CPFO ACCOUNTING EXAM QUESTIONS & ANSWERS
Which of the following best describes the role that accounting, financial reporting, and
the financial statement audit play for state and local governments?
A. They comprise a comprehensive framework of internal control.
B. They provide the informational infrastructure of public finance.
C. They serve as a public-sector performance management system. - Answers -
Reliable information is needed to make informed financial decisions. Accounting,
financial reporting, and the financial statement audit together provide that information.
Thus, accounting, financial reporting and the financial statement audit serve as the
informational infrastructure of public finance. [Correct response = B]
Who is primarily responsible for accounting?
A. The governing body
B. The independent auditor
C. Management - Answers - Accounting for the management of financial resources is
primarily the responsibility of those who manage them. [Correct response = C]
Who is primarily responsible for financial reporting?
A. The governing body
B. The independent auditor
C. Management - Answers - Those entrusted with the management of financial
resources are primarily responsible for reporting on the stewardship of the resources
committed to their care. [Correct response = C]
Which of the following methods of communication would require that a given item meet
the definition of a financial statement element?
A. Display
B. Disclosure
C. Both A and B - Answers - Only items that meet the definition of a financial statement
element qualify for display on the face of the financial statements. In contrast, items that
do not meet the definition of a financial statement element can be disclosed in the notes
to the financial statements (e.g., commitments and contingencies). [Correct response =
A]
Which of the following may be a reporting unit, for which financial statement elements
are displayed?
A. An individual government
B. Two or more governments
C. A part of a government
D. Two or more parts of a government
E. All of the above - Answers - Financial statement elements are displayed for reporting
units. A reporting units may be an individual government, a part of a government, two or
more governments, or two or more parts of a government. [Correct response = E]
,Which of the following methods of communication focuses on providing an operational,
economic, or historical context?
A. Disclosure
B. Supporting information
C. Both A and B - Answers - The basic financial statements (that is, display and
disclosure) form the irreducible core of general purpose external financial reporting. The
role of supporting information is to provide an operational, economic, or historical
context for understanding the basic financial statements. [Correct response = B]
Which of the following is an essential characteristic of accounting data?
A. Precision
B. Comparability
C. Both A and B - Answers - The essential characteristics of accounting data are
understandability, reliability, relevance, timeliness, consistency, and comparability.
Financial data need to be reliable, but not precise. [Correct response = B]
. Who is ultimately responsible for a government's financial reporting?
A. The independent auditor
B. Management
C. The governing body - Answers - The governing body is responsible for overseeing
management. Therefore, the governing body is ultimately responsible for ensuring that
management meets its responsibilities in regard to financial reporting. [Correct response
= C]
GAAP provides authoritative guidance for with of the following?
A. Internal financial reporting
B. Special purpose external financial reporting
C. General purpose external financial reporting
D. All of the above - Answers - C. General purpose external financial reporting
Which of the following best describes the relationship between accounting and financial
reporting?
A. The two terms are essentially interchangeable.
B. The two terms are complementary but distinct.
C. The two terms are unrelated - Answers - Accounting is the process of assembling,
analyzing, classifying, and recording data relevant to a government's finances. Financial
reporting is the process of taking that information and providing it in a usable form to
those who need it. Thus, accounting and financial reporting complement one another,
yet remain distinct. [Correct response = B]
What determines the content and format of internal financial reports?
A. Generally accepted accounting principles
B. Management's needs and preferences
C. Both A and B - Answers - internal financial reporting focuses on the needs of
managers, who are free to design reports to meet their needs and preferences. [Correct
response = B]
, What typically determines the content and format of general purpose external financial
reports?
A. Generally accepted accounting principles
B. Management's needs and preferences
C. Both A and B - Answers - General purpose external financial reports are intended to
meet the needs of those who are not in a position to obtain information tailored to their
specific needs and preferences. It is the role of GAAP, which sets the format and
contents of such reports, to ensure that their users have all of the basic information
needed to make an informed assessment of a government's finances. [Correct
response = A]
Which of the following is NOT properly considered to be a primary user of state and
local government financial statements?
A. Investors and creditors
B. Managers
C. Legislative and oversight bodies
D. None of the above - Answers - B. Managers
Which of the following is always issued as part of the GASB's due process?
A. Invitation to comment (ITC)
B. Discussion memorandum (DM)
C. Preliminary views (PV)
D. None of the above - Answers - D. None the above
Which of the following has the highest status on GAAP hierarchy for state and local
governments?
A. NCGA statement
B. GASB Implementation guide
C. AICPA statement of position specific to government and clearly by the GASB
D. AICPA issue paper - Answers - A. NCGA statement
Which of the following would not be covered by either the AICPA Compliance with
Standard Rule, Code section 1.310.001, or Accounting Principles Rule, Code section
1.320.001?
A. GASB implementation guide
B. GASB statements
C. Widely recognized and prevalent practice
D. All of the above are covered by one of those rules - Answers - C. Widely recognized
and prevalent practice.
Which of the following is a true statement regarding the application of nonauthoritative
accounting literature:
A. If there is no category A or B GAAP applicable to a government's situation, it should
follow guidance applicable to not-for-profit organizations in similar situations.
