CGFM TEST 2 Questions With Correct Answers

Governments exist to provide services - Answer no profit motive, no single measure of success Primary funding source = - Answer taxes (involuntary payments, because there is no ability to match services to those who provide the resource) Budget process = - Answer primary control device in government US Constitution provides two levels of government - Answer Federal and State State consitituions similar in that each defines the excutive and legislative braches, establishes political offices, and defines how local governments can be formed. Government Accountability - Answer based on the belief that the government has a responsibility to report, the public has a right to know, andthe ultimate power belongs to the people. 1) Legal Accountability - Answer public officials are accountable for the extablishment of controls to ensure that transations are processed properly 2) Performance Accountability - Answer acting in an efficient, effective, or economic manner. 3) Fiscal Accountability - Answer raising and allocation of resources to accomplish objectives 4) Operational Accountability - Answer stewardship of public resources Which branch is accountable to whom? - Answer Legislative -- to the public Executive -- to legislative and public as well as other governments Interperiod Equity - Answer current generation of citizens should not be able to shift the burden of paying for current-year services to future taxpayers balanced budget law = current year services must be financed with current year revenues (problem is financial data can be manipulated to achieve this). Fed Gov't not subject to this. Laws prohibiting borrowing - Answer * only to meet cash flow needs * not for operating purposes * should match the useful life of capital assets Users of financial reports - Answer 1) Legislators and oversight groups 2) Citizens and taxpayers 3) Investors and Creditors 4) Media 5) Financial and Program managers 6) Employees and employee organizations Need for financial reports - Answer 1) primary communication device for assessing accountability 2) aid in decision making process (economic, social, and political) * planning and administration * results of operations * financial condition of the organization Point in time financial reports - Answer provides current information as of the date of the reports (e.g. balance sheet) Period financial reports - Answer reports the activity for an entire fiscal period (month, year) General Purpose External Financial Reports (GPEFR)/CAFR - Answer 1) audited financial statements (including notes) "basic financial statements" - state/local "principal financial statements" - federal 2) required supplementary information 3) other accompanying information (voluntary) Special Purpose Financial Reports (may or may not be provided to external users) - Answer * budget comparison reports * cash position reports * offering statements (when issuing debt) * popular reports *grantor reports * service efforts and accomplishments * economy and efficiency Reporting Characteristics - Answer 1) understandability 2) reliability - info is verfiable and free from bias 3) relevance 4) timeliness - for decision making purposes 5) consistency - any change in method or principle should be noted 6) comparability ** most comprehensive financial reports provide non-financial information regarding the performance of the entity. ** info is often based on judgements or estimates base on the application of rules or conventions American Recovery and Reinvestment Act (2009) - Answer ** important because it required online reporting of the use of government funds awarded for the purpose of stimulating the economy - R Federal Open Government Initiative - Answer government should be transparent, participatory, and collaborative * State Dept, Justice Dept, HHS, NASA, Treasury Dept, EPA, Defense, and SSA Digital Accountability and Transparency Act (DATA Act - 2014) - Answer 1) expanded FFATA of 2006 2) established government wide data standards that is displayed on USA 3) simplified reporting for federal funding recipients 4) agencies held accountable for the accuracy and completeness of data submitted to USA 5) apply approaches developed by the Recovery Accountability and Transparency Board open government challenges - Answer making information accessible while securing personally identifiable information Securities and Exchange Commission (SEC) 1934 - Answer vested with the power to regulate securities markets, requires publicly traded companies to disclose certain financial information SEC gave authority to set accounting standards to the Financial Accounting Foundation (FAF), who appoints members to the FASB to set reporting and accounting standards for private and non-profits National Committee of Municipal Accounting (1934) - Answer * set first reporting standards for states and