lender fund B. Classification as an other financing source by the borrower fund C. Both A and B D. Neither A nor B

D. Neither A nor B nterfund loans are treated quite differently in some important ways from loans involving parties outside the primary government. For example, the lender fund would never treat a loan to another fund as an investment, regardless of its legal form (e.g., promissory note). Furthermore, governmental funds would report the issuance of a long-term interfund loan as a balance sheet item (advances payable) rather than in the operating statement (other financing source), as would otherwise be the case.

10.63. How should the difference between assets and liabilities in a trust fund be reported? A. Fund balance B. Equity C. Three categories of net assets D. Net assets held for...

D. Net assets held for... Net assets should be reported as "assets held in trust for pension/other post employment benefits, pool participants, and other purposes."

10.22. Which of the following statements BEST describes the treatment of interest expense within business-type activities in the government-wide statement of activities? A. Sometimes a separate line item B. Normally a separate line item C. Always a separate line item D. Never a separate line item

D. Never a separate line item Interest expense is always included as part of individual functional expenses for business-type activities.

11.30. Which of the following statements is FALSE concerning note disclosure? A. Quantitative materiality should be considered when evaluating a potential note disclosure B. Qualitative materiality should be considered when evaluating a potential note disclosure. C. Note disclosures should focus on the primary government. D. None of the above

D. None of the above A material note disclosure is one of whose omission would be considered important by some financial statement users, either because of its size (quantitative materiality) or inherent interest (qualitative materiality). Also, the notes should focus on the primary government-specifically, its governmental activities, business-type activities, major funds, and nonmajor funds in the aggregate.

7.13. Which of the following typically would qualify as a joint venture? A. Participation in a public-entity risk pool B. Participation in an external investment pool C. Participation in a cost-sharing contract D. None of the above

D. None of the above A public-entity risk pool does not qualify because the purpose of the risk pool is to be long term. Cost-sharing agreements do not qualify because they do not create a separate activity. External investment pools do not qualify either because they are already the object of specialized guidance. All three are examples of other multiparty arrangements.

6.24. Which of the following statements is FALSE concerning the proper accounting and financial reporting for rate-regulated enterprises? A. The use of specialized accounting for rate-regulated enterprises is always voluntarily B. The recognition of revenues associated with rates levied in anticipation of future charges may be deferred C. If a gain reduces allowable costs and this reduction will be reflected in lower future rates, then the gain itself may be deferred D. None of the above

D. None of the above All are true.

6.3. Which of the following statements is FALSE regarding the use of internal service funds? A. Their use is not appropriate for activities that will only partially be financed through fees and charges B. A significant deficit could indicate that participating funds are not accurately reporting the cost of the goods or services they receive C. Fees and charges must be set to recover the replacement value of capital assets D. None of the above

D. None of the above All are true. The use of an internal service fund is not appropriate for activities that a government intends to finance only partially through fees and charges. A significant surplus or deficit in an internal service could be an indication that participating funds are not accurately reporting the costs of the goods or services they receive from that fund. Governments enjoy considerable flexibility in how they calculate capital-related charges. A government may choose to set charges based upon depreciation expense. If debt has been issued to acquire a capital asset, charges might be based upon debt service requirements. Some governments prefer to base charges on the estimated replacement cost.

18.14. Which of the following statements is FALSE concerning the periodic evaluation of internal controls? A. As a general rule, there should be at least one compensating control for each identified risk B. The design of controls should be evaluated before they are tested C. If it is determined that a control is not properly functioning as designed, it may be appropriate in some cases simply to eliminate that control D. None of the above

D. None of the above As a rule, there should be at least one compensating control for each identified risk. The first step in evaluating the adequacy of control-related policies and procedures is to evaluate the effectiveness of their design. Management must determine whether each compensating control is designed so that it could reasonably be expected to accomplish its intended purpose if it were properly implemented and maintained. If not, it would be of little use to test whether the control was implemented and remains operational. Sometimes a control is not operational because some other control is accomplishing the same purpose, and the government's personnel are relying on the alternative control. In that case, the preferred control should be used and the unneessary control eliminated. Sometime a control is not operational because the cost of the control clearly exceed the benefits. In that case, the government should replace the inefficient control with a more efficient control , or eliminate the control altogether.

13.1. Which of the following is one of the basic sections of a comprehensive annual financial report (CAFR)? A. Single Audit Section B. Actuarialsection C. Investment section D. None of the above

D. None of the above At minimum, every CAFR comprises three basic sections: introductory section, financial section, and statistical section.

14.3. Which of the following statements is FALSE concerning the benefits of participating in the Certificate Program? A. Obtaining a certificate reflects well on a government's financial management B. Receipt of the award can itself be a positive factor in credit assessments C. The certificate program's requirements are designed to produce CAFRs that better meet user needs D. None of the above

D. None of the above Benefits are: Obtaining the Certificate of Achievement is a significant accomplishment that reflects well on a government's financial management; Award-winning CAFRs provide much of the information needed for credit assessments. Moreover, the receipt of the Certificate of Achievement can itself be a positive factor in credit assessments; and The Certificate of Achievement Program's requirements are designed to produce CAFRs that are clear and complete, and so better meet the needs of citizens, investors, and other potential users.

10.59. Which of the following should NOT be reported in the noncapital financing activities category of the proprietary fund statement of cash flows? A. Grant receipts involving grants not restricted to capital purposes B. Grant payments involving grants not restricted to capital purposes C. Grant payments involving grants restricted to capital purposes D. None of the above

D. None of the above Cash flows from noncapital financing activities include borrowing and repayments (principal and interest) of debt that is not clearly attributable to capital purposes. This category is used to report grant proceeds not specifically restricted to capital purposes, as well as grant payments (both capital and otherwise) to other entities.

10.56. Which of the following items does NOT have to be classified as cash in the proprietary fund statement of cash flows? A. Cash on deposit B. Cash in restricted accounts C. A position in a pooled cash and investment pool that has the same characteristics as a demand deposit D. None of the above

D. None of the above Cash includes: cash on hand, cash on deposit, cash in restricted accounts, and a position in a cash and investment pool that has the same characteristics as a demand deposit.

17.7. Which of the following statements is FALSE concerning the possibility of the GASB mandating standards of SEA reporting in the future? A. The GASB believes that further experimentation is needed before it will be able to consider the possibility of actually mandating the presentation of specific SEA indicators B. The GASB believes that it would need to rely heavily upon the expertise of professionals in the relevant disciplines if it were to mandate the presentation of specific SEA indicators C. The GASB believes that SEA measures, because of their inherent importance in the public sector, necessarily meet the cost/benefit test D. None of the above

D. None of the above Further experimentation is needed before specific SEA indicators can be mandated. The expertise of professionals in the relevant disciplines is needed to create sets of SEA measures that could serve as a starting point for the GASB's own standard-setting activity. SEA must meet the cost/benefit test.

9.15. Which of the following statements is TRUE concerning popular reporting? A. Popular reports are technically classified by auditors as condensed financial statements B. Because popular reports are not detailed enough to comply with GAAP C. The issuance of popular reports is discouraged in the public sector, because they are not sufficiently detailed to demonstrate accountability D. None of the above

D. None of the above Generally accepted auditing standards (GAAS) treat popular financial reports as summary financial information (SFI). An auditor may give an opinion regarding whether SFI is fairly stated in all material respected in relation to the general-purpose financial statements from which is has been derived. GFOA encourages the issuance of popular reports and has provided specific guidance in the form of a recommended practice.

19.5. Which of the following statements is FALSE concerning the application of the concept of materiality? A. A misstatement may be judged material because of its size B. A potential misstatement may be judged material regardless of size C. Potential legal violations are often considered to be material D. None of the above

D. None of the above Given the objective of reasonable assurance, an auditor is primarily concerned with those potential misstatements that could have a material (important or significant) impact on how a financial statement user evaluates an entity's finances. In making a judgment regarding the materiality of a potential misstatement, an auditor must consider its quantitative and qualitative aspects. Many financial statement users consider potential misstatements involving legal violations to be qualitatively material by their very nature.

10.7. Which of the following statements is FALSE concerning the presentation of discretely presented component units in the basic financial statements? A. Governments should present discretely presented component units in one or more separate columns immediately following the total column for the primary government. B. The information for each discretely presented component unit should be taken from its government-wide financial statements. C. Information on major individual component units must be included within the basic financial statements. D. None of the above

D. None of the above Governments should present their non-fiduciary discretely presented component units as one or more separate columns immediately after the total column for the primary government. The information for each discretely presented component unit should be taken from its government-wide financial statements. Information on major individual component units must be included within the basic financial statements.

12.26. Which of the following statements is FALSE concerning the proper accounting and financial reporting for capitalization contributions on the part of contributors? A. In some cases, the contribution is reported net of the related liability B. In some cases, the contribution may be reported as an expenditure C. In some cases, the contribution may be reported as a prepaid asset D. None of the above

D. None of the above If the return of the contribution is considered to be probable, then it should be treated by the participating government as a deposit (i.e., an asset or, if there is a liability for claims and judgments, a reduction of the liability. If the return of the contribution is not considered to be probable, the appropriate accounting and financial reporting depends upon the fund or unit making the contribution. Governmental funds have the option of reporting the contribution either as a prepaid asset or as an expenditure of the period.

12.23. Which of the following is NOT an appropriate classification for a capital asset impairment? A. Extraordinary item B. Special item C. General revenues/general government expenditures D. None of the above

D. None of the above In some cases, a capital asset impairment will qualify as an extraordinary item. Capital asset impairments that are subject to management control (e.g., change in manner or duration of use) may qualify as special items. Otherwise, capital asset impairments should be treated as a component of net program cost in the appropriate functional category.

