CPFO ACCOUNTING EXAM - GAAFR REVIEW
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 - Answers - 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.
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 - Answers - 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.
1.3. 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 - Answers - D. GASB Interpretations
GASB Statements & Interpretations are listed as "Level 1" on the GAAP hierarchy.
1.4. 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 - Answers - D. All of the above
1.5. Which of the following sets GAAP for nonprofit organizations?
A. FAF
B. AICPA
C. GASB
,D. FASB - Answers - D. FASB
The jurisdiction of the FASB extends to both private-sector businesses and non-profit
organizations.
1.6. 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 - Answers - 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.
1.7. 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 - Answers - 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.
1.8. 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) - Answers - A. Financial Accounting
Foundation (FAF)
FAF appoints the members of both FASB & GASB.
1.9. 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 - Answers - 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.
1.10. 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 - Answers - 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.
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. - Answers - 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).
1.12. T/F Different states have different structures of local government. - Answers - 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.
1.13. T/F The appropriated budget of a government is essentially a financial plan. -
Answers - False - The appropriated budget of a government is MUCH MORE than just a
financial plan. It enjoys the force of law.
1.14. T/F Governments have the same financial objectives for all of their activities. -
Answers - 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.
1.15. T/F GAAP are designed to provide the basic information needed to assess an
entity's finances. - Answers - 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.
1.16. T/F The Federal Accounting Standards Advisory Board (FASAB), like the FASB
and the GASB, operates under the auspices of the FAF. - Answers - 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.
1.17. T/F The Single Audit Act has done much to promote the use of GASB standards. -
Answers - 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".
1.18. T/F There is no "level 2" guidance currently outstanding on the GAAP hierarchy for
state and local governments. - Answers - 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.
1.19. T/F AICPA Ethics Rule 203 covers all four levels of the GAAP hierarchy. - Answers
- Fasle - AICPA Ethics Rule 203 covers level 1 guidance with Rule 202 covers guidance
on levels 2, 3, and 4.
1.20. T/F Certain private-sector standards enjoy level 1 authority on the hierarchy of
GAAP for state and local governments. - Answers - 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.
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 - Answers - D. All of the above
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 - Answers - 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.
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 - Answers - 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.
1.3. 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 - Answers - D. GASB Interpretations
GASB Statements & Interpretations are listed as "Level 1" on the GAAP hierarchy.
1.4. 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 - Answers - D. All of the above
1.5. Which of the following sets GAAP for nonprofit organizations?
A. FAF
B. AICPA
C. GASB
,D. FASB - Answers - D. FASB
The jurisdiction of the FASB extends to both private-sector businesses and non-profit
organizations.
1.6. 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 - Answers - 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.
1.7. 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 - Answers - 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.
1.8. 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) - Answers - A. Financial Accounting
Foundation (FAF)
FAF appoints the members of both FASB & GASB.
1.9. 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 - Answers - 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.
1.10. 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 - Answers - 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.
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. - Answers - 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).
1.12. T/F Different states have different structures of local government. - Answers - 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.
1.13. T/F The appropriated budget of a government is essentially a financial plan. -
Answers - False - The appropriated budget of a government is MUCH MORE than just a
financial plan. It enjoys the force of law.
1.14. T/F Governments have the same financial objectives for all of their activities. -
Answers - 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.
1.15. T/F GAAP are designed to provide the basic information needed to assess an
entity's finances. - Answers - 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.
1.16. T/F The Federal Accounting Standards Advisory Board (FASAB), like the FASB
and the GASB, operates under the auspices of the FAF. - Answers - 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.
1.17. T/F The Single Audit Act has done much to promote the use of GASB standards. -
Answers - 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".
1.18. T/F There is no "level 2" guidance currently outstanding on the GAAP hierarchy for
state and local governments. - Answers - 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.
1.19. T/F AICPA Ethics Rule 203 covers all four levels of the GAAP hierarchy. - Answers
- Fasle - AICPA Ethics Rule 203 covers level 1 guidance with Rule 202 covers guidance
on levels 2, 3, and 4.
1.20. T/F Certain private-sector standards enjoy level 1 authority on the hierarchy of
GAAP for state and local governments. - Answers - 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.
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 - Answers - D. All of the above
