Question 1

One of the required reconciliations in converting governmental fund financial statements to governmental activities statements at the government-wide level is to adjust for internal service funds' assets,liabilities,operating income (loss),and transfers.

Accepted Answer

This one of the reconciling items required in converting governmental fund statements to governmental activities statements as presented in Chapter 9.

Question 2

A financial reporting entity is defined as a primary government,as well as all other organizations that have an operational relationship with the primary government.

Accepted Answer

GASB standards define a financial reporting entity as a primary government, organizations for which the primary government is financially accountable, and other organizations for which the nature and significance of their relationship with the primary government are such that exclusion would cause the financial statements to be misleading.

Question 3

Both a general purpose and a special purpose government could be considered examples of primary governments under GAAP.

Accepted Answer

The definition of a primary government does not rely on the scope or purpose of the government. Therefore, either a general purpose or a special purpose government could be considered a primary government if the government meets the criteria of having a separately elected board, being legally separate, and fiscally independent of other state or local governments.

Question 4

A government is financially accountable for another entity if it appoints the voting majority of the entity's governing board.

Accepted Answer

To be considered financially accountable the primary government not only appoints a voting majority of the entity's governing board, it must also be (a) able to impose its will on the entity or (b) there is a potential for the entity to provide specific financial benefits to, or impose specific financial burdens on the primary government.

Question 5

Which of the following is not a category found in the statistical section of the comprehensive annual financial report (CAFR)?
A) Expenditure trend information.
B) Revenue capacity information.
C) Demographic and economic information.
D) Debt capacity information.

Accepted Answer

Expenditure trend information is typically found in the financial section of the CAFR, not the statistical section. The statistical section usually includes revenue capacity information, demographic and economic information, and debt capacity information, among others, to provide a broader context of the government's financial health over time.

Question 6

The three sections of the comprehensive annual financial reports of state and local governments are (1)an introductory section, (2)a financial section,and (3)a supplemental section.

Accepted Answer

The first two sections are required in GASB standards for a comprehensive annual financial report; however, the third section is a statistical section, not a supplemental section.

Question 7

Under GASB standards,the financial statements that report on business-type activities at the government-wide level include the statement of net position,statement of activities,and statement of cash flows.

Accepted Answer

The government-wide statements of net position and statement of activities will have a column to represent business-type activities; however, there is no requirement to present a statement of cash flows in the government-wide statements.

Question 8

State and local governments should prepare only those financial reports required by law-generally year-end financial statements.

Accepted Answer

Governments should prepare whatever statements are required by law, but some financial information may be needed daily by administrators. Also, complete interim financial statements are usually desired at regular intervals by administrators, legislators, news media, and others concerned with current information about aspects of the financial management of the unit. Governments concerned with reporting in conformity with GAAP need, as a minimum, to prepare the basic financial statements, notes thereto, and management's discussion and analysis as illustrated and discussed in Chapter 9.

Question 9

GASB Concepts Statement 4 identifies expenditures as a financial statement element.

Accepted Answer

Concepts Statement 4 identifies the element as outflow of resources rather than expenditures. The element outflow of resources can thus be used to identify an expenditure or an expense.

Question 10

Statistical tables included in comprehensive annual financial reports should provide social and economic data,in addition to financial data,to assist financial statement users in better understanding the activities and condition of the government.

Accepted Answer

GASB standards require that information should be presented in five categories: (1) financial trends information, (2) revenue capacity information, (3) debt capacity information, (4) demographic and economic information, and (5) operating information.

Question 11

Fiduciary activities are not reported in the government-wide financial statements under GASB standards.

Accepted Answer

Only governmental and business-type activities are reported on the two government-wide financial statements, the statement of net position and statement of activities. Fiduciary activities represent assets and liabilities that by definition do not belong to the government. Accordingly, the GASB requires that information about fiduciary activities be excluded from the government-wide financial statements. Fiduciary fund financial information is reported in two fiduciary fund financial statements.

Question 12

In converting from the modified accrual basis of accounting information in a governmental fund to accrual basis for the government-wide statements,capital assets acquired by a governmental fund are deducted from fund balance-governmental funds to arrive at net position of governmental activities.

