Deck 1: Introduction to Accounting and Financial Reporting for Government and Not-for-Profit Entities

Question 1

Special purpose governments generally provide a wider range of services to their residents than do general purpose governments.

Answer 1

False

Question 2

The Governmental Accounting Standards Board (GASB) is the body authorized to establish accounting principles for all government entities.

Answer 2

False

Question 3

The FASB, GASB, and FASAB all focus their standards on both internal and external financial reporting.

Answer 3

False

Question 4

The Financial Accounting Standards Board (FASB) is the body authorized to establish accounting principles for all colleges and universities and health care entities.

Question 5

The Federal Accounting Standards Advisory Board (FASAB) recommends accounting principles and standards for the federal government and its agencies and departments.

Question 6

Interperiod equity refers to the concept that current-year revenues are sufficient to pay for services provided that year, so that future taxpayers will not be required to assume the burden for services previously provided.

Question 7

The FASB standards require not-for-profit entities to report net assets in three categories: unrestricted, restricted, and net investment in capital assets.

Question 8

The GASB provides optional guidance for those entities providing service efforts and accomplishments (SEA) reports to the public.

Question 9

Since neither governments nor not-for-profit entities have investors, the financial reporting objectives are the same for both types of entities.

Question 10

The needs of users of government financial reports are the same as those of users of business entity financial reports.

Question 11

The Governmental Accounting Standards Board (GASB) is the body authorized to establish accounting principles for all state and local governments, both general purpose and special purpose.

Question 12

Providing information on accountability is the primary financial reporting objective for both governments and not-for-profit entities.

Question 13

In addition to financial statements and notes, the GASB requires governments to provide information on service efforts and accomplishments (SEA) in their reports to the public.

Question 14

A characteristic common to governments and not-for-profit organizations is that they do not exist to provide goods or services at a profit or profit equivalent.

Question 15

Neither governments nor not-for-profit entities have residual equity that can be distributed to owners.

Question 16

A difference in the financial reporting objectives for government entities and not-for-profit entities is that government entities report on compliance with laws, regulations, and rules that impact financial reports.

Question 17

The minimum requirements for general purpose external financial reporting are (1) management's discussion and analysis (MD&A), (2) the basic financial statements, including the notes to the financial statements, and (3) combining and individual fund financial statements.

Question 18

Examples of general purpose governments include cities, towns, and public schools that receive tax revenue to finance the services they provide.

Question 19

The Office of Management and Budget (OMB) requires major federal departments and agencies to prepare an annual performance report.

Question 20

The Financial Accounting Foundation has oversight over both the FASB and the GASB.

Question 21

Which of the following is identified by the FASAB as the foundation for federal financial reporting?

A) Decision usefulness.
B) Accountability.
C) Understandability.
D) Budget integrity.

Question 22

Which of the following would be included in a properly prepared comprehensive annual financial report (CAFR), but not in the minimum requirements for general purpose financial reporting specified by GASB standards?

A) Management's discussion and analysis (MD&A).
B) Government-wide financial statements.
C) Notes to the financial statements.
D) Combining and individual fund financial statements.

Question 23

Similar to for-profit entities, net income serves as a good measure of a government's performance.

Question 24

A statistical section should be included in

A) A comprehensive annual financial report (CAFR).
B) The basic financial statements.
C) The notes to the financial statements.
D) Required supplementary information, other than MD&A.

Question 25

Which of the following is not an objective of financial reporting by state and local governments?

A) To assist users in assessing the adequacy of systems and controls.
B) To assist users in assessing financial condition and results of operations.
C) To assist financial report users in comparing actual financial results with the legally adopted budget.
D) To assist in determining compliance with finance-related laws, rules, and regulations.

Question 26

One of the minimum requirements for general purpose external financial reporting by governments is

A) Management's discussion and analysis (MD&A).
B) Transmittal letter.
C) Combining and individual fund statements.
D) Statistical information.

Question 27

Both the GASB and the FASB require entities to include a management discussion and analysis in the financial reports.

Question 28

The FASB standards require not-for-profit entities to separately report program expenses and support expenses.

Question 29

The governmental fund financial statements are useful in assessing operational accountability.

Question 30

You are trying to decide if an entity you are reviewing is a government or a not-for-profit. Which of the following would indicate it is a government rather than a not-for-profit entity?

A) Absence of profit motive.
B) A primary source of revenues is taxes.
C) Resource providers do not expect benefits proportional to the resources provided.
D) Absence of a defined ownership interest that can be sold, transferred, or redeemed.

Question 31

Which of the following would typically not be included in the introductory section of a comprehensive annual financial report?

A) Title and contents page.
B) Letter of transmittal.
C) A description of the government.
D) Summary of the government's current financial position and results of financial activities.

Question 32

The Governmental Accounting Standards Board is assigned responsibility for setting accounting and financial reporting standards for

A) Governments such as federal agencies, states, cities, counties, villages, and townships.
B) State and local government entities and governmentally-related units and agencies, such as utilities, authorities, hospitals, and colleges and universities.
C) Not-for-profit organizations.
D) State and local governments and all not-for-profit organizations.

Question 33

The Financial Accounting Standards Board has the responsibility for setting accounting and financial reporting standards for

A) All not-for-profit organizations that are nongovernmental and business entities.
B) All not-for-profit organizations and business entities.
C) All not-for-profit organizations.
D) Special purpose governments with a business purpose.

