Acct 405 Exam #3 | Actual study |
Questions and verified Answers
What are financial statements? - ANSW-the primary source of data for financial analysts and others to
assess a government's operating results and short-term financial position
What is the role of financial statements? - ANSW-to help assess financial condition - the likelihood that in
the longer term the government will meet its financial obligations to employees and creditors and its
service delivery obligations to the citizenry (also need to analyze economic and demographic factors as
well)
What information do you need for a proper financial analysis? - ANSW-1. Statement of net position
2. Statement of revenues, expenditures/expenses, and changes in fund balance/net position
3. Notes to financial statements, RSI, MD&A, and statistical information
What is the statement of net position? - ANSW-Provides information about an organization's assets,
liabilities, and net position as of the statement date
-Allows an analyst to reach some conclusions about the entity's liquidity and financial flexibility
How are assets/liabilities classified on the statement of net position? - ANSW-in order of liquidity
-greater financial flexibility when resources are more liquid
How are net assets classified on the statement of net position? - ANSW-According to restrictions
-More financial flexibility when unrestricted net position or unassigned fund balance is relatively high
What can analyst learn from the statement of revenues, expenditures and changes in fund balance? -
ANSW--whether resources obtained covered the cost of the services provided during the year
-sources of revenues and the sensitivity to economic contractions
-nature of services provided during the year
-whether unusual factors influenced operating results for the year
What does the operating statement not provide information on? (statement of revenues, expenditures
and changes in fund balance) - ANSW-unmet service needs
What main two things does the notes section provide information on? - ANSW-- Property tax calendar
(provides information about timing of cash flows and need for short-term borrowing)
-Debt service requirements to maturity (amounts due each year for the next 5 years and in five-year
increments thereafter)
What information does RSI provide? - ANSW-Information about pension and OPEB obligations such as
-funding progress
-actual contributions to pension or OPEB plain in relation to actuarially determined contributions
What information does the MD&A provide? - ANSW-Information about causes for changes in the
amounts reported in the financial statements
What is per capital information? - ANSW-where you divide financial statements elements by an entity's
population
What is time-series analysis? - ANSW-data for the current year is compared with data for the previous
year (generally study changes for 5 to 10 years)
, What is comparative analysis? - ANSW-comparing a government to an external reference point (ex:
compare a single govt. quick ratio with the medial quick ratio for similar sized and type of government in
a state)
What are some general rules to follow when analyzing govt. FS? - ANSW--Consider multiple indicators
-Make comparisons over a period of time
-Compare to norms or rules of thumbs developed by state oversight agencies, credit-rating agencies, and
broad research studies
What is the purpose of liquidity indicators? - ANSW-to help assess an entity's ability to meet its short-
term obligations
What does the quick ratio tell us? - ANSW-How likely it is that we will meet our current obligations
(higher the better)
-If =1 then we have enough cash on hand to pay currently due bills
What do asset turnover/efficiency ratios tell us? - ANSW-how efficient a entity is in using its resources
What do property tax efficiency ratios? - ANSW-Measures the ability of the government to collect taxes
-Can provide evidence of weak admin such as poor follow up on slow payers
What is budget solvency? - ANSW-being able to generate sufficient recurring revenues each year to meet
recurring expenses and having a sufficiently large reserve of readily available resources to weather
economic contractions and emergency expenditure needs
What is the purpose of a budget solvency and operating results indicators? - ANSW-to help assess an
entity's ability to generate sufficient recurring revenues to meet expenses and to meet unforeseen
operating budget needs
What is the purpose of debt burden? - ANSW-measures the govt. ability to pay the debt and that can be
racked over time and compared with other governments
-Measures:
Debt per capita
Debt as a percentage of full value of taxable real property and
Debt as a percentage of personal income
What are the 3 primary indicators for debt burden? - ANSW-1. Debt burden
2. Debt service burden
3. Debt principal payback
What is debt service burden? - ANSW-measures the portion of a govt. revenues that are consumed by
the annual payment of principal and interest on long-term debt and interest on short-term debt (the
greater the portion, the less flexibility)
What is debt principal payback? - ANSW-a measure of the rate at which the principal on debt is repaid (a
faster rate reduces interest costs and gives greater financial flexibility)
What is capital structure? - ANSW-the extent to which an activity's assets are financed with debt
What is coverage analysis? - ANSW-an entity's ability to repay the debt (the greater the number, the
greater the cushion against possible nonpayment)
What is the funded ratio? - ANSW-measures the adequacy of pension funding
What organizations perform financial condition analysis? - ANSW-1. credit-rating agencies