15.19. Which of the following would appear in the investment section of a PERS' comprehensive annual financial report (CAFR)? A. Schedule of investment expenses B. Actuary's certification letter C. Analysis of financial experience D. None of the above

D. None of the above Investment section consists of a report on investment activities, an outline of investment policies, investment results, asset allocation, a list of largest assets held, a schedule of fees and commissions, and an investment summary.

13.17. Which of the following would be included in a combining financial statement? A. A major special revenue fund B. A major capital projects fund C. A major enterprise fund D. None of the above

D. None of the above It is the role of the combining and individual fund presentations to provide detail on 1. nonmajor governmental funds, 2. nonmajor enterprise funds, 3. individual internal service funds and fiduciary funds, and 4. nonmajor individual discretely presented component units. Major funds are presented in the basic financial statements.

10.36. Which of the following liabilities could appear in a governmental fund balance sheet? A. Liability for estimated claims and judgments B. Obligations under long-term operating leases with scheduled rent increases not yet due C. Net pension obligation D. None of the above

D. None of the above No liability is recognized in governmental funds for claims and judgments until amounts are actually due and payable. No liability is recognized in governmental funds for obligations under long-term operating leases with scheduled rent increases until payments are due in accordance with the contractual payment schedule. No liability is ever recognized in governmental funds for the net pension obligation.

7.9. If a private-purpose trust fund is used to account for escheat property, what amount should be reported as a liability in that fund? A. Amount expected to be paid to individuals B. Total amount of escheat assets C. Amount due to the general fund D. None of the above

D. None of the above No liability should be reported in the fund for amounts expected to be paid to individuals and private organizations.

8.4. Which of the following statements is FALSE regarding the worksheet used to convert governmental fund data for inclusion in the government-wide financial statements? A. Nothing in the process can alter the underlying fund data B. Adjustments to temporary accounts often restate permanent accounts as well C. Once adjustments have been made, expenditure accounts will actually represent expenses D. None of the above

D. None of the above Nothing in the process used to prepare the government-wide financial statements can alter the underlying fund data. Instead, the adjustments needed to convert fund data for incorporation typically are made on a special worksheet. In virtually all cases, the adjustments needed to convert modified accrual temporary accounts to their accrual equivalent will automatically restate the permanent accounts on an accrual basis. Once all adjustments have been made, accounts originally described as expenditures will actually represent expenses.

9.8. Which of the following is NOT a part of the basic financial statement? A. Government-wide financial statements B. Fiduciary fund financial statements C. Notes to the financial statements D. None of the above

D. None of the above The basic financial statements include the government-wide financial statements, the governmental fund financial statements, the proprietary fund financial statements, the fiduciary fund financial statements, and the notes to the financial statements.

9.7. Which of the following is NOT an essential characteristic of accounting data? A. Reliability B. Timeliness C. Comparability D. None of the above

D. None of the above The essential characteristics of accounting data are understandability, reliability, relevance, timeliness, consistency, and comparability.

11.16. Which of the following is the PREFERRED method for disclosing interest-rate risk? A. Segmented time distribution B. Weighted average maturity C. Duration D. None of the above

D. None of the above The method selected to disclose interest-rate risk should reflect how that risk is actually managed within the government.

12.12. Which of the following may NOT be reported as an asset in a governmental fund? A. Foreclosure assets held for resale, but not sold prior to the issuance of the financial statements B. Redevelopment properties held for resale, but not sold prior to the issuance of the financial statements C. Donated capital assets held for resale, but not sold prior to the issuance of the financial statements D. None of the above

D. None of the above There are situations where land and buildings are acquired for the express purpose of resale rather than for use in the government's operations. In such cases,land and buildings may properly be reported in a governmental fund as financial assets (assets held for resale). Three instances of assets held for resale are commonly encountered: foreclosure assets, redevelopment properties, and donated capital assets.

17.9. What was the GASB's decision regarding the frequency of SEA reporting? A. Annual reporting should be required B. Triennial reporting should be required C. Annual reporting should be encouraged, but triennial reporting required D. None of the above

D. None of the above Two other issues also need to be addressed before the GASB could begin to mandate the reporting of SEA data. The frequency of SEA reporting (annual or cyclical) and where SEA data should be reported.

17.6. Which of the following statements is FALSE concerning the GASB's views on the necessary characteristics of SEA measures? A. SEA measures should be both concise and comprehensive B. SEA data should be accompanied by explanatory information C. SEA data should be derived from systems that are subjected to analysis similar to that used for financial information systems D. None of the above

D. None of the above Understandability requires that SEA reporting be concise and comprehensive. Understandability also requires that SEA data be accompanied by explanatory information. Comparability requires the SEA reporting be placed within an appropriate frame of reference. Reliability that SEA data be derived from systems that are "subjected to analysis similar to that used for financial information systems."

17.10. What was the GASB's decision regarding the appropriate location for SEA? A. Notes to the financial statements B. Required supplementary information C. Statistical section of the comprehensive annual financial report D. None of the above

D. None of the above Where SEA data should be reported: required supplementary information, statistical section of the comprehensive annual financial report, or separate SEA report (most likely per GASB).

12.25. How would a government's explicit measurable equity interest in a joint venture be reflected in net assets--governmental activities if it represented an interest in the capital assets of the joint venture? A. Net assets invested in capital assets, net of related debt B. Restricted net assets C. Unrestricted net assets D. Not reflected (i.e., asset not reported)

D. Not reflected (i.e., asset not reported) Governments report an asset for their participation in a joint venture only when they have an explicit, measurable equity interest in the joint venture based upon the joint venture agreement. To the extent that a government's explicit, measurable equity interest in a joint venture is not a financial asset (i.e., because it represents an underlying interest in the capital assets of the joint venture), it should not be reported as an asset in the governmental funds.

5.40. In which of the following situations would the reporting of an asset NEVER be required? A. Inventories accounted for using the consumption method B. Inventories accounted for using the purchases method C. Prepaids accounted for using the consumption method D. Prepaids accounted for using the purchases method

D. Prepaids accounted for using the purchases method Unlike inventories, GAAP do not require that significant balances of prepaid item be reported as assets if the purchases method is used.

15.9. Which of the following statements BEST describes the appropriate recognition of program revenues in connection with SINGLE PROGRAM GRANTS accounted for in more than one function? A. Program revenue should not be recognized B. Program revenue should be recognized only if the amount to be spent on each function is specified in the grant agreement C. Program revenue should be recognized only if amounts can be allocated among functions without the use of a formula D. Program revenue should be recognized even if a formula is needed to allocate revenue among functions

D. Program revenue should be recognized even if a formula is needed to allocate revenue among functions Normally, multipurpose grants only qualify as program revenue if the amount to be spent on each function is specified. This rule does not apply, however, to a single-program grant that is accounted for in more than one function. Rather, single-program grants should always be treated as program revenue, even if a formula is needed to allocate that revenue among the various functions used to account for the single program.

5.33. Which of the following best describes the appropriate treatment in the general fund for risk financing premiums received from other funds? A. Transfers B. Revenues C. Other financing source D. Reductions of expenditures/transfers

D. Reductions of expenditures/transfers When the general fund is used to report risk financing activities, premiums received from other funds normally should be treated as an interfund reimbursement by the general fund. Any amount of premiums received in excess of risk-related expenditures should be treated instead as an interfund transfer.

5.1. Which of the following best describes the proper treatment for uncollectible amounts of revenue? A. Report bad debt expense B. Report bad debt expenditure C. Report revenue net of uncollectible amounts D. Report deferred revenue

D. Report deferred revenue Revenues should be reported net of estimated uncollectible amounts in governmental funds. If it is later determined that the allowance must be decreased, the adjustment would be an increase in revenue (if available) or in deferred revenue (if still unavailable). If the allowance must later be increased, the adjustment would be a reduction of deferred revenue.

6.7. Which of the following is NOT a difference between FASB Statement No. 34 and FASB Statement No. 62? A. Start of capitalization period B. Close of capitalization period C. Formula used to calculate capitalized interest D. Requirement that debt proceeds be externally restricted to specified qualifying assets

D. Requirement that debt proceeds be externally restricted to specified qualifying assets If bond proceeds are not externally restricted for the acquisition of specified qualifying assets, interest would still need to be capitalized in accordance with FASB Statement No. 34.

10.37. Which of the following is NEVER properly classified as reserved fund balance? A. Reserved for long-term loans and advances B. Reserved for equity in joint ventures C. Reserved for encumbrances D. Reserved for increase in fair value of investments

D. Reserved for increase in fair value of investments A designation is the appropriate way to highlight that a portion of unreserved fund balance reflects an increase in the fair value of investments that the government does not intend to liquidate in the following year.

10.33. How should the net cumulative effect of a change in accounting principles be reported in the government-wide statement of activities? A. Program expense/general revenue B. Special item C. Separate "cumulative effect" adjustment proceeding change in net assets D. Restatement of beginning net assets

D. Restatement of beginning net assets The net cumulative effect of a change in accounting principles should be reported as a restatements of beginning net assets. This treatment departs from that set forth in Accounting Principles Board Opinion No. 20, Accounting Changes.

13.15. If a government uses the modified approach for one or more networks or subsystems of infrastructure, what information must it report concerning the condition of those assets? A. Results of most recently completed condition assessment in notes to the financial statements B.Results of most recently completed condition assessment as RSI C. Results of three most recently completed condition assessments in notes to financial statements D. Results of three most recently completed condition assessments as RSI

D. Results of three most recently completed condition assessments as RSI A government that elects to follow the modified approach is required to present two types of information: the results of the three most recently completed condition assessments to demonstrate that assets have, in fact, been maintained at or above the target condition level established by the government and the government's estimate of the amount needed to maintain or preserve infrastructure assets at the level established by the government and actual amounts of expense for each of the past five reporting periods. These two types of information should be accompanied by disclosures as notes to RSI.

