Accounting for Governmental Study Set 1

Business

Quiz 13 :

Auditing, Tax-Exempt Organizations, and Evaluating Performance

Quiz 13 :

Auditing, Tax-Exempt Organizations, and Evaluating Performance

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Use the Internet to locate your state's site for reporting school district "School Report Cards." Select a school district or individual school and answer the following: a. What measures of service inputs are presented on the report card b. What measures of service outputs are presented on the report card c. What measures of service outcomes are presented on the report card d. What information is presented to provide comparisons between the school selected and other schools in the state
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With regard to tax-exempt organizations: a. Define a 501(c)(3) organization. b. Define a public charity.
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The not-for-profit organisations and governmental entities are audited under the general auditing standards. These Government Auditing Standards are controlled by the U.S. Government Accountability Office. These audits involve assessment of the internal controls, assessment of fairness of the financial reports, selective verification of transactions and issuance of these audit reports. The audits of state and federal organizations are also subjected to Single Audit Act of 1984, to provide the federal assistance authority with uniform requirements to these organizations.
Most of the not-for-profit organizations are exempted from the federal income taxes but their incomes from business activities could be taxable. These are enforced by the Tax code section 501, where the organizations for charitable purpose are exempted from taxes.
a. In this chapter a 501(c)(3) organization is defined as "a corporation and any community chest, fund, or foundation organised and operated exclusively for religious, charitable, scientific, testing for public safety, literary or educational purposes, or to foster national or international amateur sports competition (so long as none of its activities involve the providing of athletic facilities or equipment) or for the prevention of cruelty to children or animals, no part of the net earnings of which inures to the benefit of any private shareholder or individual, no substantial part of the activities of which is carrying on propaganda, participate or intervene in any political campaign."
b. Similarly a public charity is defined as " (1) a church, school, hospital, governmental unit, or publicly supported charity; (2) an organization that receives more than one-third of its support from a combination of contributions, membership fees, and gross receipts from exempt activities and no more than one-third of its support from a combination of investment income and net unrelated business income after taxes; (3) an organization operated exclusively for the benefit of organizations already described; or (4) an organization founded and operated exclusively for public safety."

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With regard to the Government Auditing Standards: a. Differentiate among the different types of professional engagements. b. Assume you are auditing a city that has a summer youth employment program. List some factors you might investigate in terms of (1) financial statement audits and (2) performance audits.
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The not-for-profit organisations and governmental entities are audited under the general auditing standards. These Government Auditing Standards are controlled by the U.S. Government Accountability Office. These audits involve assessment of the internal controls, assessment of fairness of the financial reports, selective verification of transactions and issuance of these audit reports.
a. There are four types of professional engagements, which are financial audits, attestation engagements, performance audits and non-audit services.
1. Financial audits: The financial audits assures the fairness of the reporting of financial statements and are in accordance with the generally accepted accounting principles or a comprehensive basis of accounting.
2. Attestation engagements: The attestation engagements involves the examination, review, assessment and reporting of the agreed upon procedures. The attestation engagement could be a part of the financial audit or in other engagements.
3. Performance audits: The performance audit involves assessment of the performance and management of various programs and their objectives and the assessment of the practices by the organization and other information. It also provides information to improve the practices and to make decisions for corrective actions to be made and improve public accountability of the organization.
4. Non-audit services: The non-audit services involves the collection of information, providing this information to the decision makers and explaining them and assisting these decision makers by providing valuable advices.
b.
(1) In the financial statement audits, the factors to be considered are the compliance of these statements with the laws and regulations and internal control over financial reporting.
(2) In performance audits, for the performance audit of program effectiveness, the factors to be considered are the achievement of program goals. For economy and efficiency audits, the factors to be considered are the process of acquiring the resources, protecting them and their usage for achieving the program objectives.

