CGFM EXAM 2 2026 FINAL PAPER
PRACTICE SET WITH FULL ANSWER KEY
⫸ What was the primary focus of the previous accounting model before
GASB Statement 34? Answer: The previous model focused on legal
compliance and fiscal accountability, primarily on a cash basis.
⫸ What is the role of the Governmental Accounting Standards Board
(GASB)? Answer: GASB establishes generally accepted accounting
principles (GAAP) for state and local governments.
⫸ What is required for state and local governments to receive an
unmodified audit opinion? Answer: They must prepare financial reports
in accordance with GAAP.
⫸ What are the primary users of financial reports for state and local
governments? Answer: Public officials, credit rating agencies, investors,
and creditors.
⫸ What is the paramount objective of financial reporting according to
GASB? Answer: To provide information that assists users in assessing
accountability.
⫸ What does interperiod equity refer to in governmental financial
reporting? Answer: It refers to determining whether current-year
revenues were sufficient to pay for current-year services.
,⫸ What was the GASB established under? Answer: The oversight of the
Financial Accounting Foundation's Board of Trustees (FAF) in 1984.
⫸ What did GASB's first statement initiate? Answer: The codification
of accounting standards for state and local governments.
⫸ What is the codification in the context of GASB? Answer: An
integration of currently effective accounting and financial reporting
standards for state and local governments.
⫸ What is the significance of Concepts Statement 1? Answer: It sets
forth the framework used by GASB in establishing accounting
standards.
⫸ What should financial reporting demonstrate regarding a
governmental entity's budget? Answer: It should demonstrate
compliance with the entity's legally adopted budget and other finance-
related legal requirements.
⫸ What information should financial reporting provide about a
governmental entity's financial position? Answer: It should indicate
whether the entity's financial position improved or deteriorated due to
the year's operations.
⫸ What is the relationship between GASB and the Financial
Accounting Standards Board (FASB)? Answer: GASB has authority
, over state and local governments, while FASB has authority over all
other non-federal entities.
⫸ What is the purpose of financial reporting in terms of service efforts?
Answer: To assist users in assessing the service efforts and
accomplishments of the governmental entity.
⫸ What should financial reporting provide information about regarding
financial resources? Answer: It should provide information about
sources and uses of financial resources.
⫸ How does GASB affect governments that wish to issue debt?
Answer: Credit rating agencies encourage these governments to provide
audited financial statements prepared in accordance with GAAP.
⫸ What is a key aspect of the accountability objective in financial
reporting? Answer: It should assist in fulfilling the government's duty to
be publicly accountable.
⫸ What does financial reporting help users evaluate regarding a
governmental entity? Answer: It helps users evaluate the operating
results of the governmental entity for the year.
⫸ What was the National Council on Government Accounting (NCGA)
responsible for before GASB? Answer: Issuing statements of accounting
principles for state and local governments beginning in 1979.
PRACTICE SET WITH FULL ANSWER KEY
⫸ What was the primary focus of the previous accounting model before
GASB Statement 34? Answer: The previous model focused on legal
compliance and fiscal accountability, primarily on a cash basis.
⫸ What is the role of the Governmental Accounting Standards Board
(GASB)? Answer: GASB establishes generally accepted accounting
principles (GAAP) for state and local governments.
⫸ What is required for state and local governments to receive an
unmodified audit opinion? Answer: They must prepare financial reports
in accordance with GAAP.
⫸ What are the primary users of financial reports for state and local
governments? Answer: Public officials, credit rating agencies, investors,
and creditors.
⫸ What is the paramount objective of financial reporting according to
GASB? Answer: To provide information that assists users in assessing
accountability.
⫸ What does interperiod equity refer to in governmental financial
reporting? Answer: It refers to determining whether current-year
revenues were sufficient to pay for current-year services.
,⫸ What was the GASB established under? Answer: The oversight of the
Financial Accounting Foundation's Board of Trustees (FAF) in 1984.
⫸ What did GASB's first statement initiate? Answer: The codification
of accounting standards for state and local governments.
⫸ What is the codification in the context of GASB? Answer: An
integration of currently effective accounting and financial reporting
standards for state and local governments.
⫸ What is the significance of Concepts Statement 1? Answer: It sets
forth the framework used by GASB in establishing accounting
standards.
⫸ What should financial reporting demonstrate regarding a
governmental entity's budget? Answer: It should demonstrate
compliance with the entity's legally adopted budget and other finance-
related legal requirements.
⫸ What information should financial reporting provide about a
governmental entity's financial position? Answer: It should indicate
whether the entity's financial position improved or deteriorated due to
the year's operations.
⫸ What is the relationship between GASB and the Financial
Accounting Standards Board (FASB)? Answer: GASB has authority
, over state and local governments, while FASB has authority over all
other non-federal entities.
⫸ What is the purpose of financial reporting in terms of service efforts?
Answer: To assist users in assessing the service efforts and
accomplishments of the governmental entity.
⫸ What should financial reporting provide information about regarding
financial resources? Answer: It should provide information about
sources and uses of financial resources.
⫸ How does GASB affect governments that wish to issue debt?
Answer: Credit rating agencies encourage these governments to provide
audited financial statements prepared in accordance with GAAP.
⫸ What is a key aspect of the accountability objective in financial
reporting? Answer: It should assist in fulfilling the government's duty to
be publicly accountable.
⫸ What does financial reporting help users evaluate regarding a
governmental entity? Answer: It helps users evaluate the operating
results of the governmental entity for the year.
⫸ What was the National Council on Government Accounting (NCGA)
responsible for before GASB? Answer: Issuing statements of accounting
principles for state and local governments beginning in 1979.