5.32. How should the issuance of no-commitment special assessment debt be treated in a governmental fund that receives the proceeds for construction? A. Other financing source - bond proceeds B. Other financing source - contributions from property owners C. Revenue - bond proceeds D. Revenue - contributions from property owners

D. Revenue - contributions from property owners The receipt of the proceeds of no-commitment special assessment debt should not be described as the receipt of bond proceeds or classified as an other financing source, but should instead be reported as revenue and described as contributions from property owners (or something similar).

2.12. Which of the following fund types should be used for restricted resources that are permanently invested? A. General fund B. Special revenue fund C. Permanent fund D. B or C

D. Special revenue fund or permanent fund Sometimes there is a requirement through enabling legislation that a portion of restricted resources be permanently invested. GAAP expressly indicate that a government may use a special revenue fund or a permanent fund in such situations.

11.4. Which of the following is NOT a required disclosure in the SSAP? A. A description of component units included within the financial reporting entity B. Information on how to obtain the separately issued financial statements of component units C. A discussion of the criteria for including component units within the financial reporting entity D. Summary financial information on related organizations

D. Summary financial information on related organizations GAAP require that the SSAP provide the following information concerning the financial reporting entity: 1) description of the component units included within the financial reporting entity, 2) description of the relationship between the component units and the primary government, 3) description of the relationship between the component units and the primary government, 3) discussion of the criteria for including component units within the financial reporting entity 4) discussion of how component units are reported, and 5) information on how to obtain the separately issued financial statements of component units.

14.5. Which of the following is NOT eligible for submission to the Certificate Program? A. The CAFR of a department of the general fund B. The CAFR of a department reported as an enterprise fund C. The CAFR of a component unit D. The CAFR of an external investment pool

D. The CAFR of an external investment pool The report submitted to the program must be the published CAFR of a state or local governmental entity, which includes special-purpose entities such as public employee retirement systems, public colleges and universities, government investment pools, and stand-alone business-type activities. The CAFR must include all funds and component units of the entity, in accordance with GAAP as established by the GASB. A component unit that publishes a CAFR is eligible to submit that report to the program for review, provided that 1. includes all of the component unit's own funds and (sub)component units and 2. the fund types used in the component unit's report are the same as those used to account for its activities in the primary government's report (except for the conversion of a general fund to a special revenue fund). A department of a government that publishes a CAFR is eligible to submit to its report to the program for review, provided that the department is composed of one or more separate funds.

5.23. Which of the following statements best describes the purpose behind the other financing sources category? A. Other financing sources are equivalent to gains B. The category is used to distinguish exchange and exchange-like transactions from nonexchange transactions C. The category is used to distinguish interfund activity from transactions and events involving parties outside the financial reporting entity D. The category is used to isolate certain nonroutine inflows that might otherwise distort revenue trend analysis

D. The category is used to isolate certain nonroutine inflows that might otherwise distort revenue trend analysis Governmental funds distinguish two categories of resource inflows: revenues and other financing sources. The latter is used to isolate certain nonroutine inflows that might otherwise distort the analysis of revenue trends.

9.1. Which of the following is a FALSE statement concerning internal financial reports? A. Management is free to select their format B. Management is free to select their contents C. They typically are prepared using the basis of budgeting D. They typically are issued annually

D. They typically are issued annually Internal financial reports are issued periodically rather than just annually, as is often the case for external financial reports.

9.2. Which of the following groups is NOT considered to be a primary user of general-purpose external financial reporting? A. Those to whom the government is primarily accountable B. Those who directly represent the citizens C. Those who lend to the government or participate in the lending process D. Those who manage the government's resources

D. Those who manage the government's resources Management is not considered a primary user of general-purpose external financial reports because it has direct access to the underlying financial data in the accounting system.

12.13. What NORMALLY is the definitive factor in determining which government should report a given capital asset on its statement of position? A. Usage B. Responsibility for maintenance C. Residual interest D. Title

D. Title As a general rule, governments should report all and only those capital assets that they own. Ownership typically is evidenced by title (unless some other party has the risks and benefits of ownership, as in a capital lease). If ownership if unclear, a capital asset should be reported by the government that is primarily responsible for its management and maintenance.

14.8. What is the proper role of popular annual financial reporting? A. To eliminate the need for financial reporting in accordance with generally accepted accounting principles (GAAP) for smaller governments B. To meet the special needs of those not designated as the primary users of general-purpose external financial reporting C. To provide different types of information than what would typically be found in a GAAP presentation (e.g., replacement cost of capital assets versus historical cost) D. To assist those who need or desire a less detailed overview of a government's financial activities

D. To assist those who need or desire a less detailed overview of a government's financial activities GFOA believes it is desirable to supplement (rather than replace) the traditional CAFR with simpler, popular reports designed to assist those who need or desire a less detailed overview of a government's financial activities.

19.25. What is the primary goal of an internal auditor? A. To reduce costs by assisting the independent auditor B. To provide independent assurance concerning the reliability of internal financial reports C. To prevent and detect fraud D. To help management to function more efficiently and effectively

D. To help management to function more efficiently and effectively The goal of the internal auditor is to help management function more efficiently and effectively.

10.47. Which of the following items is NOT a required component of the budgetary comparison mandated in connection with the basic financial statements and RSI? A. Original budget B. Actual column (budgetary basis) C. Final amended budget D. Variance column

D. Variance column GAAP encourage governments to present a variance column to highlight differences between actual amounts and the final amended budget. Governments also have the option of presenting a variance column for differences between the original budget and the final amended budget.

12.60. T/F The initial difference between the fair value of the assets related to a split-interest agreement and the liability to the beneficiary should be recognized as capital contribution.

False A college or university should recognize an asset equal to the fair value of the assets held in trust at the inception of a split-interest agreement. The initial difference between the fair value of the assets held in trust and the liability to the beneficiary should be recognized as gift revenue.

7.26. T/F A residual claim to the assets of a joint venture should be considered evidence of an ongoing financial interest.

False A residual claim to the assets of a joint venture upon dissolution should not be considered evidence of an ongoing financial interest.

11.42. T/F A schedule of short-term debt is only required if short-term debt is outstanding at the close of the fiscal year.

False A schedule of short-term debt is required even if no short-term debt is outstanding at the close of the fiscal year.

8.13. T/F A typical conversion worksheet will combine the preclosing trial balance for governmental funds and the closing balances of the various accounts used to track general government assets and liabilities.

False A typical conversion worksheet will combine the preclosing trial balance for the governmental funds and the opening balances of the various accounts used to track general government assets and liabilities.

2.34. T/F The government-wide financial statements use the economic resources measurement focus and the accrual basis of accounting, whereas all funds, regardless of type, use the current financial resources measurement focus and the modified accrual basis of accounting.

False All activities included within the government-wide financial statements, both governmental and business-type, are measured and reported using the economic resources measurement focus and the accrual basis of accounting. Only governmental funds, however, measure and report activities using the current financial resources measurement focus and the modified accrual basis of accounting.

19.29. T/F All state and local government audits must be performed in accordance with GAGAS.

False All audits performed in conformity with federal audit requirements (e.g., Single Audits) must be conducted in accordance with GAGAS. Likewise, a number of states have voluntarily mandated the use of GAGAS standards for state and local government financial audits, even in the absence of a federal requirement to employ GAGS. Absent such a requirement, financial audits of state and local governments, like those of private-sector businesses and nonprofit organizations, are performed in conformity with GAAS.

3.26. T/F The allocation of overhead is an example of interfund services provided and used.

False Allocations of indirect costs (overhead) are properly classified as reimbursements.

19.32. T/F An auditor's letter to management may not be necessary in a GAGAS audit.

False Auditors are required to communicate all reportable conditions. In GAGAS audits, including Single Audits, this communication takes the form of the auditor's reports on internal control and compliance and the accompanying schedule of findings and questioned costs. For government audits not subject to Yellow Book standards, reportable conditions are communicated to management in a separate management letter.

6.30. T/F General obligation debt should never be reported as debt of an individual enterprise fund.

False Debt should be reported in a proprietary fund if both of the following criteria are met: the debt is directly related to the proprietary fund and the debt is expected to be paid from the proprietary fund.

15.32. T/F Debt used to finance capital grants to other governments should be part of the calculation of net assets invested in capital assets net of related debt.

False Debt used to finance capital grants to other governments should be part of the calculation of unrestricted net assets.

10.90. T/F Fiduciary-type discretely presented component units should be reported separately from fiduciary funds of the primary government.

False Fiduciary type discretely presented component units are treated no differently than other fiduciary funds (i.e., they are combined into the appropriate fund-type column).

3.34 T/F Both the unspent proceeds of capital debt and the debt itself should be reflected as part of net assets net of related debt.

False Financial assets are not truly "capital" until they are actually spent for some capital purpose (e.g., construction, purchase of existing assets). Accordingly, neither the unspeant proceeds of debt issued for capital purposes, nor the debt itself should enter into the calculation of net assets invested in capital assets, net of related debt.

9.18. T/F Operational accountability focuses on whether governments have complied with public decisions concerning the raising and spending of public moneys in the short term.

False Fiscal accountability is the responsibility of governments to justify that their actions in the current period have complied with public decisions concerning the raising and spending of public moneys in the short term (usually one budgetary cycle or one year). Operational accountability is governments' responsibility to report the extend to which they have met their operating objectives efficiently and effectively, using all resources available for that purpose, and whether they can continue to meet their objectives for the foreseeable future.

11.33. T/F By definition, securities held in "street name" or "nominee name" are not held "in the name of the government" for purposes of evaluating custodial credit risk

False For classifying custodial credit risk, securities held in street or nominee name may be considered held in the name of the government, provided the custodian's underlying records adequately establish the government's interest in the securities.

2.16. T/F Fund accounting is primarily intended to enhance operational accountability.

False Fund accounting, specifically designed to help governments ensure and demonstrate legal compliance, is naturally well-suited to achieving the goal of fiscal accountability.