Questions and verified Answers
What are financial statements? - ANSW-the primary source of data for financial analysts and others to
assess a government's operating results and short-term financial position
What is the role of financial statements? - ANSW-to help assess financial condition - the likelihood that in
the longer term the government will meet its financial obligations to employees and creditors and its
service delivery obligations to the citizenry (also need to analyze economic and demographic factors as
well)
What information do you need for a proper financial analysis? - ANSW-1. Statement of net position
2. Statement of revenues, expenditures/expenses, and changes in fund balance/net position
3. Notes to financial statements, RSI, MD&A, and statistical information
What is the statement of net position? - ANSW-Provides information about an organization's assets,
liabilities, and net position as of the statement date
-Allows an analyst to reach some conclusions about the entity's liquidity and financial flexibility
How are assets/liabilities classified on the statement of net position? - ANSW-in order of liquidity
-greater financial flexibility when resources are more liquid
How are net assets classified on the statement of net position? - ANSW-According to restrictions
-More financial flexibility when unrestricted net position or unassigned fund balance is relatively high
What can analyst learn from the statement of revenues, expenditures and changes in fund balance? -
ANSW--whether resources obtained covered the cost of the services provided during the year
-sources of revenues and the sensitivity to economic contractions
-nature of services provided during the year
-whether unusual factors influenced operating results for the year
What does the operating statement not provide information on? (statement of revenues, expenditures
and changes in fund balance) - ANSW-unmet service needs
What main two things does the notes section provide information on? - ANSW-- Property tax calendar
(provides information about timing of cash flows and need for short-term borrowing)
-Debt service requirements to maturity (amounts due each year for the next 5 years and in five-year
increments thereafter)
What information does RSI provide? - ANSW-Information about pension and OPEB obligations such as
-funding progress
-actual contributions to pension or OPEB plain in relation to actuarially determined contributions
What information does the MD&A provide? - ANSW-Information about causes for changes in the
amounts reported in the financial statements
What is per capital information? - ANSW-where you divide financial statements elements by an entity's
population
What is time-series analysis? - ANSW-data for the current year is compared with data for the previous
year (generally study changes for 5 to 10 years)
, What is comparative analysis? - ANSW-comparing a government to an external reference point (ex:
compare a single govt. quick ratio with the medial quick ratio for similar sized and type of government in
a state)
What are some general rules to follow when analyzing govt. FS? - ANSW--Consider multiple indicators
-Make comparisons over a period of time
-Compare to norms or rules of thumbs developed by state oversight agencies, credit-rating agencies, and
broad research studies
What is the purpose of liquidity indicators? - ANSW-to help assess an entity's ability to meet its short-
term obligations
What does the quick ratio tell us? - ANSW-How likely it is that we will meet our current obligations
(higher the better)
-If =1 then we have enough cash on hand to pay currently due bills
What do asset turnover/efficiency ratios tell us? - ANSW-how efficient a entity is in using its resources
What do property tax efficiency ratios? - ANSW-Measures the ability of the government to collect taxes
-Can provide evidence of weak admin such as poor follow up on slow payers
What is budget solvency? - ANSW-being able to generate sufficient recurring revenues each year to meet
recurring expenses and having a sufficiently large reserve of readily available resources to weather
economic contractions and emergency expenditure needs
What is the purpose of a budget solvency and operating results indicators? - ANSW-to help assess an
entity's ability to generate sufficient recurring revenues to meet expenses and to meet unforeseen
operating budget needs
What is the purpose of debt burden? - ANSW-measures the govt. ability to pay the debt and that can be
racked over time and compared with other governments
-Measures:
Debt per capita
Debt as a percentage of full value of taxable real property and
Debt as a percentage of personal income
What are the 3 primary indicators for debt burden? - ANSW-1. Debt burden
2. Debt service burden
3. Debt principal payback
What is debt service burden? - ANSW-measures the portion of a govt. revenues that are consumed by
the annual payment of principal and interest on long-term debt and interest on short-term debt (the
greater the portion, the less flexibility)
What is debt principal payback? - ANSW-a measure of the rate at which the principal on debt is repaid (a
faster rate reduces interest costs and gives greater financial flexibility)
What is capital structure? - ANSW-the extent to which an activity's assets are financed with debt
What is coverage analysis? - ANSW-an entity's ability to repay the debt (the greater the number, the
greater the cushion against possible nonpayment)
What is the funded ratio? - ANSW-measures the adequacy of pension funding
What organizations perform financial condition analysis? - ANSW-1. credit-rating agencies
