Quiz 9: Financial Reporting of State and Local Governments

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.

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

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.

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

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.

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

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.

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.

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.

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

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

In reconciling between the governmental fund and 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.

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

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

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

Under GASB standards,only proprietary funds prepare a statement of cash flows.

Similar in purpose to the International Accounting Standard Board (IASB)is the International Public Sector Accounting Standards Board.

The General Fund data for a blended component unit should be reported as a special revenue fund of the primary government.

According to GASB Concepts Statement 1 a primary objective of financial reports is to provide information useful in determining the accountability of the government.

The GASB defines a component unit as any organization for which the primary government is financially accountable.

The two methods for presenting component units in the financial statements are aggregated and disaggregated.

To be reported as a major component unit,a component unit must meet the same 10 percent and 5 percent size requirements as major funds.

A not-for-profit organization could be reported as a component unit of a primary government.

The GASB requires that interim financial reports be prepared on a semi-annual basis at a minimum.

An example of information found in the statistical section of the comprehensive annual financial report (CAFR)is demographic information such as unemployment rates,and personal income of citizens.

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.

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.

Which of the following circumstances would indicate that a potential component unit (PCU)should be included as part of the government 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.

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.

Combining financial statements for nonmajor funds of a government should be included A) In the basic financial statements. B) In the notes to the financial statements. C) As a part of the financial section of the comprehensive annual financial report (CAFR). D) As part of the statistical section of the comprehensive annual financial report (CAFR).

Which of the following would not be included within the financial section of the comprehensive annual financial report (CAFR)? A) Letter of transmittal. B) Management's discussion and analysis (MD&A). C) Independent auditor's report. D) Required supplementary information (RSI).

Which of the following kinds of information would not be provided by management's discussion and analysis (MD&A)? A) A narrative explanation of the contents of the CAFR. B) A description of the government's financial condition. C) A forecast of revenues and expenditures for the next three fiscal years. D) A discussion of economic factors and the budget and tax rates approved for the next year.

Which of the following is a required program revenue category in the government-wide statement of activities? A) Special assessments. B) Operating grants and contributions. C) Sales taxes. D) Transfers.

Which of the following would increase the governmental activities balance in Net Position-Net Investment in Capital Assets? A) Acquisition of a building to be used by the police department. B) Issuance of long-term debt to be used to acquire equipment for the police department. C) A gift of land to the city restricted by the donor to be used by the city airport, which is accounted for as an enterprise fund. D) Recording annual depreciation on capital assets.

Which of the following is evidence of fiscal independence for the purpose of considering whether one legally separate organization is a component unit of another? A) The potential component unit is precluded from issuing long-term debt. B) The potential component unit raises taxes without the approval of the primary government. C) The budget of the potential component unit must be approved by the primary government. D) The potential component unit sets user charges with approval of the primary government.

What constitutes the basic financial statements of a government? A) Financial section of the comprehensive annual financial report (CAFR). B) Government-wide financial statements plus notes. C) Government-wide financial statements plus fund financial statements plus notes. D) Government-wide financial statements plus fund financial statements plus notes plus required supplementary information (RSI).

Which of the following actions is not required to convert data from the governmental fund financial statements to enable preparation of the government-wide financial statements? A) Adding annual depreciation expense proportionately to functional expense categories. B) Eliminating interfund payables and receivables between governmental funds. C) Aggregating fund information. D) Eliminating receivables and payables between governmental and enterprise funds.

Under GASB standards,if a government only has six governmental funds and two enterprise funds how many basic financial statements would it prepare? A) Five. B) Six. C) Seven. D) Nine.

Which of the following is one of the three sections of a comprehensive annual financial report? A) Statistical section. B) Single audit section. C) Supplementary section. D) Investment section.

Government-wide financial statements present the government's financial position using the: A) Financial resources measurement focus and the accrual basis of accounting. B) Economic resources measurement focus and the accrual basis of accounting. C) Current financial resources measurement focus and the modified accrual basis of accounting. D) Current financial resources measurement focus and the cash basis of accounting.