4.12. T/F An entity can be the component unit of more than one primary government.

False GAAP clearly state that a single entity may be the component unit of one, and only one, primary government. However, it is possible that a single legally separate organization MAY meet the tests to qualify as the component unit for more than one primary government.

4.13. T/F Blending should only be used if the board of the component unit is substantively the same as the board of the primary government.

False GAAP identify two situations where the use of blending is appropriate: 1) shared governing body and 2) exclusive or almost exclusive benefit to the primary government.

2.18. T/F The general fund of the financial reporting entity should incorporate the general fund of any blended component units.

False GAAP prescribes that a government report only one general fund. If a separate legal entity's data is blended with those of the government, the general fund of the separate legal entity should be reclassified as a special revenue fund.

17.13. T/F The GASB believes that measures of efforts must be exclusively financial if they are to be a part of general-purpose external financial reporting.

False GASB explored the possibility of expanding general-purpose external financial reporting to include performance measures, which the GASB refers to as "service efforts and accomplishments" SEA reporting.

17.12. T/F GFOA believes that performance measurement should be incorporated into both financial reporting and budgeting.

False GFOA believes that performance measures are an important component of decision making and should be incorporated into governmental budgeting.

19.33. T/F The Government Finance Officers Association (GFOA) recommends that governments adopt a policy mandating the rotation of the independent auditor at the end of the audit contract.

False GFOA believes that the frequent lack of competition among audit firms fully qualified to perform public-sector audits could make a policy of mandatory auditor rotation counterproductive.

12.46. T/F Governments may net the difference between interest incurred and interest earned in connection with reverse repurchase agreements to better focus attention on the resulting net earnings.

False Governments often like to focus attention on the net difference between interest rate on the borrowing and the income generated by the reinvestment. GAAP, however, specifically prohibit the netting of these amounts.

7.23. T/F If a government temporarily invests taxes that it collects on behalf of other governments it should report those resources in an investment trust fund.

False Governments often temporarily invest resources that have been pooled for a purpose other than the generation of income (resources accumulated for the construction phase of a joint venture, taxes collected for other governments but not yet remitted, public entity risk pools). Such arrangements are not pools because the generation of income is not their primary purpose.

12.44. T/F Governments that participate in a Securities and Exchange Commission 2a-7-like investment pool must value their position in the pool at fair value.

False Governments that participate in 2a7-like pools may value their position in the pool based upon the price of their shares, even if share price is a function of the amortized cost of the underlying investments rather than their fair value.

11.43. T/F The notes to the financial statements should not disclose the balance of no-commitment special assessment debt outstanding.

False If a government is not obligated in any manner for special assessment debt, then the notes should disclose the amount of the debt as well as the information that the government is only acting as an agent and is in no way liable for the debt.

2.29. T/F A government must use the general fund to account for its risk financing activities.

False If a single fund is to be used for risk financing activities (or for all risk financing activities of a given type), that fund should be either the general fund or an internal service fund.

3.28. T/F Payments in lieu of taxes within the primary government are always classified as interfund services provided and used.

False In a typical case, there is no direct relationship between the amount of the payments in lieu of taxes (PILOTs) and the value of the specific goods or services provided to the fund making the payment. In such a typical situation, PILOTs would be classified as interfund transfers rather than as interfund services provided and used because of their essentially nonreciprocal character.

10.76. T/F Interest on debt legally restricted for use in a given governmental function would probably qualify as a functional expense.

False In almost all cases, interest on debt associated with governmental activities cannot meaningfully be associated with individual functions, and so should be reported as a separate line within governmental activities on the government-wide statement of activities. This treatment applies to interest on debt legally restricted for use in a given governmental function.

10.86. T/F Cash flows normally should be reported net.

False In most instances, GAAP require that cash flows be reported gross rather than net.

12.66. T/F Unused sick leave that will be converted to some form of defined benefit other postemployment benefit should be accrued as part of the liability for compensated absences.

False In some situations, unused sick leave balances may not qualify for payout upon termination; instead, they may be credited to an employee's legnth of service for purposes of calculating the employee's pension benefits. Such amounts should not be accrued as part of the leave liability, because they are considered instead in connection with calculating pension cost. Unused sick leave that is coverts to a defined benefit OPEB is properly taken into consideration as part of the calculation of the cost of OPEB.

12.65. T/F Unused sick leave that will be credited to an individual account to be used to pay for other postemployment benefits should be accrued as part of the liability for compensated absences.

False In some situations, unused sick leave balances may not qualify for payout upon termination; instead, they may be credited to an employee's legnth of service for purposes of calculating the employee's pension benefits. Such amounts should not be accrued as part of the leave liability, because they are considered instead in connection with calculating pension cost. Unused sick leave that is credited to an individual account to be used to pay for OPEB constitutes a termination payment that should be part of the calculation of the leave liability.

3.21. T/F If there is any disparity between amounts received and amounts given in a transaction, it must be classified as a nonexchange transaction.

False In the public sector, situations frequently arise where "the values exchanged, although related, may not be quite equal or in which the direct benefits may not be exclusively for the parties to the transaction." GAAP classify such arrangements as "exchange-like transactions".

3.23. T/F In an exchange-like transaction, the values exchanged must be equal.

False In the public sector, situations frequently arise where "the values exchanged, although related, may not be quite equal or in which the direct benefits may not be exclusively for the parties to the transaction." GAAP classify such arrangements as "exchange-like transactions".

18.25. T/F Any sound control-related policy or procedure will both prevent and detect errors and irregularities.

False Individual control-related policies and procedures can be divided between those that are designed to prevent the occurrence of errors and irregularities and those that are designed to detect errors and irregularities after they have occurred.

2.30. T/F The use of an internal service fund is appropriate in situations where it is not the government's intent to recover the full cost of goods and services provided.

False Internal service funds are specifically designed for goods or services that are provided on a cost-reimbursement basis. That is, the goal of an internal service fund should be to measure the full cost of providing goods or services for the purpose of fully recovering that cost through fees or charges.

2.23. T/F Accounting and financial reporting are synonymous for all practical purposes.

False It is important to distinguish accounting from financial reporting. Whereas an accounting system must collect all of the data needed to ensure and demonstrate legal compliance, financial reporting is concerned with only those aspects of compliance that are of importance to users of general purpose external financial reports.

14.15. T/F Reviewers must agree that a report has thoroughly complied with all of the Certificate Program's criteria for an award to the made.

False It is only when reviewers agree that a report has substantially met the program's criteria that a Certificate of Achievement is awarded.

3.33. The proper focus of a fund balance policy is total fund balance.

False It is recommended that the appropriate policy-setting body within a government establish a formal policy on the level of unreserved fund balance to be maintained in the general fund.

12.48. T/F The cost of land associated with infrastructure should be treated as part of the cost of the infrastructure.

False Land associated with infrastructure should be reported as land rather than as part of the cost of the related infrastructure asset.

13.34. T/F MD&A should address significant budget variances for the general fund and major special revenue funds.

False MD&A should address significant differences between 1. the original budget for the general fun and the final amended budget and 2. the final amended budget for the general fund and actual amounts.

13.33. T/F If a government presents comparative basic financial statements, comparative condensed financial data need not be presented in MD&A.

False MD&A should always present condensed, government-wide comparative financial data for both the current fiscal period and the prior fiscal period, regardless of whether comparative data are presented on the face of the basic financial statements.

5.55. T/F Governmental funds may need to report a payable in connection with certain operating leases with scheduled rent increases.

False No special expenditure or liability is reported in connection with operating leases with scheduled rent increases in the governmental fund financial statements.

10.88. T/F A total column should be presented for the statement of fiduciary net assets.

False No total column should be presented as the statement does not support amounts reported in the government-wide statement of net assets.

12.54. T/F Improvements are never capitalized for networks or subsystems of infrastructure assets accounted for using the modified approach.

False Only additions or improvements that enhance the asset's functionality should be capitalized under the modified approach.

13.42. T/F Individual financial statements should be grouped by type of statement (e.g., first all individual fund balance sheets, then all individual fund operating statements).

False Sets of financial statements should always be presented together as a unit. Thus, a complete set of combining financial statements should be presented before any related individual fund statements and schedules are presented. Sets of individual fund financial statements should be sequenced in the same order in which the related columns appear in the combining statements.

15.33. T/F Shared revenues are properly considered taxes by benefiting school districts.

False Shared revenues are not considered taxes from the perspective of benefiting school districts. They are instead properly classified as other government-mandated or voluntary nonexchange transactions (i.e., only program revenue if they are restricted to a purpose narrower than "education").

2.22. T/F Sound financial administration requires that governments report each debt issue in a separate debt service fund.

False Sound financial management requires that a government account for each debt issue separately in its accounting system. General-purpose external financial reports, however, need not necessarily provide information at this level of detail. Thus, a single debt service fund often may be sufficient for purposes of general-purpose external financial reporting, provided that detailed information on balances related to individual debt issues is properly maintained in the government's accounting system.

12.59. T/F If the period over which a capitalization contribution to a public-entity risk pool is being factored into premiums cannot be determined, amortization should occur over a period not to exceed five years.

False Such a prepaid asset should be reported as an expenditure or expense over the period coverage is to be provided (which should be consistent with the period during which the contribution is factored into the pool's determination of premiums; if the period is not readily determinable, expenditure or expense should be reported over a period not to exceed ten years).

14.11. T/F A primary government that does not include its component units within its CAFR may participate in the Certificate Program, provided that the scope of the report is clearly disclosed.

False The CAFR must include all funds and component units of the entity, in accordance with GAAP as established by the GASB.

3.29. T/F Both an other financing source and an other financing use are reported at the inception of a capital lease.

False The GAAP treatment to record the inception of a capital lease in a governmental fund is patterned on that followed for other long-term debt. That is, an amount equal to the present value of the net minimum lease payments is reported as an other financing source, even though no cash is actually received in the case of a lease. At the same time, this same amount is also reported as an expenditure.

