CPFO ACCOUNTING EXAM UPDATED QUESTIONS AND
ANSWERS
Which of the following groups normally would NOT be considered a primary user of state or local
government's general-purpose external financial statements?
A. Citizens
B. Legislative and oversight bodies
C. Management
D. Investors and creditors - CORRECT ANSWER✅✅✅C - The primary users of general-purpose
external financial statements are those who, unlike management, do not have direct access to
accounting information. (page 6) (Chapter 1)
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 government
D. Independent auditors - CORRECT ANSWER✅✅✅D - Independent auditors took the lead in
codifying GAAP in the private sector, whereas financial statement preparers took the lead in codifying
GAAP in the public sector. (page 6) (Chapter 1)
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 and Exchange Commission (SEC) - CORRECT ANSWER✅✅✅A - The FAF appoints the
members of both the FASB and the GASB (page 7) (Chapter 1)
Which of the following has the LOWEST authoritative status on the GAAP hierarchy?
A. Widely recognized and prevalent practices
B. NCGA interpretations
,C. GASB Concept Statements
D. The AICPA's audit and accounting guide for State and Local Governments - CORRECT
ANSWER✅✅✅C - A GASB Concepts Statement is not part of the GAAP hierarchy as such, but rather
constitutes an "other source" of GAAP. (page 14) (Chapter 1)
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 - CORRECT ANSWER✅✅✅D - In 1989, the FAF categorically affirmed the
GASB's jurisdiction over all entities operating in the public sector, including utilities, hospitals, colleges,
and universities (page 9) (Chapter 1)
Which of the following types of guidance has the HIGHEST stand on the GAAP hierarchy
A. GASB Technical Bulletins
B. GASB Concept Statements
C. GASB implementation Guides
D. GASB Interpretations - CORRECT ANSWER✅✅✅D - GASB Interpretations qualify as "level 1" GAAP
on the GAAP hierarchy. (page 14) (Chapter 1)
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 7 members
C. Both the FASB and the GASB can approve pronouncements by a simple majority vote
D. All of the above - CORRECT ANSWER✅✅✅D - All four statements are true. (page 7) (Chapter 1)
Which of the following sets GAAP for nonprofit organizations?
A. FAF
B. AICPA
C. GASB
,D. FASB - CORRECT ANSWER✅✅✅D - The jurisdiction of the FASB covers both private-sector
businesses and nonprofit organizations (page 8) (Chapter 1)
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
D. SEC - CORRECT ANSWER✅✅✅B - The AICPA, which represents the independent auditing
profession, has officially designated the FASB, the GASB, and the FASAB as the authoritative standard-
setting bodies for GAAP in their respective sectors. (page 9) (Chapter 1)
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 -
CORRECT ANSWER✅✅✅D - 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
viewpoints before arriving at a conclusion. While the GASB attaches greate importance to comments
from interested parties in response to due-process documents, the final decision on any issue reflects
board members' own best judgetment regarding the relative merits of the alternatives under
consideration (page 10) (Chapter 1)
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 - CORRECT ANSWER✅✅✅C - If the only criterion met is the ability to directly issue
federally tax-exempt debt, the presumption that an entity is governmental may be rebutted based on
compelling relevant evidence (page 8) (Chapter 1)
, T/F Different states have different structures of local government - CORRECT ANSWER✅✅✅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. (page 1) (Chapter 1)
T/F The appropriated budget of a government is essentially a financial plan - CORRECT
ANSWER✅✅✅False - Unlike budgets in the private sector, the appropriated budget of a state or
local government is much more than just a financial plan. It is the concrete maifestation of a legislative
body's use of the power of the purse to set public policy. The appropriate budget of a state or local
government enjoys the force of law, and violates are subject to legal sanctions. (page 4) (Chapter 1)
T/F Governments have the same financial objectives for all of their activities - CORRECT
ANSWER✅✅✅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. (page 3) (Chapter
1)
T/F GAAP are designed to provide the basic information needed to assess an entity's finances - CORRECT
ANSWER✅✅✅True - GAAP are not intended to meet all information needs of each of the various
user groups. Rather, GAAP are designed to provide all primary users of general-purpose external
financial reports with the basic information needed to assess an entity's finances. (page 6) (Chapter 1)
T/F The Federal Accounting Standards Advisory Board (FASAB), like the FASB and the GASB, operated
under the auspices of the FAF - CORRECT ANSWER✅✅✅False - Unlike the FASB and GASB, the
FASAB does not function under the auspices of the FAF. Instead, the treasury Department, the OMB and
the GAO each have veto power over proposed FASAB standards (page 7) (Chapter 1)
T/F The Single Audit Act has done much to promote the use of GASB standards. - CORRECT
ANSWER✅✅✅True - 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" (e.g., cash basis accounting). The result has
been to encourage governments subject to single audit to adopt GASB standards. (page 9) (Chapter 1)
ANSWERS
Which of the following groups normally would NOT be considered a primary user of state or local
government's general-purpose external financial statements?
