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REVIEW QUESTIONS
Q 1 – 1 Not-for-profit organizations: (a) receive contributions of significant amounts of resources from resource providers who do not
expect commensurate pecuniary return; (b) operate for purposes other than to provide goods and services at a profit; and (c) lack
ownership interests like those of a business enterprise.
,Q 1 – 2 Governmental entities include: the federal government; general-purpose political subdivisions
(such as states, counties, cities, and towns); special-purpose political subdivisions (such as school
districts); and public corporations and bodies corporate and politic (such as state-operated toll roads and
toll bridges).
Other organizations created by governments by statute or under not-for-profit corporation laws are
governmental if they possess one or more of the following characteristics:
a. Their officers are popularly elected or a controlling majority of their governing body is
appointed or approved by governmental officials;
b. They have the power to enact and enforce a tax levy;
c. They have the power to directly issue debt whose interest is exempt from federal tax; or
d. There is a potential for a government to dissolve them unilaterally and assume their assets and
liabilities.
Q 1 – 3 Major environmental characteristics of governmental and not-for-profit organizations are:
a. An inability to measure efficiency and effectiveness by measuring income . Governmental and not-for-profit entities exist to
provide services to their constituents, but do not operate to maximize profits. An excess of revenues over expenditures does
not mean that they have made a profit, have operated efficiently, or have served their constituents effectively.
, b. Many operational decisions are governed by legal compliance. Governmental entities are required by law to provide certain
services. Their budgets are legal documents and generally cannot be exceeded without specific legislative approval. Their
borrowings are also constrained by law as to purpose. Some not-for-profit entities obtain significant resources from
contributions that are subject to specific restrictions as to how they may be used.
c. Lack of harmony of purpose. The level of resources devoted to each governmental activity is the result of a political process,
where conflict is often present both within the government and among the constituents served by the government.
Q 1 – 4 Regarding government: Budgets generally cannot be exceeded without specific legislative approval; borrowings are generally
specifically limited as to the purposes for which they may be used; and grants from higher level governments are generally specifically
limited as to purpose.
Regarding not-for-profit entities: Donors often place specific restrictions on contributions as to what they may be used for and when they
may be used.
Q 1 – 5 Users of governmental and not-for-profit entity accounting information are both internal and external. Major external users are:
a. Resource providers (taxpayers, donors and potential donors, investors and potential investors, bond-rating agencies, and
grant-providing organizations)
b. Oversight bodies (higher-level governments, regulatory bodies)
c. Service recipients (citizen advocate groups)
Users might use accounting information to:
a. determine the likelihood of repaying short-term and long-term debt;
b. determine the likelihood of continuing to provide a particular level of service;
c. determine the availability of resources to cushion against economic downturns;
d. determine whether the organization has complied with restrictions on the use of resources;
, e. determine the extent to which existing resource levels are free from restrictions as to use.
Q 1 – 6 The GASB is responsible for establishing and improving accounting and financial reporting standards for all state and local
governmental entities (including government-sponsored colleges and universities, health care providers, and utilities).
The FASAB establishes standards for the federal government.
The FASB establishes standards for all other entities, including not-for-profit colleges and universities and health care providers.
Q 1 – 7 Accounting and financial reporting guidance is provided not only by the two major accounting standards-setting bodies, but also by
the AICPA, the staffs of the accounting standards-setting bodies, and even professional literature. A hierarchy of generally accepted
accounting principles allows a practitioner to look to less authoritative guidance issued by the board with jurisdiction (or its staff) and to
the guidance of other bodies, in the event the Board with jurisdiction has not issued a standard on a particular matter.
Q 1 – 8 The three ways identified by the GASB in which financial reporting can assist users in assessing governmental accountability are:
a. by showing if current-year revenues were sufficient to pay for current-year services;
b. by showing whether resources were obtained and used in accordance with the legally adopted budget; and
c. by providing data to help users assess the entity’s service efforts, costs and accomplishments.
Q 1 – 9 The three objectives of not-for-profit entity financial reporting, as identified by the FASB, are to help users assess: (a) the services
provided by the entity and its ability to continue to provide them; (b) how the entity’s managers discharged their stewardship
responsibilities; and (c) the entity’s performance, including its service efforts and accomplishments.