19.39. T/F GFOA recommends that every government establish an internal audit function.

False The GFOA urges every government to consider the feasibility of establishing a formal internal audit function.

14.13. T/F A government participating in the Certificate Program is NOT eligible to receive an extension in two consecutive years, regardless of the reason.

False The application must be postmarked no later than six months after the end of the government's fiscal year. An extension of 30 days is possible when justified by extenuating circumstances. A government is not eligible to receive an extension in two consecutive years for the same reason.

12.57. T/F It should be assumed that declines in the service utility of capital assets are temporary.

False The burden of proof is on the government to demonstrate that a given impairment is only temporary.

15.36. T/F Net assets held in trust for OPEB should be accompanied by a parenthetical reference to the schedule of funding progress.

False The difference between plan assets and plan liabilities should be reported as net assets in trust for OPEB. Note that OPEB plans do not have to provide a parenthetical reference to their statement of funding progress, as is the case for pension plans.

18.22. T/F The documentation of policies and procedures generally should avoid explaining the purpose of control-related procedures to avoid facilitating their circumstances by dishonest employees.

False The documentation of finance-related policies and procedures should explain the design and purpose of control-related procedures to increase employee understanding of and support for controls.

8.15. T/F NET ASSETS associated with the difference between general government assets and liabilities is equivalent to the amount reported as net assets-governmental activities in the government-wide statement of net assets.

False The equity associated with general government assets and liabilities is commonly labeled NET ASSETS. This account is not equivalent to net assets-governmental activities, which would include not only NET ASSETS, but also fund balance.

10.71. T/F The fact that resources are reported in a special revenue fund is sufficient evidence to justify their being reported as restricted net assets.

False The fact that resources are reported in a special revenue fund is not, of itself, sufficient evidence to justify their being reported as restricted net assets. The reason is that the term "restricted" has been understood to encompass self-imposed restrictions in the case of special revenue funds.

13.32. T/F It is not appropriate for a government to present charts and graphs in the letter of transmittal.

False The judicious use of charts and graphs is highly recommended.

12.55. T/F The modified approach is only available for infrastructure associated with governmental activities.

False The modified approach is available for all infrastructure networks and subsystems, including those of business-type activities.

11.44. T/F The amount of each conduit debt issue outstanding should be disclosed in the notes to the financial statements.

False The notes should disclose the aggregate amount of all conduit debt obligations outstanding at the balance sheet date.

12.63. T/F A fiscal funding clause normally disqualifies an agreement from being classified as a capital lease.

False The presence of a fiscal funding clause in a lease contract should not prevent the agreement from qualifying as a capital lease, provided that the likelihood of invoking the provision is considered to be remote.

19.37. T/F The focus of internal auditors is typically much narrower than that of the independent auditor.

False The primary focus of the independent auditor of the financial statements is on the fair presentation of the particular set of financial statements. The focus of internal auditors often extend to much broader managerial concerns, such as performance auditing.

12.52. T/F It is never acceptable to report fully depreciated capital assets.

False The reporting of fully depreciated capital assets is acceptable only if such balances do not become material (influence the financial decisions of users).

11.34. T/F Credit risk disclosure is not required for debt securities that are only held indirectly.

False The requirement to disclose credit ratings for debt securities applies regardless of whether those securities are held directly or indirectly.

2.20. T/F The use of a debt service fund is required whenever long-term general obligation debt is outstanding.

False The use of a debt service fund normally is permitted rather than required. The use of a debt service fund is required only if 1) legally mandated, or 2) if financial resources are being accumulated for principal and interest payments maturing in future years.

2.17. T/F Operational accountability is the responsibility of governments to justify that their actions in the current period have complied with public decisions concerning the raising and spending of public moneys in the short term (usually one budgetary cycle or one year).

False This definition is fiscal accountability. Operational accountability refers to governments' responsibility to report the extent to which they have met their operating objectives efficiently and effectively, using all resources available for that purpose, and whether they can continue to meet their objectives for the foreseeable future.

10.83. T/F The debt service character classification often is used only in debt service funds.

False Unlike capital outlays, there is no precedent in practice for including debt service amounts as part of the current expenditure reported for each functional activity in the general fund.

12.58. T/F Software upgrades should always be capitalized.

False Upgrades and enhancements should be capitalized only to the extent that they increase the functionality of the product.

16.12. T/F Virtually all budgets encountered in the public sector are of the flexible variety.

False Virtually all budgets encountered in the public sector are of the fixed (rather than the flexible) variety.

12.45. T/F Assets and liabilities associated with securities lending transactions must be reported separately from pooled cash and investments.

False When an internal investment pool participates in a securities lending arrangement of the reinvested-collateral type, the related assets and liabilities must be allocated among the participating funds in the financial statement based upon each fund's risk of loss on the collateral assets.

13.40. T/F Blended component units may never be included as part of a fund of the primary government because of their separate legal status.

False Blended component units are appropriately presented as funds of the primary government.

6.33. T/F Equipment used in connection with a landfill should be fully depreciated by the time the landfill closes, even if the equipment will continue to be used past that time.

False Equipment and facilities should be capitalized in the fund and depreciated over the period extending from their acquisition to no later than the date the landfill stops accepting solid waste, even if those assets have longer useful lives.

1.14. T/F Governments have the same financial objectives for all of their activities.

False - For business-type activities, the financial objective is to determine the extent to which the amount charged for goods and services is sufficient to cover all related costs, including those that will be paid only in future periods. The financial objective of governmental activities, on the other hand, has tended to focus on determining whether expendable resources are sufficient to cover expenditures of a given period, rather than on comparing revenues and related costs.

1.19. T/F AICPA Ethics Rule 203 covers all four levels of the GAAP hierarchy.

Fasle - AICPA Ethics Rule 203 covers level 1 guidance with Rule 202 covers guidance on levels 2, 3, and 4.

2.44. Indicate Fund Type: A government makes routine purchases of capital assets.

General Fund It does not follow from the decision to establish a capital projects fund that all capital acquisition need be accounted for in that fund. For example, the routine purchase of capital items such as police vehicles typically is reported in the general fund. Rather, the capital projects fund should be reserved for major capital acquisition or construction activities, especially those that would distort financial resources trend data if not reported separately from a government's operating activities.

2.40. Indicate Fund Type: A government operates a maintenance garage for all government vehicles and charges departments their share of the cost.

Internal Service Fund Internal service funds commonly may be used to report any activity that provides goods or services on a cost-reimbursement basis to other funds, departments, or agencies of the primary government and its component units, or to other governments. If other governments are involved, the use of an ISF is only appropriate if the sponsoring government is itself the predominant participant in the activity.

2.45. Indicate Fund Type: A county maintains individual investment accounts for governments within its jurisdiction.

Investment Trust Fund Governments sometimes hold specific investments on behalf of units outside the government (including its component units). For example, a county treasurer may hold individual investments on behalf of local governments within the county. GAAP refer to such holdings as individual investment accounts, which, like external investment pools, must be reported in an investment trust fund.

2.39. T/F Eventually, the net effect of either measurement focus on the operating statement is identical.

True Eventually the net effect of either measurement focus on the operating statement is identical. The fact that governmental funds recognize an operating statement inflow in connection with the issuance of debt is ultimately offset by the fact that governmental funds also recognize an operating statement outflow in connection with the repayment of debt service principal. Likewise, both governmental and proprietary funds ultimately recognize identical outflows in connection with capital assets - governmental funds in the form of capital outlay expenditures, and proprietary funds in the form of depreciation expense.

8.17. T/F It is never appropriate to consolidate one portion of a given internal service fund within governmental activities and another portion within business-type activities.

True A given internal service fund must be consolidated either entirely within governmental activities or entirely within business-type activities.

19.30. T/F A potential misstatement that had the practical effect of changing the direction of trend data typically would be considered material regardless of size.

True A potential misstatement that had a practical effect of changing the direction of trend data typically is considered material, regardless of size.

7.25. T/F Escheat assets held on behalf of other governments should be reported in a private-purpose trust fund if the government elects to use a separate fund for this purpose.

True A private-purpose trust fund may be used to account for escheat property.

18.24. T/F The control environment is the key factor in determining how likely a control failure is to occur.

True A vulnerability assessment functions on the premise that governments should evaluate high-risk control cycles before low-risk control cycles. A control cycle's degree of risk can be assessed based on two questions: 1) If a control failure were to occur, how significant would the potential effect be? and 2) How likely is it that a control failure will occur? The answer to the first question often is determined on the basis of management's assessment of the inherent risk connected with a particular control cycle. The answer to the second question typically is based on management's assessment of the quality of the control environment.

7.29. T/F Reporting for cost-sharing agreements is limited to note disclosure.

True Accounting and financial reporting for cost-sharing agreements is limited to disclosure in the notes to the financial statements.

8.14. T/F In a typical conversion worksheet, adjustments involving revenues and expenditures associated with prior periods can be made to the fund balance account.

True Adjustments that involve revenues and expenditures associated with prior periods can be made to the fund balance account, which ultimately will be included as a component of net assets.

13.45. T/F Information concerning property tax levies and collections in the statistical section of the CAFR generally should reflect the year for which taxes are levied.

True All information provided for property taxes should reflect the "year for which levied" used for purposes of revenue recognition.

4.17. T/F It is possible to be included as a component unit even in situations where neither the board appointment test nor the fiscal dependence test have been met.

True Almost all component units are so classified because they meet the test of board appointment or are fiscally dependent on the primary government. Nonetheless, GAAP recognize that special situations may arise where legally separate organizations that meet neither of these tests might still need to be included as part of the primary government's financial statements incomplete or potentially misleading.

