CPFO ACCOUNTING EXAM - GAAFR REVIEW UPDATED
QUESTIONS AND ANSWERS
1.1. Which of the following groups normally would not be considered a primary user of a state or local
government's general purpose external financial statements?
A. Citizens
B. Legislative & Oversight Bodies
C. Management
D. Investor & Creditors - CORRECT ANSWER✅✅✅C. Management
Primary users of a state or local government's general purpose external financial statements are citizens,
legislative & oversight bodies, and investors & creditors. While Management is a user, they have direct
access to internal accounting information.
1.2. 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 governments
D. Independent auditors - CORRECT ANSWER✅✅✅D. Independent Auditors
Independent auditors took the lead in setting GAAP in the private sector, whereas financial statement
preparers led the first efforts to define GAAP in the public sector.
1.3. 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 & Exchange Commission (SEC) - CORRECT ANSWER✅✅✅A. Financial Accounting
Foundation (FAF)
,FAF appoints the members of both FASB & GASB.
1.4. Which of the following has the LOWEST authoritative status on the GAAP hierarchy?
A. Widely recognized and prevalent practices
B. NCGA Interpretations
C. GASB concepts statements
d. The AICPA's audit and accounting guide State and Local Governments - CORRECT ANSWER✅✅✅C.
GASB Concepts Statements
GASB concepts statements are considered to be more authoritative than any other source of guidance
as they are included in "Other Sources" instead of an actual level of hierarchy.
1.5. 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. None of the above
In 1989, the FAF categorically affirmed the GASB's jurisdiction over all entitites operating in the public
sector, including utilities, hospitals, colleges, and universities.
1.6. Which of the following Types of guidance has the HIGHEST standing on the GAAP hierarchy?
A. GASB Technical Bulletins
B. GASB Concepts Statements
C. GASB Implementation Guides
D. GASB Interpretations - CORRECT ANSWER✅✅✅D. GASB Interpretations
GASB Statements & Interpretations are listed as "Level 1" on the GAAP hierarchy.
,1.7. 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 seven 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 of the above
1.8. Which of the following sets GAAP for nonprofit organizations?
A. FAF
B. AICPA
C. GASB
D. FASB - CORRECT ANSWER✅✅✅D. FASB
The jurisdiction of the FASB extends to both private-sector businesses and non-profit organizations.
1.9. 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 (Government Accountability Office)
D. SEC - CORRECT ANSWER✅✅✅B. AICPA
The AICPA has officially designated the FASB, the GASB, and the FASAB as the authoritative standard-
setting bodies for GAAP in thier respective sectors.
1.10. 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. Ensure the board has considered all relevant facts and points of view
before issuing final guidance
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 points of view prior to arriving at a
conclusion.
1.11. 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. The entity has the ability to directly issue federally tax-
exempt debt.
The entity has the ability to directly issue federally tax-exempt debt (if this is the only criterion met, the
presumption that an entity is governmental may be rebutted based upon compelling, relevant
evidence).
1.12. 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.
1.13. T/F The appropriated budget of a government is essentially a financial plan. - CORRECT
ANSWER✅✅✅False - The appropriated budget of a government is MUCH MORE than just a financial
plan. It enjoys the force of law.
1.14. 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.
QUESTIONS AND ANSWERS
1.1. Which of the following groups normally would not be considered a primary user of a state or local
government's general purpose external financial statements?
A. Citizens
B. Legislative & Oversight Bodies
C. Management
D. Investor & Creditors - CORRECT ANSWER✅✅✅C. Management
Primary users of a state or local government's general purpose external financial statements are citizens,
legislative & oversight bodies, and investors & creditors. While Management is a user, they have direct
access to internal accounting information.
1.2. 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 governments
D. Independent auditors - CORRECT ANSWER✅✅✅D. Independent Auditors
Independent auditors took the lead in setting GAAP in the private sector, whereas financial statement
preparers led the first efforts to define GAAP in the public sector.
1.3. 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 & Exchange Commission (SEC) - CORRECT ANSWER✅✅✅A. Financial Accounting
Foundation (FAF)
,FAF appoints the members of both FASB & GASB.
1.4. Which of the following has the LOWEST authoritative status on the GAAP hierarchy?
A. Widely recognized and prevalent practices
B. NCGA Interpretations
C. GASB concepts statements
d. The AICPA's audit and accounting guide State and Local Governments - CORRECT ANSWER✅✅✅C.
GASB Concepts Statements
GASB concepts statements are considered to be more authoritative than any other source of guidance
as they are included in "Other Sources" instead of an actual level of hierarchy.
1.5. 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. None of the above
In 1989, the FAF categorically affirmed the GASB's jurisdiction over all entitites operating in the public
sector, including utilities, hospitals, colleges, and universities.
1.6. Which of the following Types of guidance has the HIGHEST standing on the GAAP hierarchy?
A. GASB Technical Bulletins
B. GASB Concepts Statements
C. GASB Implementation Guides
D. GASB Interpretations - CORRECT ANSWER✅✅✅D. GASB Interpretations
GASB Statements & Interpretations are listed as "Level 1" on the GAAP hierarchy.
,1.7. 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 seven 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 of the above
1.8. Which of the following sets GAAP for nonprofit organizations?
A. FAF
B. AICPA
C. GASB
D. FASB - CORRECT ANSWER✅✅✅D. FASB
The jurisdiction of the FASB extends to both private-sector businesses and non-profit organizations.
1.9. 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 (Government Accountability Office)
D. SEC - CORRECT ANSWER✅✅✅B. AICPA
The AICPA has officially designated the FASB, the GASB, and the FASAB as the authoritative standard-
setting bodies for GAAP in thier respective sectors.
1.10. 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. Ensure the board has considered all relevant facts and points of view
before issuing final guidance
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 points of view prior to arriving at a
conclusion.
1.11. 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. The entity has the ability to directly issue federally tax-
exempt debt.
The entity has the ability to directly issue federally tax-exempt debt (if this is the only criterion met, the
presumption that an entity is governmental may be rebutted based upon compelling, relevant
evidence).
1.12. 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.
1.13. T/F The appropriated budget of a government is essentially a financial plan. - CORRECT
ANSWER✅✅✅False - The appropriated budget of a government is MUCH MORE than just a financial
plan. It enjoys the force of law.
1.14. 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.