locals, and established the Municipal Finance Officers Association (MFOA), which was active until 1941 National Council of Government Accounting (NCGA - 1948) .... later became GFOA - Answer issued the Governmental Accounting, Auditing, and Financial Reporting (GAAFR/Blue Book) in 1968, however local policy retained primacy Audits of State and Local Government Units (ASLGU) - Answer issued in 1974 by AICPA in response to several government financial melt-downs * recognized the principles in the GAAFR and made them the accepted principles for all state and locals within the auditing committee, but there was no requirement for compliance (due to their sovereign status) Governmental Accounting Standards Board (GASB, 1984) - Answer established in lieu of expanding FASBs authority GASB standards still not required, but may be necessary for bonding and borrowing, plus good public policy, so many enacted legislation requiring compliance Federal Accounting Standards Advisory Board (FASAB, 1990) - Answer established by the OMB, Sec of Treasury, and Comptroller general to address additional financial reporting standards (most were related to budgetary reporting up until this point) GASB Mission - Answer 1) set and improve standards of state/local accounting and financial reporting 2) guide and educate the public in using these reports GASB Rules of Procedure - Answer 1) establish an advisory task force to provide feedback on issues 2) publish documents for comment 3) broadly distribute an exposure draft for public comment 4) conduct public hearings on due process documents 5) issue a final standard FASAB Mission - Answer improving federal financial reporting through issuing financial standards, which are published in the Federal Register and reviewed by Congress FASAB rules of procedure - Answer 1) identify accounting issues and set agendas 2) prepare initial documents 3) release prelim documents, hold public hearings 4) conduct further deliberations, release exposure drafts 5) vote 6) issue final pronouncement FASB mission - Answer set and improve financial accounting and reporting standards that provide decision-useful information to investors FASB rules of procedure - Answer 1) identify issues based on requests from stakeholders 2) decide whether to add to agenda based on staff analysis 3) deliberate issues at public meetings 4) issue an exposure draft to solicit input 5) hold a public roundtable to discuss, if necessary 6) staff analyze comments and Board re-deliberates 7) board issues a standards update International Public Sector Accounting Standards Board (IPSASB) - Answer develops international public sector accounting standards for preparation of general purpose financial statements: * Board consists of 18 volunteer members - 15 from the International Federation of Accountants (IFAC) - 3 public members Standards setting guidelines - Answer * must be objective and neutral - free from bias * weigh the views of constituents with the needs of users of financial reports * expected benefits exceed expected costs * minimize disruption to existing practices by setting reasonable effective dates and transitioning * demonstrate due process and that comments received are considered carefully Due Process - GASB - Answer * meetings noticed and open to the public * issuing Discussion Memorandum (DM) outlining staff research for public comment * issuing Invitation to Comment (ITC) - which may contain aspects of the DM and/or PV * a Preliminary View (PV) document containing the Boards initial proposal * An Exposure Draft (ED) - must be published before final standard is issued (common for only a ED to be issued for comment) * the Statement is the final document setting forth the new standard, along with an effective date - may have a public hearing to comment or comments may be submitted in writing Concept Statements - Answer does not establish an accounting/reporting standard, but describes the framework for evaluating existing standards and establishing new ones Interpretation/Technical Bulletin - Answer clarifies points that may be ambiguous in a previous standard -- explanatory FASAB Hierarchy of Accounting Standards - Answer Category A - Statements of Federal Financial Accounting Standards and Interpretations Category B - Technical Bulletins by AICPA Category C - Technical Releases of the Accounting and Auditing Policy Committee of FASAB Category D - Implementation Guides ** in the absence of guidance in one of the above categories (or a similarly identified transaction) "Other Accounting Literature" may be considered, including from other standard-setting bodies or professional associations Hierarchy of Accounting Standards - Answer * initially provided by the AICPA in the SAS * assists users in interpreting treatment of non-specified transactions GASB Hierarchy of Accounting Standards (Statement 76, 2015) - Answer Authoritative GAAP