12.50. T/F An easement should always be classified as an intangible asset.

True An easement qualifies as land. GASB Statement No. 51, Accounting and Financial Reporting for Intangible Assets, requires intangible assets to be classified and reported as capital assets. Examples of intangible assets include easements, water rights, timber rights, patents, trademarks, and computer software.

18.20. T/F Analytical review may involve comparisons of financial data with nonfinancial data.

True Analytical review is the process of attempted to determine the reasonableness of financial data by comparing their behavior with other financial and nonfinancial data.

10.80. T/F Any amount owed by a governmental fund to another fund of the primary government must be reported as a fund liability.

True Any amount owed by a governmental fund to another fund of the primary government must be reported as a fund liability, regardless of when repayment is expected.

10.75. T/F The need to use a formula normally indicates that a given cost is indirect.

True As a general rule, the need to use a formula for allocation purposes is an indication that a given cost is indirect rather than direct.

2.35. T/F All funds that use the modified accrual basis of accounting also use the current financial resources measurement focus.

True As a practical matter, a fund's basis of accounting is inseparably tied to it's measurement focus. Funds that focus on current financial resources (governmental funds) use the modified accrual basis of accounting.

7.24. T/F As a practical matter, governments may use agency funds as internal clearing accounts for accounting purposes.

True As a practical matter, a government may use an agency fund as an internal clearing account for amounts that have yet to be allocated to individual funds.

17.11. T/F Performance measures should be based on program goals and objectives that tie to a statement of program mission or purposes.

True At a minimum, performance measures should be based on program goals and objectives that tie to a statement of program mission or purpose.

19.36. T/F The Yellow Book specifically permits the use of the American Institute of Certified Public Accountants' attestation standards in conjunction with performance auditing.

True Auditors use special attestation standards when engaged to provide assurance regarding finance-related matters outside the scope of financial statement auditing (e.g., grant compliance). These same attestation standards also can be used by auditors engaged to conduct performance audits.

7.21. T/F Fiduciary funds are not included in the government-wide financial statements.

True Because resources of fiduciary funds, by definition, cannot be used to support the government's own programs, such funds are specifically excluded from the government-wide financial statements.

4.20. T/F Boards are considered to be substantively the same if the voting majority of the primary government's board is also the voting majority of the component unit's board.

True Boards should be considered substantively the same if there is sufficient representation of the primary government's entire governing body on the component unit's governing body to allow complete control of the component unit's activities. In practice, sufficient representation means that a voting majority of the primary government's board.

13.36. T/F Budgetary comparisons are always properly titled schedules.

True Budgetary comparisons presented as RSI are properly described as schedules rather than as statements.

15.34. T/F Charter schools typically do not meet the regular criteria for inclusion as a component unit of a school district.

True Charter schools typically do not meet the criteria for inclusion as a component unit of a school district. Charter schools sometimes are included as component units on the ground that their exclusion would be potentially misleading.

8.16. T/F Sometimes the complete consolidation of transfers may not be possible.

True Complete consolidation of transfers may not be possible if one or more transfers involve a blended component unit with a different fiscal year end than the primary government.

4.16. T/F An entity that is not legally separate cannot be a component unit.

True Component units, by definition, must be legally separate entities. Otherwise, they would simply be incorporated within the financial reporting entity as an integral part of whatever government exercises corporate powers on their behalf, rather than as separate units in their own right.

12.68. T/F Employers do not report the unfunded actuarial accrued liability for pension benefits or other postemployment benefits in the statement of position.

True Employer governments should not report on their statement of position their unfunded actuarial accrued liability for pension benefits or OPEB earned by employees.

12.42. T/F The fair value of an investment can be defined as the amount that a buyer would pay a seller if the investment were to be sold in the current market between a willing buyer and a willing seller.

True Fair value is the amount that the seller would be paid for an investment if it were to be sold currently in a transaction between a willing buyer and a willing seller.

4.11. T/F Fiscal independence exists when a government is not subject to arbitrary interference in establishing its budget, setting taxes and charges, or issuing bonded debt.

True Fiscal dependence is created when the governing board of one entity may arbitrarily override financial decisions of another regarding its 1) budget, 2) tax levy or setting of rates or charges, or 3) issuance of bonded debt.

3.24. T/F The accounting and financial reporting for exchange transactions and exchange-like transactions are identical.

True For all practical purposes, the accounting and financial reporting are identical for exchange transactions and exchange-like transactions.

11.40. T/F The maximum increment for disclosing lease payments involving capital or operating leases is five years.

True For both capital leases and noncancellable operating leases of more than one year, disclosure of minimum future lease payments is required for each of the next five years, and for at least each five-year increment thereafter.

16.15. T/F In most cases, lapsed encumbrances are automatically reappropriated as part of the subsequent year's budget.

True For most governments, encumbrances lapse at the end of the budget period and then are reappropriated automatically as part of the subsequent period's budget.

2.37. T/F Fund accounting is naturally well suited to achieving the goals of fiscal accountability.

True Fund accounting, specifically designed to help governments ensure and demonstrate legal compliance, is naturally well-suited to achieving the goal of fiscal accountability.

3.32. T/F Reserved fund balance is used to indicate situations where legal restrictions are narrower than the purpose of the fund itself.

True Fund balance is reserved to indicate situations where a portion of fund balance is not available for spending on any and all purposes of the fund. That is, fund balance should be reserved in situations where legal restrictions impose a limitation narrower than the purpose of the fund itself.

15.39. T/F A government may not be considered a single-program government if it budgets for its activities as multiple programs.

True GAAP clarify that a government may not be considered a single-program government if it budgets, manages, or accounts for its activities as multiple programs.

4.19. T/F In some situations, legally separate entities that do not qualify as blended component units must still be included within the primary government's financial statements as trust funds.

True GAAP direct that fiduciary funds be used to report assets held in a trustee or agency capacity for other. Accordingly, the resources of a legally separate entity that does not qualify as a component unit may nonetheless still have to be included within the primary government's financial statements as a fiduciary fund.

3.27. T/F A loan not expected to be repaid within a "reasonable period" should be classified as a transfer.

True GAAP direct that interfund "loans" not expected to be repaid within a reasonable period be reclassified as transfers.

11.41. T/F The notes should disclose any "designation" of a portion of internal service fund equity that represents resources accumulated as a reasonable provision for future catastrophe losses.

True GAAP direct that the notes to the financial statements disclose a designation for the portion of equity that represents resources accumulated in a risk-financing internal service fund as a reasonable provision for future catastrophe losses.

4.15. T/F The criteria for identifying component units are designed to highlight the financial accountability of elected officials.

True GAAP direct those who prepare financial statements to define each government's financial reporting entity in away that fully reflects the financial accountability of that government's elected officials.

2.31. T/F GAAP require the use of a separate trust fund for each individual pension plan.

True GAAP require the use of separate trust funds for each individual pension plan. A pension plan is an arrangement where all assets accumulated for the payment of benefits may legally be used to pay any member or beneficiary.

10.72. T/F "Restricted" should be interpreted as meaning a limitation on the use of resources that is narrower than the reporting unit.

True GAAP specify that "restricted" should be interpreted as meaning that the permitted use of resources is narrower than the purpose of the reporting unit in which those resources are reported.

19.34. T/F GFOA recommends that every government establish an audit committee.

True GFOA recommends that every government establish an audit committee or its equivalent.

8.11. T/F The effects of most interfund activity within the primary government need to be eliminated.

True Government-wide financial reporting requires that the effects of must interfund activity within the primary government be eliminated.

13.48. T/F Pension plans often present an additional investment section in their CAFR.

True Governments are free to present other sections in their CAFR in addition to the three basic sections described. The most common additional sections are investment section (pension/OPEB plans and external investment pools), actuarial section (pension and OPEB plans), and single audit section.

12.51. T/F A government may select different capitalization thresholds for different types of capital assets.

True Governments are free to select different capitalization thresholds for different capital asset classes.

13.47. T/F Sometimes less than ten employers need to be presented in the statistical presentation devoted to principal employers.

True Governments must identify their ten largest employers (unless fewer than then are needed to account for least 50 percent of employment).

12.53. T/F Environmental differences may result in the same type of capital asset being assigned a different estimated useful life by different governments.

True Governments should make whatever adjustments are needed to any estimates obtained from others to ensure that such estimates are appropriate to their particular circumstances, as evidenced by their own experience. Environmental differences among governments can have an important impact on the useful lives of their respective capital assets.

16.17. T/F Sometimes APPROPRIATIONS are further divided into ALLOTMENTS.

True Governments sometimes divide their appropriations into allotments.

13.46. T/F The calculation of the legal debt margin must be presented for ten years in the statistical presentation of the CAFR.

True Governments subject to a legal debt limit have to provide the information needed to calculate their legal debt margin for the current year. They also must show the debt limit, total net applicable debt, and the legal debt margin (but not the calculation itself) for each of the preceding nine years.

16.13. T/F Governments typically do not use encumbrance accounting for routine items.

True Governments typically do not record encumbrances for routine outlays, such as salaries and wages.

15.37. T/F An annuity contract purchased in the name of a claimant and the related liability should not be reported on the statement of position of a public-entity risk pool.

True If a claim is settled by purchasing an annuity contract in the name of the claimant, the pool should consider the related loss liability to be defeased and remove both the liability and the annuity contract from its statement of position.

13.43. T/F If a discretely presented component unit with multiple funds does not issue a separate, publicly available financial report with the needed fund data, then this information must be presented within the financial section of the CAFR.

True If a discretely presented component unit with multiple funds does not issue a separate, publicly available financial report with the minimum fund data required by GAAP, this information must then be presented within the financial section of the financial reporting entity's CAFR.

10.69. T/F If a government elects to provide an entity-wide total column, items may need to be reflected differently in that column than in the total column of the primary government.

True If a government elects to provide an entity-wide total column, items may need to be reflected differently in that column than in the total column of the primary government. A reclassification/eliminations column or a not disclosure in this situation could be useful to avoid confusion.