REVIEW QUESTIONS
Q 1 – 1 Not-for-profit organizations: (a) receive contributions of significant amounts of resources from resource providers who do not
expect commensurate pecuniary return; (b) operate for purposes other than to provide goods and services at a profit; and (c) lack
ownership interests like those of a business enterprise.
,Q 1 – 2 Governmental entities include: the federal government; general-purpose political subdivisions
(such as states, counties, cities, and towns); special-purpose political subdivisions (such as school
districts); and public corporations and bodies corporate and politic (such as state-operated toll roads and
toll bridges).
Other organizations created by governments by statute or under not-for-profit corporation laws are
governmental if they possess one or more of the following characteristics:
a. Their officers are popularly elected or a controlling majority of their governing body is
appointed or approved by governmental officials;
b. They have the power to enact and enforce a tax levy;
c. They have the power to directly issue debt whose interest is exempt from federal tax; or
d. There is a potential for a government to dissolve them unilaterally and assume their assets and
liabilities.
Q 1 – 3 Major environmental characteristics of governmental and not-for-profit organizations are:
a. An inability to measure efficiency and effectiveness by measuring income . Governmental and not-for-profit entities exist to
provide services to their constituents, but do not operate to maximize profits. An excess of revenues over expenditures does
not mean that they have made a profit, have operated efficiently, or have served their constituents effectively.
, b. Many operational decisions are governed by legal compliance. Governmental entities are required by law to provide certain
services. Their budgets are legal documents and generally cannot be exceeded without specific legislative approval. Their
borrowings are also constrained by law as to purpose. Some not-for-profit entities obtain significant resources from
contributions that are subject to specific restrictions as to how they may be used.
c. Lack of harmony of purpose. The level of resources devoted to each governmental activity is the result of a political process,
where conflict is often present both within the government and among the constituents served by the government.
Q 1 – 4 Regarding government: Budgets generally cannot be exceeded without specific legislative approval; borrowings are generally
specifically limited as to the purposes for which they may be used; and grants from higher level governments are generally specifically
limited as to purpose.
Regarding not-for-profit entities: Donors often place specific restrictions on contributions as to what they may be used for and when they
may be used.
Q 1 – 5 Users of governmental and not-for-profit entity accounting information are both internal and external. Major external users are:
a. Resource providers (taxpayers, donors and potential donors, investors and potential investors, bond-rating agencies, and
grant-providing organizations)
b. Oversight bodies (higher-level governments, regulatory bodies)
c. Service recipients (citizen advocate groups)
Users might use accounting information to:
a. determine the likelihood of repaying short-term and long-term debt;
b. determine the likelihood of continuing to provide a particular level of service;
c. determine the availability of resources to cushion against economic downturns;
d. determine whether the organization has complied with restrictions on the use of resources;
, e. determine the extent to which existing resource levels are free from restrictions as to use.
Q 1 – 6 The GASB is responsible for establishing and improving accounting and financial reporting standards for all state and local
governmental entities (including government-sponsored colleges and universities, health care providers, and utilities).
The FASAB establishes standards for the federal government.
The FASB establishes standards for all other entities, including not-for-profit colleges and universities and health care providers.
Q 1 – 7 Accounting and financial reporting guidance is provided not only by the two major accounting standards-setting bodies, but also by
the AICPA, the staffs of the accounting standards-setting bodies, and even professional literature. A hierarchy of generally accepted
accounting principles allows a practitioner to look to less authoritative guidance issued by the board with jurisdiction (or its staff) and to
the guidance of other bodies, in the event the Board with jurisdiction has not issued a standard on a particular matter.
Q 1 – 8 The three ways identified by the GASB in which financial reporting can assist users in assessing governmental accountability are:
a. by showing if current-year revenues were sufficient to pay for current-year services;
b. by showing whether resources were obtained and used in accordance with the legally adopted budget; and
c. by providing data to help users assess the entity’s service efforts, costs and accomplishments.
Q 1 – 9 The three objectives of not-for-profit entity financial reporting, as identified by the FASB, are to help users assess: (a) the services
provided by the entity and its ability to continue to provide them; (b) how the entity’s managers discharged their stewardship
responsibilities; and (c) the entity’s performance, including its service efforts and accomplishments.