A. Citizens
B. Legislative and oversight bodies
C. Management
D. Investors and creditors - CORRECT ANSWER✅✅✅C - The primary users of general-purpose
external financial statements are those who, unlike management, do not have direct access to
accounting information. (page 6) (Chapter 1)
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 government
D. Independent auditors - CORRECT ANSWER✅✅✅D - Independent auditors took the lead in
codifying GAAP in the private sector, whereas financial statement preparers took the lead in codifying
GAAP in the public sector. (page 6) (Chapter 1)
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 and Exchange Commission (SEC) - CORRECT ANSWER✅✅✅A - The FAF appoints the
members of both the FASB and the GASB (page 7) (Chapter 1)
Which of the following has the LOWEST authoritative status on the GAAP hierarchy?
A. Widely recognized and prevalent practices
B. NCGA interpretations
,C. GASB Concept Statements
D. The AICPA's audit and accounting guide for State and Local Governments - CORRECT
ANSWER✅✅✅C - A GASB Concepts Statement is not part of the GAAP hierarchy as such, but rather
constitutes an "other source" of GAAP. (page 14) (Chapter 1)
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 - CORRECT ANSWER✅✅✅D - In 1989, the FAF categorically affirmed the
GASB's jurisdiction over all entities operating in the public sector, including utilities, hospitals, colleges,
and universities (page 9) (Chapter 1)
Which of the following types of guidance has the HIGHEST stand on the GAAP hierarchy
A. GASB Technical Bulletins
B. GASB Concept Statements
C. GASB implementation Guides
D. GASB Interpretations - CORRECT ANSWER✅✅✅D - GASB Interpretations qualify as "level 1" GAAP
on the GAAP hierarchy. (page 14) (Chapter 1)
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 7 members
C. Both the FASB and the GASB can approve pronouncements by a simple majority vote
D. All of the above - CORRECT ANSWER✅✅✅D - All four statements are true. (page 7) (Chapter 1)
Which of the following sets GAAP for nonprofit organizations?
A. FAF
B. AICPA
C. GASB
,D. FASB - CORRECT ANSWER✅✅✅D - The jurisdiction of the FASB covers both private-sector
businesses and nonprofit organizations (page 8) (Chapter 1)
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
D. SEC - CORRECT ANSWER✅✅✅B - The AICPA, which represents the independent auditing
profession, has officially designated the FASB, the GASB, and the FASAB as the authoritative standard-
setting bodies for GAAP in their respective sectors. (page 9) (Chapter 1)
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 -
CORRECT ANSWER✅✅✅D - 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
viewpoints before arriving at a conclusion. While the GASB attaches greate importance to comments
from interested parties in response to due-process documents, the final decision on any issue reflects
board members' own best judgetment regarding the relative merits of the alternatives under
consideration (page 10) (Chapter 1)
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 - CORRECT ANSWER✅✅✅C - If the only criterion met is the ability to directly issue
federally tax-exempt debt, the presumption that an entity is governmental may be rebutted based on
compelling relevant evidence (page 8) (Chapter 1)
, T/F Different states have different structures of local government - CORRECT ANSWER✅✅✅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. (page 1) (Chapter 1)
T/F The appropriated budget of a government is essentially a financial plan - CORRECT
ANSWER✅✅✅False - Unlike budgets in the private sector, the appropriated budget of a state or
local government is much more than just a financial plan. It is the concrete maifestation of a legislative
body's use of the power of the purse to set public policy. The appropriate budget of a state or local
government enjoys the force of law, and violates are subject to legal sanctions. (page 4) (Chapter 1)
T/F Governments have the same financial objectives for all of their activities - CORRECT
ANSWER✅✅✅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. (page 3) (Chapter
1)
T/F GAAP are designed to provide the basic information needed to assess an entity's finances - CORRECT
ANSWER✅✅✅True - GAAP are not intended to meet all information needs of each of the various
user groups. Rather, GAAP are designed to provide all primary users of general-purpose external
financial reports with the basic information needed to assess an entity's finances. (page 6) (Chapter 1)
T/F The Federal Accounting Standards Advisory Board (FASAB), like the FASB and the GASB, operated
under the auspices of the FAF - CORRECT ANSWER✅✅✅False - Unlike the FASB and GASB, the
FASAB does not function under the auspices of the FAF. Instead, the treasury Department, the OMB and
the GAO each have veto power over proposed FASAB standards (page 7) (Chapter 1)
T/F The Single Audit Act has done much to promote the use of GASB standards. - CORRECT
ANSWER✅✅✅True - 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" (e.g., cash basis accounting). The result has
been to encourage governments subject to single audit to adopt GASB standards. (page 9) (Chapter 1)
