Deck 9: Financial Reporting of State and Local Governments

Question 1

Which of the following is an objective of financial reporting by state and local governments?

A)The same as the objectives of financial reporting by business enterprises.
B)To report on the legal requirements imposed on the government by its elected officials.
C)To provide information that can be used to assess a government's accountability.
D)To fulfill the government's statutory duty to report on cash received and cash disbursed.

Answer 1

C

Question 2

Fiduciary activities are not reported in the government-wide financial statements under GASB standards.

Answer 2

True
Explanation: Only governmental and business-type activities are reported on the two government-wide financial statements, the statement of net assets and statement of activities. Fiduciary activities represent assets and liabilities that by definition do not belong to the government. Accordingly, the GASB requires that information about fiduciary activities be excluded from the government-wide financial statements. Fiduciary fund financial information is reported in two fiduciary fund financial statements.

Question 3

Which of the following circumstances would indicate that a potential component unit (PCU)should be included as part of the governmental financial reporting entity?

A)The primary government does not approve the operating budget of the potential component unit.
B)Officials of the primary government appoint a majority of the members of the governing board of the PCU.
C)The PCU has sufficient operational and financial dependence that the primary government can impose its will on the PCU.
D)Officials of the primary government appoint a majority of the members of the PCU's governing board and the primary government is able to impose its will on the PCU.

Answer 3

D

Question 4

Other comprehensive bases of accounting (OCBOA)are considered generally accepted accounting principles (GAAP)for state and local governments.

Question 5

One of the required reconciliations in converting governmental fund financial statements to governmental activities statements at the government-wide level is to adjust for internal service funds' assets,liabilities,operating income (loss),and transfers.

Question 6

The accounting system used by a state or local government must make it possible to prepare financial statements as required by the Financial Accounting Standards Board.

Question 7

Which of the following factors would not indicate that a potential component unit (PCU)is dependent on the primary government?

A)The primary government provides advice regarding the PCU's budget.
B)The primary government is obligated to provide financial support to the PCU.
C)The primary government is obligated for the PCU's debt.
D)The primary government is entitled to the PCU's resources.

Question 8

A financial reporting entity is defined as a primary government,as well as all other organizations that have an operational relationship with the primary government.

Question 9

Statistical tables included in comprehensive annual financial reports should provide social and economic data,in addition to financial data,to assist financial statement users in better understanding the activities and condition of the government.

Question 10

Comprehensive annual financial reports of state and local governments should include (1)an introductory section, (2)a financial section,and (3)a supplemental section.

Question 11

Under GASB standards,the financial statements that report on business-type activities at the government-wide level include the statement of net assets,statement of activities,and statement of cash flows.

Question 12

The MD&A should provide information that is prospective in nature.

Question 13

State and local governments should prepare only those financial reports required by law-generally year-end financial statements.

Question 14

GASB reporting objectives emphasize the role of accountability in external financial reporting,and describe accountability as the "paramount objective from which all other objectives must flow."

Question 15

Which of the following best describes the GASB financial reporting model for state and local governments?

A)Required comprehensive annual financial reports for all public entities.
B)Integration of government-wide financial reporting and fund accounting.
C)Cash basis accounting.
D)Focus on individual funds.

Question 16

According to the guidance of GASB Concepts Statement 3,financial information can be communicated by recognition in the financial statements,disclosure in the notes to the financial statements,presentation as required supplementary information,or presentation as supplementary information.

Question 17

In preparation of government-wide statements,converting information recorded using the modified accrual basis of accounting to the accrual basis,where appropriate,is conceptually preferable to using information directly from the accounting system to prepare the statements.

Question 18

In converting from the modified accrual basis of accounting information in a governmental fund to accrual basis for the government-wide statements,capital assets acquired by a governmental fund are deducted from fund balance-governmental funds to arrive at net assets of governmental activities.

Question 19

A component unit is dependent on the primary government if the primary government is obligated for its debt.

Question 20

Most citizens and financial statement users do not have a clear understanding of the financial reporting entity whose financial position,results of operations,and cash flows are included in an annual financial report.

Question 21

The Clinton school district is a legally separate organization,but two of its seven board members are also city council members and the district is financially dependent upon the city.The school district should be reported as a

A)Blended component unit.
B)Component unit by note disclosure.
C)Discretely presented component unit.
D)Primary government.

Question 22

Which of the following is not one of the methods recommended by the GASB for communicating information to external users of government financial reports?

A)Providing information via newsletters.
B)Recognition in the financial statements.
C)Presentation as required supplementary information.
D)Disclosure in the notes to the financial statements.

Question 23

Which of the following actions is not required to convert data from the governmental fund financial statements to enable preparation of the government-wide financial statements?

A)Adding annual depreciation expense proportionately to functional expense categories.
B)Eliminating interfund payables and receivables between governmental funds.
C)Aggregating fund information.
D)Eliminating receivables and payables between governmental and enterprise funds.

Question 24

Balsam City's library board is appointed by the city council which has agreed to subsidize the operating costs of the library at a material amount to be determined each year.In addition,the city is paying debt service on general obligation bonds issued to construct the library.Based on generally accepted accounting principles (GAAP)criteria for defining the reporting entity:

A)The library is a component unit.
B)The library is not a component unit.
C)Financial data for the library's General Fund should be blended with the financial data for the city's special revenue funds.
D)The library can avoid being a component unit by establishing itself as a legally separate organization.

Question 25

What constitutes the basic financial statements of a government?

A)Financial section of the comprehensive annual financial report (CAFR).
B)Government-wide financial statements plus notes.
C)Government-wide financial statements plus fund financial statements plus notes.
D)Government-wide financial statements plus fund financial statements plus notes plus required supplementary information (RSI).