Accepted Answer

Capital assets acquired by governmental funds are financial uses of resources. As such, in converting to accrual the amount of the capital assets acquired should be added back to total fund balances-governmental funds to arrive at net position of governmental activities.

Question 13

A discretely presented component unit is presented as a major fund on the governmental fund financial statements.

Accepted Answer

Discretely presented component units are not presented on the governmental funds financial statements. They would appear as a separate column after the financial data for the primary government in the government-wide statements of net position and activities.

Question 14

Other comprehensive bases of accounting (OCBOA)are considered generally accepted accounting principles (GAAP)for state and local governments.

Accepted Answer

OCBOA are not generally accepted and, if used by a state or local government, are considered special reports that are not intended to conform to GAAP.

Question 15

Which of the following circumstances would indicate that a potential component unit (PCU)should be included as part of the governmental financial reporting entity?
A) The primary government is entitled to the resources of the PCU.
B) Officials of the primary government appoint a majority of the members of the governing board of the PCU.
C) The primary government significantly influences the programs and activities of the PCU.
D) Officials of the primary government appoint a majority of the members of the PCU's governing board and the primary government is able to impose its will on the PCU.

Accepted Answer

According to GASB Statement No. 14, a potential component unit should be included in the governmental financial reporting entity if it meets one of the following criteria: (1) the primary government is financially accountable for it, or (2) it is so intertwined with the primary government that it cannot be separated from the primary government. The condition described in choice D indicates financial accountability as well as a high level of operational integration between the primary government and the PCU. Therefore, the PCU should be included as part of the reporting entity. Choices A, B, and C may also indicate some level of financial accountability or operational integration, but they do not meet the high threshold established by choice D.

Question 16

Which of the following is a primary objective of financial reporting by state and local governments?
A) To provide information that can be used for capital allocation decisions made by external investors.
B) To report on the legal requirements imposed on the government by its elected officials.
C) To provide information that can be used to assess a government's accountability.
D) To fulfill the government's statutory duty to report on cash received and cash disbursed.

Accepted Answer

The primary objective of financial reporting by state and local governments is to provide information that can be used to assess a government's accountability. This includes disclosing financial and non-financial information to citizens, lawmakers, and other stakeholders to demonstrate how well the government is managing its resources and serving its constituents. Options A, B, and D do not accurately reflect the primary objective of financial reporting by state and local governments.

Question 17

Popular reports provide condensed financial information that can be used by governments to communicate financial results to citizens.

Accepted Answer

Popular reports are easier for citizens to understand than are comprehensive annual financial reports (CAFR). They can be used to supplement information provided by the CAFR.

Question 18

Which of the following factors would not indicate that a potential component unit (PCU)imposes a financial burden or provides a financial benefit to the primary government?
A) The primary government is entitled to its share of any dividends distributed by the PCU.
B) The primary government is obligated to provide financial support to the PCU.
C) The primary government is obligated for the PCU's debt.
D) The primary government is entitled to the PCU's resources.

Accepted Answer

Factors indicating a financial burden or benefit to the primary government from a potential component unit (PCU) include obligations for the PCU's debt, entitlement to the PCU's resources, and obligations to provide financial support. However, being entitled to a share of any dividends distributed by the PCU does not inherently indicate a financial burden but rather a potential financial benefit.

Question 19

The accounting system used by a state or local government must make it possible to prepare financial statements as required by the Financial Accounting Standards Board.

Accepted Answer

The accounting system must make it possible to present fairly the financial position and results of financial operations of the government as a whole, as well as fund financial activity and compliance with finance-related legal and contractual provisions in conformity with generally accepted accounting principles promulgated by the Government Accounting Standards Board (GASB), not FASB.

Question 20

According to the guidance of GASB Concepts Statement 3,financial information can be communicated by recognition in the financial statements,disclosure in the notes to the financial statements,presentation as required supplementary information,or presentation as supplementary information.

Accepted Answer

These are the options provided by GASB Concepts Statement 3 for communicating financial information, as described on p. 356 of the text.

Quiz 9: Financial Reporting of State and Local Governments