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Using the annual financial report obtained for Exercise 1-1, answer the following questions: a. Examine the auditor's report. Is the auditor identified as an independent CPA firm A state audit agency Other Is the wording of the auditor's report the same as illustrated in this chapter Does the scope paragraph indicate exactly what is covered by the auditor's opinion If the auditor is expressing an opinion only on the basic financial statements, what responsibility is taken for the combining and individual fund statements Is the opinion unmodified If not, what are the qualifications b. Does the annual financial report contain a single audit section If not, does the report refer to the existence of a single audit report If so, does the report include a Schedule of Federal (and State) Financial Assistance Are all of the reports illustrated in this chapter included Can you identify the major programs, if any
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You have been assigned the task of writing the audit report for the City of X. The scope includes the basic financial statements, although the report is attached to a complete Comprehensive Annual Financial Report. a. Write the opinion paragraph. b. Differentiate among opinions that are unmodified, qualified, adverse, and disclaimed. Give examples of situations that might cause you to (1) qualify an opinion, (2) issue an adverse opinion, and (3) disclaim an opinion.
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You and a few friends have decided to establish a not-for-profit organization in your community to help provide shelter and food to the homeless and transients. Outline the steps you would take to obtain tax-exempt status, avoid paying unrelated business income tax, and so on. Consider the creation of a related entity, a foundation, as a part of your planning.
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What is the role of a bond-rating agency
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Identify the three categories of users of governmental financial statements and describe the information needs of each.
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With regard to filing requirements for 501(c)(3) organizations: List the three types of Form 990 and indicate the size of the tax-exempt organization to use for each.
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With respect to the Single Audit Act of 1984 and amendment of 1996 relating to state and local governments and not-for-profit organizations: a. Distinguish between major and nonmajor programs. b. List the criteria used to determine whether an entity is subject to the Single Audit Act. c. List the audit reports that should be included in a single audit report.
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Presented below are the computed amounts of ratios for the Village of Elizabeth example appearing in the chapter. img a. Using the financial statements provided in Illustrations 2-5 through 2-11, compute ratios for the City of Salem. Assume the population of Salem is 52,000 and the fair value of property totals $970 million. b. For each ratio, indicate which of the two governments has a stronger financial position.
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With regard to service efforts and accomplishments reporting, define the following terms: a. Service efforts. b. Service accomplishments. c. Inputs. d. Outputs. e. Outcomes. f. Efficiency measures. g. Cost-outcome measures.
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Presented below are financial statements (except cash flows) for two not-for-profit organizations. Neither organization has any permanently restricted net assets. img img a. Calculate the following ratios: • Program expense. • Fund-raising efficiency. • Working capital. b. For each ratio, explain which of the two organizations has the stronger ratio.
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Using the annual financial report obtained for Exercise 1-1, answer the following questions: a. Report the following ratios, using the formulas appearing in Illustration 13-4 as a guide: (1) Financial Position (government-wide, governmental activities) (2) Financial Position (General Fund) (3) Quick Ratio (government-wide, governmental activities) (4) Leverage (government-wide, primary government) (5) Debt Service Coverage (enterprise funds) (6) Debt Service to Total Expenditures (governmental fund-basis) (7) Debt per Capita (government-wide, primary government)* (8) Debt to Assessed Value of Property (government-wide, primary government) b. Write a memorandum, based on the ratios you calculated in part ( a ) of this problem, giving a recommendation as to whether to purchase (1) general obligation or (2) revenue bonds of your governmental unit.
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Go to the Better Business Bureau's Wise Giving Alliance website (http://www.bbb.org/us/charity/). Click on "List of National BBB Wise Giving Reports," select a charity, and open the full report. Be sure to select a charity that provides financial information. a. State the name of the organization and its mission. b. What are the two largest programs in terms of expenses c. What are the two largest sources of funds d. Calculate the program expense ratio. e. Calculate the fund-raising efficiency ratio.
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A local government has five federal grants. Expenditures amounted to $2,000,000 during the year, as follows: img Describe how you, as an auditor, would determine major programs for audit, assuming ( a ) the local government is not a low-risk auditee, and ( b ) the local government is a low-risk auditee.
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Describe the purpose of ratio analysis. What is common-size analysis
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With regard to Unrelated Business Income Tax (UBIT), answer the following questions: a. Which four conditions will automatically exempt entities from UBIT b. What are some exceptions to UBIT provided by legislation c. How is UBIT computed What deductions are allowed
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