CPFO ACCOUNTING EXAM FY24 GAAFR BOOK
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 - Answers - 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 - Answers - 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) - Answers - A - The FAF appoints the
members of both the FASB and the GASB (page 7) (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 - Answers - 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 - Answers - 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 - Answers - 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 - Answers - 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 - Answers - 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 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 - Answers
- 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 - Answers - 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 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 - 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 - 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. (page
1) (Chapter 1)
T/F The appropriated budget of a government is essentially a financial plan - Answers -
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 - 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. (page 3) (Chapter 1)
T/F GAAP are designed to provide the basic information needed to assess an entity's
finances - Answers - 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 - Answers - 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. -
Answers - 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)
T/F There is no "level 2" guidance currently outstanding on the GAAP hierarchy for state
and local governments - Answers - False - This statement is not true for "level 2"
guidance, which currently includes GASB's various Technical Bulletins as well as the
AICPA's audit and accounting guide for State and Local GOvernments. To date, no
authoritative guidance has been issued that merits level 3 status for state and local
governmental entities, not is it likely that any such guidance will be issued in the
foreseeable future. (pages 12-13) (Chapter 1)
T/F AICPA Ehtics Rule 203 covers all four levels of the GAAP hierarchy - Answers -
False - Rule 203 covers only "level 1" guidance. Coverage of the other levels of the
GAAP hierarchy is provided by Rule 202, which places on auditors the burden of proof
to justify any material departures from the guidance found in levels 2, 3, or 4 of the
GAAP hierarchy. (page 13) (Chapter 1)
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. (pages 11-12)
(Chapter 1)
List all GASB sources for each level of authority in the GAAP hierarchy for state and
local governments - Answers - Level 1: Statements and Interpretations (including extant
guidance of the NCGA and private-sector standards adopted by reference or use din
accordance with the economic resources approach
Level 2: Technical Bulletins
Level 3: Emerging Issues Task Force Consensus Positions
Level 4: Implementation Guides
Other sources: Concept Statments
(Chapter 1)
List all AICPA sources for each level of authority in the GAAP hierarchy for state and
local governments - Answers - Level 1: N/A
Level 2: Audit and Accounting Guides/Statement of position for state and local
governments (specific to gov, cleared by the GASB)
Level 3: Accounting Standards Executive Committee Practice Bulletins
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 - Answers - 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 - Answers - 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) - Answers - A - The FAF appoints the
members of both the FASB and the GASB (page 7) (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 - Answers - 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 - Answers - 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 - Answers - 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 - Answers - 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 - Answers - 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 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 - Answers
- 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 - Answers - 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 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 - 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 - 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. (page
1) (Chapter 1)
T/F The appropriated budget of a government is essentially a financial plan - Answers -
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 - 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. (page 3) (Chapter 1)
T/F GAAP are designed to provide the basic information needed to assess an entity's
finances - Answers - 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 - Answers - 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. -
Answers - 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)
T/F There is no "level 2" guidance currently outstanding on the GAAP hierarchy for state
and local governments - Answers - False - This statement is not true for "level 2"
guidance, which currently includes GASB's various Technical Bulletins as well as the
AICPA's audit and accounting guide for State and Local GOvernments. To date, no
authoritative guidance has been issued that merits level 3 status for state and local
governmental entities, not is it likely that any such guidance will be issued in the
foreseeable future. (pages 12-13) (Chapter 1)
T/F AICPA Ehtics Rule 203 covers all four levels of the GAAP hierarchy - Answers -
False - Rule 203 covers only "level 1" guidance. Coverage of the other levels of the
GAAP hierarchy is provided by Rule 202, which places on auditors the burden of proof
to justify any material departures from the guidance found in levels 2, 3, or 4 of the
GAAP hierarchy. (page 13) (Chapter 1)
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. (pages 11-12)
(Chapter 1)
List all GASB sources for each level of authority in the GAAP hierarchy for state and
local governments - Answers - Level 1: Statements and Interpretations (including extant
guidance of the NCGA and private-sector standards adopted by reference or use din
accordance with the economic resources approach
Level 2: Technical Bulletins
Level 3: Emerging Issues Task Force Consensus Positions
Level 4: Implementation Guides
Other sources: Concept Statments
(Chapter 1)
List all AICPA sources for each level of authority in the GAAP hierarchy for state and
local governments - Answers - Level 1: N/A
Level 2: Audit and Accounting Guides/Statement of position for state and local
governments (specific to gov, cleared by the GASB)
Level 3: Accounting Standards Executive Committee Practice Bulletins