3.31. T/F An equity interest in a joint venture is properly reflected as part of reserved fund balance.

True If an asset is reported in a governmental fund to reflect the fund's equity interest in a join venture, fund balance must be reserved in the same amount to indicate tha an equity interest does not constitute an available current financial resource.

5.59. T/F If demand bonds cease to qualify as a long-term liability, an other financing use should be recognized in connection with their reclassification.

True If demand bonds cease to meet the criteria for classification as long-term liabilities, their reclassification as a fund liability should be accompanied by the reporting of an other financing use.

2.25. T/F The use of an enterprise fund is required when the repayment of debt is backed solely by fees and charges.

True If issued debt is backed solely by fees and charges, an enterprise fund must be used to account for the activity.

5.52. T/F Governments may reserve a portion of fund balance equal to appropriation in the fair value of investments.

True If it is the government's policy to hold the underlying investments to maturity, it may designate a portion of unreserved fund balance equal to appreciation in the fair value of those investments to reflect this policy.

12.62. T/F Sometimes only a portion of a given debt issue is properly treated as proprietary fund debt.

True If only a portion of a given debt issue is to be repaid from the resources of a proprietary fund then only that portion should be reported as proprietary fund debt.

2.28. T/F The use of an internal service fund is only appropriate in situations where the government itself is the predominant participant in the activity.

True If other governments are involved, the use of an internal service fund is only appropriate if the sponsoring government is itself the predominant participant.

10.79. T/F In the government-wide statement of activities, both special items and extraordinary items would be reported separately within a single category.

True If special items and extraordinary items occur in the same period, the two should be reported separately within a single category, with special items reported before extraordinary items.

6.29. T/F Interest capitalization should cease during any significant cessation of construction.

True If substantially all activities to prepare an asset for its intended use are suspended prior to the substantial completion of a project, interest capitalization should be halted until those activities are resumed (except for cessations that are either brief, inherent in the acquisition process, or externally imposed).

13.50. T/F If the CAFR is posted on a government's Web site, users should be placed on notice that the information in the CAFR has not been updated for developments subsequent to the date of the independent auditor's report.

True If the CAFR is posted on a government's Web site, users should be placed on notice that the information in the CAFR has not been updated for developments subsequent to the date of the independent auditor's report.

14.14. T/F Ongoing participants in the Certificate Program are required to respond to the prior year's comments to be eligible to continue to participate.

True If the government participated in the program in the preceding year, its submission package must include written responses to all of the prior year's comments and suggestions for improvement.

7.30. T/F In some cases, capitalization contributions are properly treated as prepayments and amortized over the period coverage is to be provided.

True If the return of the capitalization contribution is not considered to be probable, the amount should be reported as a prepayment on the government-wide statement of net assets and amortized over the period coverage is to be provided.

2.26. T/F An enterprise fund may be used to report an activity that is only partially funded through user fess and charges.

True In practice, enterprise funds frequently are used to account for activities whose costs are only partially funded by fees and charges. Enterprise funds are considered useful in such cases because they focus attention on the cost of providing services, and they serve to highlight the portion of that cost being borne by taxpayers.

15.35. T/F It is recommended that income and expenses related to securities lending activities be reported as a separate component of total net investment income.

True Income and expenses related to securities lending activities should be reported as a separate component of total net investment income, immediately following net income from all other types of investing activities on the statement of changes in plan net assets.

18.17. T/F Individuals' access to assets and records should be based on the specific needs of their position?

True Individuals should have access to assets or records based on the specific needs of their positions.

12.61. T/F Interfund borrowings must always be treated as a liability of the governmental fund that receives the proceeds.

True Interfund borrowings, regardless of the terms of the loan, must always be treated as a liability of the governmental fund that receives the proceeds.

5.51. T/F It generally is recommended that a single availability period be used for revenue recognition.

True It generally is recommended that a single availability period be used for revenue recognition.

12.74. T/F As a general rule, it is presumed that all changes in equity should be reported as part of the result of operations for the period rather than as direct adjustments to equity.

True It is presumed that all changes to equity (such as changes in net assets) should be reported as part of the results of operations for the current period rather than treated as a direct adjustment to equity--beginning of the fiscal year.

12.75. T/F Prior period adjustments are properly treated as direct adjustments to equity.

True It is presumed that all changes to equity (such as changes in net assets) should be reported as part of the results of operations for the current period rather than treated as a direct adjustment to equity--beginning of the fiscal year. There are, however, several important exceptions to this rule: prior period adjustments, changes in accounting principle, and changes in inventory balances accounted for using the purchases method.

19.40. T/F GFOA recommends adoption of the Yellow Book for internal auditing.

True It is recommended that internal auditors of state and local governments conduct their work in accordance with Yellow Book professional standards relevant to internal auditing.

10.85. T/F Operating grants typically are categorized as nonoperating revenues in the proprietary fund statements of revenues, expenses, and changes in net assets/equity.

True Items commonly included in the nonoperating category include operating grants.

3.25. T/F Loans between funds are properly reported as increases and decreases in assets and liabilities, with no effect on activities in either government-wide or fund financial statements.

True Loans between funds are properly reported as increases and decreases in assets and liabilities, with no effect on activities in either government-wide or fund financial statements.

12.70. T/F No expenditures or liability should be recognized in governmental funds related to operating leases having scheduled rent increases until payments become due and payable.

True No expenditures or liability should be recognized in governmental funds related to operating leases having scheduled rent increases until payments become due and payable.

12.67. T/F Governmental funds should not recognize a liability for rebatable arbitrage until amounts are due and payable.

True No liability must be recognized in a governmental fund until rebatable amounts were actually due and payable.

10.68. T/F A zero balance should be reported for internal balances in the primary government total column of the government-wide statement of net assets, even if internal receivables and payables are reported on separate lines.

True One approach is to report all internal balances (receivables and payables) on a single line (within the assets section of the statement, for instance), making the zero balance in the total column self-evident. The alternative is to attach a notation to the separate lines for internal receivables and internal payables, explaining to readers that the total column has been adjusted to a zero balance to remove the effect of internal balances.

12.69. T/F By definition, pension-related debt is an obligation to the plan itself rather than to a third party other than the plan.

True Pension-related debt/OPEB-related debt is an obligation to the plan itself, while pension obligation bonds/OPEB obligation bonds are a liability to a third party other than the plan.

2.24. T/F The principal of the permanent fund may not be spent.

True Permanent funds should be used to report resources that are legally restricted to the extent that only earnings, and not principal, may be used for purposes that support the reporting government's programs, that is, for the benefit of the government or its citizenry.

6.31. T/F Any unamortized difference between the carrying amount of refunded debt and its reacquisition price should be reported as a direct reduction of (or addition to) the amount of refunding debt reported.

True Proprietary funds defer and amortize this amount over the shorter of 1) the life of the old debt or 2) the life of the new debt. In the meantime, the unamortized difference between the carrying amount of redeemed or defeased debt and its reacquisition price should be reported as a direct reduction of (or addition to) the amount of refunding debt reported on the statement of position, much like a bond premium or discount. This unamortized balance should "follow the debt" for purposes of calculating the various components of net assets.

5.60. T/F A provider government should recognize a liability for grants as soon as recipients have met all eligibility requirements.

True Provider governments should recognize a liability as soon as all eligibility requirements have been met by the recipient.

13.35. T/F RSI as a category is strictly limited to items so designated by the GASB.

True RSI as a category is strictly limited to items thus designated by the GASB.

12.47. T/F The value reported for redevelopment properties should not exceed their net realizable value.

True Redevelopment properties should not be reported at an amount higher than their expected net realizable value.

10.77. T/F The grantor reimbursement of indirect costs should be reported in the same functional category as the expense being reimbursed.

True Reimbursements of indirect costs by grantors should be reported in the same functional category as the expense being reimbursed.

8.18. T/F Some revenues and expenses of internal service funds are properly incorporated directly into the government-wide statement of activities.

True Revenues and expenses that involve parties external to the primary government should not be eliminated in the process of consolidation. The same is true for items not properly reported as program revenue or functional expense. Such amounts should be incorporated directly into the appropriate activities column of the government-wide statement of activities.

10.67. T/F If fiduciary funds are the primary consumers of an internal service fund, the fund should be consolidated as part of governmental activities.

True Situations sometimes arise where fiduciary funds are the primary consumers of the goods or services produced by an internal service fund. In that case, the internal service fund should be consolidated as part of governmental activities.

16.16. T/F Sometimes a budget does not close for encumbered items at the end of the budget period.

True Some governments do not immediately close their budget at the end of the budget period. Instead, the budget remains in force for some additional time, commonly referred to as a lapse period, to allow for liquidation of encumbrances in force as of the end of the budget period.

4.18. T/F Legally separate, tax-exempt entities may need to be included as component units if their resources are entirely or almost entirely for the direct benefit of the primary government or its constituents.

True Sometimes legally separate, tax-exempt entities (e.g., university foundations) may need to be included within the financial reporting entity as component units based upon the nature and significance of their relationship with the primary government and its component units, even though they do not meet either the board appointment or fiscal dependency tests described earlier.

13.49. T/F The CAFR is an appropriate document for meeting the disclosure requirements of SEC Rule 15c2-12.

True The CAFR is an appropriate document for meeting the disclosure requirements of SEC Rule 15c2-12.

17.14. T/F SEA should strive to achieve balance by focusing equally on measures of efforts and measures of accomplishments.

True The GASB has identified three categories of SEA measures and believes that all three ideally should be included within the scope of general-purpose external financial reporting: measures of efforts (financial and nonfinancial), measures of accomplishment (output measures focus on quantity & outcome measures emphasize results), and measures that relate efforts to accomplishments.

13.31. T/F The basic financial statements and RSI are designed to set the minimum standard of acceptable financial reporting for state and local governments.