Question 26

Combining financial statements for nonmajor funds of a government should be included in

A)The basic financial statements.
B)The notes to the financial statements.
C)As supplementary information in the comprehensive annual financial report (CAFR).
D)As part of the statistical section of the comprehensive annual financial report (CAFR).

Question 27

Which of the following is a required program revenue category in the government-wide statement of activities?

A)Special assessments.
B)Operating grants and contributions.
C)Sales taxes.
D)Transfers.

Question 28

The government-wide financial statements required by GASB standards are a

A)Statement of net assets and statement of cash flows.
B)Statement of net assets,statement of activities,and statement of cash flows.
C)Statement of net assets and statement of activities.
D)Statement of activities and statement of cash flows.

Question 29

Infrastructure assets and long-term liabilities issued to finance infrastructure should be reported in the

A)Letter of transmittal.
B)Fund financial statements.
C)Management's discussion and analysis.
D)Government-wide financial statements.

Question 30

Which of the following is evidence of fiscal independence for the purpose of considering whether one legally separate organization is a component unit of another?

A)The potential component unit is precluded from issuing long-term debt.
B)The potential component unit raises taxes without the approval of the primary government.
C)The budget of the potential component unit must be approved by the primary government.
D)The board or council of the potential component unit includes members of the primary government's management team.

Question 31

Which of the following would increase the balance in net assets-invested in capital assets,net of related debt?

A)Acquisition of a building to be used by the police department.
B)Issuance of long-term debt to be used to acquire equipment for the police department.
C)A gift of land to the city restricted by the donor to be used by the city airport,which is accounted for as an enterprise fund.
D)Recording annual depreciation on capital assets.

Question 32

Which of the following kinds of information would not be provided by Management's discussion and analysis (MD&A)?

A)A narrative explanation of the contents of the CAFR.
B)A description of the government's financial condition.
C)A forecast of revenues and expenditures for the next three fiscal years.
D)A discussion of economic factors and the budget and tax rates approved for the next year.

Question 33

Government-wide financial statements present the government's financial position using

A)Total financial resources measurement focus and the accrual basis of accounting.
B)Economic resources measurement focus and the accrual basis of accounting.
C)Current financial resources measurement focus and the modified accrual basis of accounting.
D)Current financial resources measurement focus and the cash basis of accounting.

Question 34

What is the minimum level of detail required for expenditures presented in the governmental fund statement of revenues,expenditures,and changes in fund balance?

A)Program and object.
B)Function and character.
C)Program and department.
D)Character and object.

Question 35

Some governments provide to their citizens highly condensed financial information,budget summaries,and narrative descriptions.This report is called a(an)

A)Comprehensive annual financial report.
B)Basic financial statements.
C)Required supplementary information.
D)Popular report.

Question 36

Which of the following is one of the three sections of a comprehensive annual financial report?

A)Statistical section.
B)Single audit section.
C)Supplementary section.
D)Investment section.

Question 37

Which of the following items are typically reported differently between the governmental fund statements and the Governmental Activities column of the government-wide statements?

A)Capital outlays.
B)Cash collected on property taxes receivable.
C)Accounts payable and other accrued expenses.
D)Inventories.

Question 38

Under GASB standards,nonmajor funds are reported

A)In the management's discussion and analysis preceding the financial statements.
B)In aggregate amounts in a single column in the fund financial statements.
C)In a note disclosure following the financial statements.
D)In the government-wide financial statements.

Question 39

The comprehensive annual financial report (CAFR)of a government should contain a statement of revenues,expenses,and changes in net assets for

A)Both proprietary and governmental funds.
B)Governmental but not proprietary funds.
C)Proprietary but not governmental funds.
D)Both proprietary and fiduciary funds.

Question 40

Which of the following would not be included within the financial section of the comprehensive annual financial report (CAFR)?

A)Letter of transmittal.
B)Management's discussion and analysis (MD&A).
C)Independent auditor's report.
D)Required supplementary information (RSI).

Question 41

"Interim financial reports are needed for state and local governments even though external users of financial reports have no need to assess monthly or quarterly performance of the government." Do you agree? Why or why not?

Question 42

In your own words,describe the relationships between a component unit and a primary government.Provide some examples and describe the financial reporting for a component unit.

Question 43

Describe the objectives of financial reporting by state and local governments.

Question 44

The following are key terms in Chapter 9 that relate to the reporting entity:
A.Component units
B.Financial reporting entity
C.Financial accountability
D.Joint venture
E.Other stand-alone governments
F.Primary governments For each of the following definitions,indicate the key term from the list above that best matches by placing the appropriate letter in the blank space next to the definition.

Question 45

Describe what the government-wide statements are intended to convey to readers and contrast with the intent of the fund financial statements.

Question 46

Explain why other comprehensive bases of accounting (OCBOA)may be used by a state or local government instead of GASBS 34 standards which are generally accepted accounting principles (GAAP).

Question 47

For the following items that require reconciliation between governmental funds financial statements and governmental activities financial statements at the government-wide level according to GASBS 34,indicate whether the reconciliation will A)always be subtracted from fund balances-governmental funds,B)always be added to fund balances-governmental funds,or C)may be added to or subtracted from fund balances-governmental funds in arriving at net assets of governmental activities.
_____ 1.Capital assets used in governmental activities
_____ 2.Long-term liabilities that are not payable in the current period
_____ 3.Net assets of internal service funds that are primarily governmental in nature
_____ 4.Accrued interest payable not due in the current period

Question 48

Describe the alternative processes for capturing the financial accounting information required for government-wide financial statements.

Question 49

Describe some items requiring adjustments when modified accrual basis accounting information must be converted to accrual basis accounting in preparation of government-wide statements.

Question 50

What is meant by the term "reporting entity" in accounting for state and local governments?