Question 1

When a government reports on a GBE it does so applying the _____________ method.
A)modified equity
B)cost
C)equity
D)consolidation.

Accepted Answer

A

Question 2

Representational faithfulness requires that the transactions and events reported on be presented in a manner that is in agreement with the underlying facts and circumstances.

Accepted Answer

Representational faithfulness demands that the financial information presented should reflect the real-world events and transactions accurately. Therefore, option A is correct.

Question 3

An objective of financial statements for public sector entities is to provide an accounting of financial affairs and resources.

Accepted Answer

The objective of financial statements for public sector entities is indeed to provide an accounting of financial affairs and resources. This aids in ensuring transparency and accountability to stakeholders and the public.

Question 4

When a government reports on a GBE, it does so applying the cost method.

Accepted Answer

When a government reports on a Government Business Enterprise (GBE), it typically does so using the equity method, not the cost method. This approach reflects the government's share of the enterprise's net assets and its share of net income or loss.

Question 5

An exchange gain or loss that arises prior to settlement (i.e. that is unrealized)is recognized in the statement of re-measurement gains and losses.

Accepted Answer

An unrealized exchange gain or loss is recognized in the statement of re-measurement gains and losses as it has not yet been settled. Unrealized gains or losses are shown in the financial records until the settlement takes place. Once the settlement occurs, the gain or loss becomes realized and is reported in the income statement. Therefore, the statement in the question is true.

Question 6

Which of the following statements regarding governments is FALSE?
A)Governments are dependent on the profitable sales of goods and services to finance their operations.
B)Governments have the right to tax.
C)As long as they are fiscally responsible, governments have the opportunity to issue significant amounts of debt in the capital markets at preferential interest rates.
D)Governments and their agencies finance their operations by levying fees and incurring liabilities.

Accepted Answer

Governments are not dependent on the sales of goods and services to finance their operations. This statement is false because although some revenue may come from the sales of goods and services, the majority of government funding comes from taxes, fees, and other forms of revenue-raising measures such as borrowing.

Question 7

A government partnership is a contractual arrangement between the government and a party or parties outside of the government reporting entity whereby the partners cooperate toward achieving significant clearly defined common goals.

Accepted Answer

This statement accurately defines what a government partnership is.

Question 8

Which of the following is one of the "secondary criteria" used to determine whether a government organization is controlled by the government?
A)Establishes an organization's fundamental purpose and eliminates or significantly limits the ability of the organization to make future decisions by predetermining the financial and operating policies of the organization.
B)Directs the financial and operating policies of an organization on an ongoing basis.
C)Has power to unilaterally appoint or remove a majority of the members of the organization's governing body.
D)Can veto, overrule or modify the financial and operating policies established by an organization.

Accepted Answer

The power to unilaterally appoint or remove a majority of the members of the organization's governing body is one of the secondary criteria used to determine whether a government organization is controlled by the government. This indicates a significant level of control over the direction and decision-making of the organization. Options A, B, and D are all examples of primary criteria used to determine control.

Question 9

Under the modified equity method, financial position and operating results of investments are presented as if they are using the equity method.

Accepted Answer

Under the modified equity method, the financial position and operating results of investments are indeed presented as if the equity method were being used, with adjustments made for differences in accounting policies between the investor and the investee.

Question 10

The measure of net debt is an indicator of a public sector entity's financial position.

Accepted Answer

The measure of net debt is an important indicator of a public sector entity's financial position as it takes into account both the outstanding debt and cash reserves. It provides a more accurate representation of an entity's ability to fulfill its financial obligations.

Question 11

A government business enterprise's net income or loss is reported on the government's statement of operations.

Accepted Answer

This statement is true. A government business enterprise's net income or loss is reported on the government's statement of operations, also known as the income statement or profit and loss statement. It shows the government's revenues, expenses, and the resulting net income or loss for a given period of time.

Question 12

The carrying value of tangible capital assets represents a source of future cash flows from the capital assets to the government.

Accepted Answer

The carrying value of tangible capital assets represents the historical cost minus depreciation and impairment losses, not directly future cash flows, as these assets are used in operations rather than being sources of cash.

Question 13

The CICA PSA Handbook defines a public sector entity's ________________ as assets that could be used to discharge existing liabilities or finance future operations and are not for consumption in the normal course of operations.
A)current assets
B)non-financial assets
C)financial assets
D)tangible capital assets.

Accepted Answer

Financial assets are defined as assets that can be used to discharge liabilities or finance future operations, and are not intended for consumption in the normal course of operations.

Question 14

Many view the presence of multiple objectives as the overriding characteristic of public sector entities.

Accepted Answer

The answer of Many view the presence of multiple objectives...

Question 15

Under the PSA reporting framework, __________________ is a measure that demonstrates whether the asset position of the public sector entity has been maintained.
A)net assets
B)the operating surplus or deficit
C)net equity
D)revenues.

Accepted Answer

The operating surplus or deficit is a measure under the PSA reporting framework that demonstrates whether the asset position of the public sector entity has been maintained, as it reflects the difference between revenues and expenses, indicating the financial performance over a period.

Question 16

The application of conservatism means that judgments needed when uncertainty exists should not be made in a manner that affects the neutrality of the information presented.

Accepted Answer

The application of conservatism is based on the principle of neutrality, which means that judgments made when uncertainty exists should be conservative or cautious in order to present information in a neutral manner that is not biased by optimistic or pessimistic assumptions. By applying conservatism, information is presented in a more reliable and transparent way, allowing users to make informed decisions based on accurate and unambiguous data.

Question 17

A public sector financial reporting framework is needed because governments differ in their aims and objectives from business.

Accepted Answer

Governments have different aims and objectives than businesses, such as providing public services and meeting the needs of citizens. Therefore, a public sector financial reporting framework is needed to ensure transparency and accountability in how public funds are managed, and to provide information to stakeholders such as taxpayers, investors, and creditors.

Question 18

Accountability value is in evidence when the information helps users assess a public sector entity's stewardship of the resources entrusted to it, including their application or consumption in service provision.

Accepted Answer

Accountability value is indeed demonstrated when users can evaluate a public sector entity's management of the resources it has been given, as well as how those resources have been used or consumed in the delivery of services.

Question 19

A government business enterprise sells goods and services to individuals and organizations within the government reporting entity as its principal activity.

Accepted Answer

A government business enterprise primarily sells goods and services to individuals and organizations outside of the government reporting entity, operating in a commercial and competitive environment.

Question 20

A public sector entity's future revenue requirements are not constrained by obligations associated with past decisions and events.

Accepted Answer

A public sector entity's future revenue requirements may be constrained by obligations associated with past decisions and events, such as debt obligations, pension liabilities, and contractual agreements. These obligations require the entity to dedicate a portion of its future revenues to meet these commitments, which can limit its flexibility in determining future revenue requirements.

Quiz 10: Reporting for Public Sector Entities

When a government reports on a GBE it does so applying the _____________ method.