True The basic financial statements and RSI are designed to define the minimum standard of acceptable financial reporting for state and local governments.

19.28. T/F GAGAS uses the same basic categories as GAAS.

True The basic framework of GAGAS, like that of GAAS, distinguishes three categories of standards - general standards, standards of fieldwork, and standards of reporting - around which individual standards are organized.

10.82. T/F The capital outlays character classification often is used only in capital projects funds.

True The capital outlays character classification often is used solely for capital outlays reported in capital projects funds. In other words, capital outlays of the general fund often are included as part of the current expenditures reported for each functional activity within that fund.

10.89. T/F Investment-related expenses are reported within the additions category of the statement of changes in fiduciary net assets.

True The components of net investments income should be reported within the additions category for both pension trust funds and investment trust funds.

5.57. T/F Normally, the cost of inventories is not "written down" to reflect market changes.

True The cost of inventories is not "written down" to reflect market changes unless the usability of the inventory is affected by physical deterioration or obsolescence.

11.38. T/F Disclosure for other post employment benefits (OPEB) is essentially an amended and amplified version of what is required for pension benefits.

True The disclosures for employers participating in defined benefit OPEB plans were modeled on those for employers participating in defined benefit pension plans with certain modifications and amplifications.

12.43. T/F The fair value of investments associated with purchased put options should reflect the strike price.

True The fair value of investments associated with purchased put options and written call options should reflect the strike price.

9.19. T/F The financial section of a CAFR should contain information on all of the government's individual funds that are not separately reported in the basic financial statements.

True The financial section contains all basic financial statements and RSI, as well as information on all individual funds and discretely presented component units not reported separately in the basic financial statements.

11.45. T/F If GAAP require disclosure of whether a given situation exists, some sort of affirmative or negative statement is always required.

True The general rule against "negative disclosure" does not apply to the rare disclosure requirements introduced by the term "whether" (rather than "if") in the authoritative accounting literature. In such cases, either an affirmative or negative statements must be made to comply with the requirement.

13.37. T/F Statistical sampling may be used in condition assessments by governments that elect to use the modified approach for one or more networks or subsystems of infrastructure assets.

True The government must perform or obtain condition assessments on infrastructure assets and summarize the results using a measurement scale. This assessment must be performed at least once every three years. It must be replicable. Statistical sampling may be used.

12.49. T/F To qualify for capitalization, an improvement must extend a capital asset's expected useful life.

True The historical cost of a capital asset should include the cost of any subsequent additions or improvements but exclude the cost of repairs. An addition or improvement, unlike a repair, either enhances a capital asset's functionality or extends its expected useful life.

19.38. T/F In some situations independent auditors are permitted to rely upon the work of internal auditors.

True The independent auditor of the financial statements may be able to rely on the internal auditor's work to limit the amount of study and testing that would otherwise be necessary to form an opinion on the fair presentation of the financial statements.

16.20. T/F The legal level of budgetary control is the lowest level at which a government's management may reassign resources without special approval.

True The lowest level at which a government's management may not reallocate resources without special approval is known as the legal level of budgetary control.

11.35. T/F The method selected to disclose interest-rate risk should reflect how interest rate risk is actually managed.

True The method selected to disclose interest-rate risk should reflect how that risk is actually managed within the government.

2.36. T/F The basic financial statements include both the government-wide financial statements and the fund financial statements.

True The minimum combination of 1) fund-based financial statements, 2) government-wide financial statements, and 3)accompanying note disclosures needed for fair presentation of a government's finances in conformity with GAAP is known as the basic financial statements.

3.22. T/F The difference in revenue recognition between the accrual basis of accounting and the modified accrual basis of accounting is the application of the availability criterion.

True The modified accrual basis of accounting modifies the accrual basis of accounting by adding availability as an additional revenue recognition criterion.

11.31. T/F The SSAP should disclose the specific types of major revenue sources that meet the availability criterion in governmental funds.

True The notes should address the availability period used for revenue recognition purposes and the specific types of major revenue sources that meet this criterion.

16.11. T/F An operating budget may be adopted on either an annual or biennial basis.

True The operating budget, which is the focal point of public-sector budgeting, is always adopted on either an annual or biennial basis.

12.72. T/F If a portion of debt related to a capital-type special assessment is to be repaid by property owners and the balance by general taxpayers, the entire amount of the debt should be classified as general obligation debt.

True The portion of any related to a special assessment project that will be repaid from general revenues should be reported as general obligation debt rather than as special assessment debt.

3.30. T/F The proceeds of no-commitment special assessment debt should be reported as revenue rather than as an other financing source.

True The proceeds of no-commitment special assessment debt are considered the functional equivalent of a grant (because the government receives resources without incurring any obligation for their repayment), and should be reported as revenue, just like other grants.

14.12. T/F It is recommended that departmental reports submitted to the Certificate Program always be accompanied by management's discussion and analysis.

True The program recommends that departmental reports always be accompanied by management's discussion and analysis.

12.71. T/F The rollover of a BAN would not be reflected in the governmental fund statement of revenues, expenditures, and changes in fund balances.

True The rollover of a BAN that is properly classified as long-term is not reflected in the statement of revenues, expenditures, and changes in fund balances.

9.20. T/F The statistical section is especially important for evaluating economic condition.

True The statistical section provides trend data and non financial data useful in interpreting the basic financial statements and is especially important for evaluating economic condition.

2.33. T/F The term basis of accounting refers to the timing of the recognition of transactions and events.

True The technical term that describes the criteria governing the timing of the recognition of transactions and events is basis of accounting.

7.28. T/F A government's share of a joint venture's income or loss would be treated either as an element of general revenue or as a program item, depending upon the circumstances.

True The treatment of joint venture income/loss would depend on the reason the government participated in the joint venture. If participation is for investment purposes, the change should be reported as an element of general revenue. If participation is to assist in the provision of services, the change should be report as a program item.

2.21. T/F There is no fixed limit to the number of individual funds a government may use for accounting and financial reporting purposes.

True There is no limit on the number of individual funds a government may use for accounting and financial reporting purposes. However, only the minimum number of funds consistent with legal and operating requirements should be established since unnecessary funds result in inflexibility, undue complexity, and inefficient financial administration.

13.41. T/F The presentation of individual fund financial statements is not appropriate unless they present information not otherwise available in the combining financial statements.

True There is no reason to provide individual fund financial statements and schedules unless these additional presentations furnish information not otherwise available in the basic financial statements or the combining financial statements.

2.32. T/F The use of capital projects funds generally is permitted rather than required.

True Unless there is some legal requirement to use a capital projects fund, the use of the capital projects fund type is permitted rather than required.

10.74. T/F Expenses should be reported before revenues in the government-wide statement of activities.

True Unlike the operating statement of a private-sector business enterprise, the government-wide statement of activities presents expenses before revenues. This order is designed to emphasize that in the public sector, revenues are generated for the express purpose of providing services rather than as an end in themselves.

8.19. T/F A "crossover amount" may result when a given internal service fund serves both governmental and business-type activities.

True When an internal service fund serves both governmental and business-type activities, the look-back adjustment will produce an internal balance commonly referred to as the "crossover amount."

7.22. T/F The accounting and financial reporting prescribed for IRC Section 457 deferred compensation plans also is appropriate for other types of deferred compensation plans.

True While GAAP provide no specific guidance on the appropriate accounting and financial reporting for other types of deferred compensation plans, the approach just described would appear equally suitable for other types of deferred compensation arrangements.

11.39. T/F The paying government in a special funding situation for either pension benefits or OPEB should treat the plan as though it involved the paying government's own employees.

True if the government in a special funding situation is the only contributor, the plan would qualify as a single-employer plan, even if the employees of several entities participate.

11.32. T/F In the case of foreign currency risk, separate disclosure is required for each currency.

True Separate disclosure is necessary for each foreign currency in which deposits are maintained.

8.12. T/F Other financing sources and other financing uses associated with the issuance of debt must be eliminated in the process of converting from the current financial resources measurement focus and the modified accrual basis of accounting to the economic resources measurement focus and the accrual basis of accounting.

True (?) Government-wide financial reporting requires the data reported in governmental funds using the current financial resources measurement focus and the modified accrual basis of accounting be converted to the economic resources measurement focus and the accrual basis of accounting. This includes eliminating other financing sources, uses, and expenditures associated with debt issuance when going from statement of revenues, expenditures, and changes in fund balances to statement of activities.

7.27. T/F Capital contributions to a joint venture do NOT affect the contributing government's operating statement if its position in the joint venture is reported as an asset and the contribution counts as part of the contributing government's measurable equity interest.

True (?) If there is an explicit measurable equity interest in a joint venture, the government's investment in the joint venture should be reported as a single line item in the government-wide and proprietary fund financial statements. Capital contributions and distributions do not affect the operating statement.

1.20. T/F Certain private-sector standards enjoy level 1 authority on the hierarchy of GAAP for state and local governments.

True - The GASB has incorporated certain specific private-sector guidance into its own standards by reference. Consequently, such private-sector guidance has level 1 status. Furthermore, it is presumed that all applicable authoritative guidance issued by the FASB and its predecessors prior to December 1, 1989, applies to both government-wide reporting and proprietary fund reporting to the extent that such guidance does not conflict with or contradict applicable GASB guidance. Further, governments have the option of consistently following compatible FASB Guidance issued after the cutoff for those activities reported as enterprise funds (but not internal service funds) or as business-type activities in the government-wide financial statements.

1.17. T/F The Single Audit Act has done much to promote the use of GASB standards.

True - The federal government's Single Audit Act of 1984 has done much to promote the use of GASB standards in the public sector. The single audit act does not require the use of GAAP, but it does require that an auditor's opinion be expressed on the basis of GAAP (which is set by the GASB) rather than on the basis of some "other comprehensive basis of accounting".