Which of the following best describes the role that accounting, financial reporting, and
the financial statement audit play for state and local governments?
A. They comprise a comprehensive framework of internal control.
B. They provide the informational infrastructure of public finance.
C. They serve as a public-sector performance management system. - Answers -
Reliable information is needed to make informed financial decisions. Accounting,
financial reporting, and the financial statement audit together provide that information.
Thus, accounting, financial reporting and the financial statement audit serve as the
informational infrastructure of public finance. [Correct response = B]
Who is primarily responsible for accounting?
A. The governing body
B. The independent auditor
C. Management - Answers - Accounting for the management of financial resources is
primarily the responsibility of those who manage them. [Correct response = C]
Who is primarily responsible for financial reporting?
A. The governing body
B. The independent auditor
C. Management - Answers - Those entrusted with the management of financial
resources are primarily responsible for reporting on the stewardship of the resources
committed to their care. [Correct response = C]
Which of the following methods of communication would require that a given item meet
the definition of a financial statement element?
A. Display
B. Disclosure
C. Both A and B - Answers - Only items that meet the definition of a financial statement
element qualify for display on the face of the financial statements. In contrast, items that
do not meet the definition of a financial statement element can be disclosed in the notes
to the financial statements (e.g., commitments and contingencies). [Correct response =
A]
Which of the following may be a reporting unit, for which financial statement elements
are displayed?
A. An individual government
B. Two or more governments
C. A part of a government
D. Two or more parts of a government
E. All of the above - Answers - Financial statement elements are displayed for reporting
units. A reporting units may be an individual government, a part of a government, two or
more governments, or two or more parts of a government. [Correct response = E]
,Which of the following methods of communication focuses on providing an operational,
economic, or historical context?
A. Disclosure
B. Supporting information
C. Both A and B - Answers - The basic financial statements (that is, display and
disclosure) form the irreducible core of general purpose external financial reporting. The
role of supporting information is to provide an operational, economic, or historical
context for understanding the basic financial statements. [Correct response = B]
Which of the following is an essential characteristic of accounting data?
A. Precision
B. Comparability
C. Both A and B - Answers - The essential characteristics of accounting data are
understandability, reliability, relevance, timeliness, consistency, and comparability.
Financial data need to be reliable, but not precise. [Correct response = B]
. Who is ultimately responsible for a government's financial reporting?
A. The independent auditor
B. Management
C. The governing body - Answers - The governing body is responsible for overseeing
management. Therefore, the governing body is ultimately responsible for ensuring that
management meets its responsibilities in regard to financial reporting. [Correct response
= C]
GAAP provides authoritative guidance for with of the following?
A. Internal financial reporting
B. Special purpose external financial reporting
C. General purpose external financial reporting
D. All of the above - Answers - C. General purpose external financial reporting
Which of the following best describes the relationship between accounting and financial
reporting?
A. The two terms are essentially interchangeable.
B. The two terms are complementary but distinct.
C. The two terms are unrelated - Answers - Accounting is the process of assembling,
analyzing, classifying, and recording data relevant to a government's finances. Financial
reporting is the process of taking that information and providing it in a usable form to
those who need it. Thus, accounting and financial reporting complement one another,
yet remain distinct. [Correct response = B]
What determines the content and format of internal financial reports?
A. Generally accepted accounting principles
B. Management's needs and preferences
C. Both A and B - Answers - internal financial reporting focuses on the needs of
managers, who are free to design reports to meet their needs and preferences. [Correct
response = B]
, What typically determines the content and format of general purpose external financial
reports?
A. Generally accepted accounting principles
B. Management's needs and preferences
C. Both A and B - Answers - General purpose external financial reports are intended to
meet the needs of those who are not in a position to obtain information tailored to their
specific needs and preferences. It is the role of GAAP, which sets the format and
contents of such reports, to ensure that their users have all of the basic information
needed to make an informed assessment of a government's finances. [Correct
response = A]
Which of the following is NOT properly considered to be a primary user of state and
local government financial statements?
A. Investors and creditors
B. Managers
C. Legislative and oversight bodies
D. None of the above - Answers - B. Managers
Which of the following is always issued as part of the GASB's due process?
A. Invitation to comment (ITC)
B. Discussion memorandum (DM)
C. Preliminary views (PV)
D. None of the above - Answers - D. None the above
Which of the following has the highest status on GAAP hierarchy for state and local
governments?
A. NCGA statement
B. GASB Implementation guide
C. AICPA statement of position specific to government and clearly by the GASB
D. AICPA issue paper - Answers - A. NCGA statement
Which of the following would not be covered by either the AICPA Compliance with
Standard Rule, Code section 1.310.001, or Accounting Principles Rule, Code section
1.320.001?
A. GASB implementation guide
B. GASB statements
C. Widely recognized and prevalent practice
D. All of the above are covered by one of those rules - Answers - C. Widely recognized
and prevalent practice.
Which of the following is a true statement regarding the application of nonauthoritative
accounting literature:
A. If there is no category A or B GAAP applicable to a government's situation, it should
follow guidance applicable to not-for-profit organizations in similar situations.