Category A - GASB Statements Category B - GASB Technical Bulletins and Implementation Guides, AICPA literature (if cleared by GASB) * may consider non-authoritative literature if not specified in the above, including: GASB Concepts Statements, FASB, FASAB, IPSA, and AICPA literature not cleared by GASB practices widely recognized and prevalent in state/local government Cost Accounting - Answer assists gov't managers with: - establishing user fees - determining program efficiency, effectiveness - preparing budgets - receiving reimbursements from grants - comparing costs among agencies - making economic decisions (allocating resources among programs) Internal Service Funds (state/local) Intragovernmental Revolving Fund (Federal) - Answer used to account for administrative services such as accounting, payroll processing, and procurement Direct Costs - Answer can be specifically tied to a single cost objective/output 1) wage of those working on the objective 2) materials and supplies used by the objective 3) cost associated with use of space, equipment, facilities, utilities that are exclusively used for the objective 4) related travel costs Indirect Costs - Answer associated with resources that are jointly or commonly used for one or more objective: 1) general admin services (ex. human resources, centralized procurement, fleet mgmt) 2) facilities (depreciation on buildings, equipment, and capital improvement, interest on debt, O&M) inter-equity/imputed costs - Answer unique to federal gov't, refers to service provided to other dept's that are not billed or paid in full (or at all) Assignment of Costs - 3 ways - Answer In order of preference ... 1) directly tracing the costs used in the production of outputs (preferred method) 2) cause and effect basis - the activity is the link between the output and costs (e.g., airplane fuel using hours by consumption rate) 3) allocation - based on a reasonable and consistent basis, least expensive to calculate Statement of Federal Financial Accounting Standards (SSFAS) 4: Managerial Cost Accounting Standards and Concepts - effective 1998 - Answer Five standards of cost accounting: 1) requirement for cost accounting, usually by charging costs to cost objects to time periods as costs are incurred 2) mgmt must establish responsibility segments - unit that will carry out the mission/activity/objective 3) report the full costs of outputs in general financial statements full cost = cost of resources consumed + costs of supporting services provided by other responsibility segments 4) Inter-equity costs, ex. the cost of preparing financial information, 5% overhead/admin fee 5) costing methodologies - costs should be accumulated by type of resource (e.g., employees, materials, capital) OMB A-87 - Cost Principles for State, Local, and Tribal Governments = "Uniform Guidance" - Answer establishes reimbursement procedures for direct and indirect costs, w/three fundamental premises: 1) award administration is efficient and effective 2) gov't units assume responsibility for administering grants in accordance with agreements 3) gov't units shall determine methods for proper management/administration of grants based on their unique organizational structures Grants - Allowable Costs - Answer must be: 1) necessary and reasonable 2) allocable to federal awards 3) authorized (or not prohibited) 4) conform to any limitation or exclusions 5) be consistent with policies 6) accorded with consistent treatment 7) follow GAAP 8) no be included as a cost or cost sharing/matching on another grant 9) net of all applicable credits (ex. purchase discounts) 10) adequately documented Cost is reasonable if ... - Answer it does not exceed what a prudent person would pay under similar circumstances Composition of cost - Answer direct cost plus allocable portion of indirect costs less applicable credits direct costs = compensation, supplies/materials, equipment, travel indirect costs = occur commonly and benefit more than one objective, not readily assignable without considerable effort. Indirect cost calculation - Answer simplified method = allowable indirect costs(less credits)/ equitable distribution base (ex. total direct costs, direct salaries/wages) = distribution rate total fringe benefits/direct salaries and wages = fringe benefit rate $340,000/$2,000,000 = 17% ** a special/restricted rate may need to be used if their are restriction on the reimbursement of a certain indirect cost (you would just remove the restricted values from the cost pool) Types of Rates (dependent on stage of the grant) - Answer 1) provisional - temporary, pending the final rate 2) final rate - audited, not subject to adjustment 3) predetermined rate - not subject to adjustment, may not be used for federal contracts 4) fixed rate - difference between estimated and actual is carried forward as adjustment to subsequent periods rate calculation