Question 34

Which of the following organizations issue standards that focus on both internal and external financial reporting? 

A) Federal Accounting Standards Advisory Board.
B) Governmental Accounting Standards Board.
C) Financial Accounting Standards Board.
D) American Institute of CPAs.

Question 35

A comprehensive annual financial report (CAFR) prepared in conformity with the GASB recommendations should include which of the following sections?

A) Letter of transmittal, management's discussion and analysis (MD&A), and financial.
B) Introductory, financial, and statistical.
C) Introductory, MD&A, and financial.
D) Letter of transmittal, financial, and supplementary.

Question 36

The governmental fund financial statements are intended to report on fiscal accountability.

Question 37

Which of the following is identified by the GASB as the "cornerstone" of all financial reporting in government?

A) Decision usefulness.
B) Stewardship.
C) Accountability.
D) Interperiod equity.

Question 38

Which of the following groups is considered a primary user of a state or local government's general-purpose external financial statements?

A) Citizens.
B) Managers and administrators.
C) Employees.
D) Special interest groups.

Question 39

Government-wide financial statements are prepared using the accrual basis of accounting.

Question 40

The body that has been established to recommend accounting and financial reporting standards for the federal government is the

A) Financial Accounting Standards Board (FASB).
B) Governmental Accounting Standards Board (GASB).
C) Federal Accounting Foundation (FAF).
D) Federal Accounting Standards Advisory Board (FASAB).

Question 41

On what should the governmental fund financial statements report?

A) Net position and results of financial operations of the government as a whole.
B) Fiscal accountability.
C) Operational accountability.
D) Cost of government services.

Question 42

Which of the following should be included in the financial section of a comprehensive annual financial report?

A) Transmittal letter.
B) The basic financial statements, including notes thereto.
C) Tables and charts showing demographic and economic data.
D) A description of the government.

Question 43

The FASAB's Statement of Accounting and Reporting Concepts Statement No. 1 identifies four objectives of federal financial reporting. The requirement to be publicly accountable for laws and regulations related to spending tax revenues relates to which of the four objectives?

A) Stewardship.
B) Operating performance.
C) Budgetary integrity.
D) Accountability.

Question 44

Explain in your own words why accountability is the cornerstone of all financial reporting in government.

Question 45

Identify and explain the characteristics that distinguish governments and not-for-profit entities from business entities.

Question 46

Which of the following statements is prepared by all not-for-profit organizations?

A) Statement of financial position.
B) Statement of changes in net position.
C) Statement of revenues, expenses, and changes in net position.
D) Both Statement of financial position and Statement of changes in net position.

Question 47

Which of the following is not classified as a support activity reported by not-for-profit entities?

A) Fund-raising expenses.
B) Program expenses.
C) Management expenses.
D) General expenses of operating the not-for-profit entity.

Question 48

Which of the following sections is not considered a part of a federal agency's performance and accountability report?

A) Basic financial statements.
B) Annual performance report.
C) Statistical section.
D) Management's discussion and analysis.

Question 49

Which of the following standard-setting bodies requires a management's discussion and analysis as a part of the financial report?

A) GASB.
B) FASB.
C) FASAB.
D) Both GASB and FASAB.

Question 50

The FASB requires that a statement showing the relationship of functional expenses to natural classifications of expense be prepared by which of the following entities?

A) Colleges and universities.
B) Health care entities.
C) Voluntary health and welfare entities.
D) All not-for-profit entities.

Question 51

In your own words state the primary uses the GASB believes external users have for financial reports of state and local governments. For contrast, state the uses the FASB believes external users have for the financial reports of not-for-profit organizations.

Question 52

On what do the government-wide financial statements report?

A) Operational accountability.
B) Fiscal accountability.
C) The cost of government services.
D) Budgetary compliance.

Question 53

Recognizing revenues when measurable and available for paying current obligations and expenditures when incurred describes which basis of accounting?

A) Accrual.
B) Modified accrual.
C) Modified cash.
D) Budgetary.

Question 54

Why should persons interested in reading financial reports of governments and not-for-profit entities be familiar with standards set by the GASB and the FASB?

Question 55

The section of the comprehensive annual financial report that presents tables and charts showing social and economic data in addition to financial trends, fiscal capacity, and operating information of the government is the:

A) Introductory section.
B) Management's discussion and analysis section.
C) Statistical section.
D) Financial section.

Question 56

Which of the following is a net asset category reported by not-for-profit entities?

A) Unrestricted net assets.
B) Net assets with donor restrictions.
C) Temporarily restricted net assets.
D) Net investment in capital assets.

Question 57

Explain the essential differences between general purpose and special purpose governments and give several examples of each.

Question 58

Describe the difference between a comprehensive annual financial report (CAFR) and GASB general purpose external financial reporting for state and local governments.

Question 59

Identify and briefly explain the four sections of the performance and accountability report (PAR) that the Office of Management and Budget requires major federal departments and agencies to prepare.

Question 60

GASB and FASB standards are concerned only with external financial reporting; whereas, FASAB standards are concerned with both internal and external financial reporting. Do you agree with this statement? Why or why not?

Question 61

Explain the concepts fiscal and operational accountability and the basis of accounting used to capture each concept.

Question 62

Describe the comprehensive annual financial report (CAFR). What are the sections of the report and which components of the organization should it include? Is a CAFR required?