Which of the following are government-wide financial statements required by GASB standards? A) Statement of net position and statement of cash flows. B) Statement of net position, statement of activities, and statement of cash flows. C) Statement of net position and statement of activities. D) Statement of activities and statement of cash flows.

Where should infrastructure assets and long-term liabilities issued to finance infrastructure be reported? A) Letter of transmittal. B) Fund financial statements. C) Management's discussion and analysis. D) Government-wide financial statements.

Under GASB standards,where are nonmajor funds reported? A) In the management's discussion and analysis preceding the financial statements. B) In aggregate amounts in a single column in the fund financial statements. C) In a note disclosure following the financial statements. D) In the government-wide financial statements.

GASB standards require that governmental fund financial statements include which of the following? A) Balance sheet. B) B) Statement of activities. C) Statement of cash flows. D) Both A and

Balsam City's library board is appointed by the city council,which has agreed to subsidize the operating costs of the library at a material amount to be determined each year.In addition,the city is paying debt service on general obligation bonds issued to construct the library.Based on generally accepted accounting principles (GAAP)criteria for defining the reporting entity: A) The library is a component unit. B) The library is a special purpose government. C) The library is a joint venture. D) The library is a jointly governed organization.

The comprehensive annual financial report (CAFR)of a government should contain a statement of revenues,expenses,and changes in net position for : A) Both proprietary and governmental funds. B) Governmental but not proprietary funds. C) Proprietary but not governmental funds. D) Both proprietary and fiduciary funds.

Which of the following items are typically reported differently between the governmental fund statements and the Governmental Activities column of the government-wide statements? A) Capital outlays. B) Cash collected on property taxes receivable. C) Accounts payable and other accrued expenses. D) Inventories.

Which of the following is not one of the methods recommended by the GASB Concepts Statement 3 for communicating information to external users of government financial reports? A) Providing a popular report. B) Recognition in the financial statements. C) Presentation as required supplementary information. D) Disclosure in the notes to the financial statements.

Some governments provide to their citizens highly condensed financial information,budget summaries,and narrative descriptions.This report is called a(an) A) Comprehensive annual financial report. B) Basic financial statements. C) Required supplementary information. D) Popular report.

In reconciling the net change in fund balances to the change in net position of governmental activities which of the following would be added to the change in net position of governmental activities? A) Issuance of long-term debt. B) Construction of capital assets. C) Accrual of interest expense. D) Depreciation expense.

Which of the following statements concerning the reporting of internal balances by a government at the end of its fiscal year is ? A) The internal balances amounts reported in the balance sheet columns represent activity among governmental funds. B) The internal balances amounts reported in the statement of net position columns represent activity between governmental activities and business-type activities. C) The internal balances amounts are reported in both the asset and liability sections on the statement of net position. D) The internal balances amounts reported represent the difference between interfund transfers in and interfund transfers out.

Which of the following would decrease the governmental activities balance in Net Position-Net Investment in Capital Assets? A) An increase in accumulated depreciation. B) Acquisition of a capital lease. C) Sale of a fully depreciated capital asset. D) Receipt of a capital grant that has not been expended at fiscal year-end.

In reconciling the total fund balances of the governmental funds to the net position of governmental activities,which of the following would be added to the net position of governmental activities? A) Accumulated depreciation. B) Premium on bonds payable. C) Construction work in progress. D) Bond interest payable.

On the statement of revenues,expenditures,and changes in fund balance for governmental funds,how are capital outlays reported? A) As a separate line item in the expenditures section of the statement. B) Capital outlays are allocated to the functional areas, much like depreciation. C) As a separate line item in the other financing sources (uses) section of the statement. D) Below net change in fund balances, but before beginning fund balance.

Which of the following statements concerning the reporting of expenses on the statement of activities is ? A) Expenses are reported after program revenues. B) Expenses are reported after general revenues. C) Expenses are reported after program and general revenues. D) Expenses are reported before program and general revenues.

Which of the following statements concerning interfund transfers is ? A) Interfund transfers are reported in the statement of revenues, expenditures, and changes in fund balance when transfers occur among governmental funds. B) Interfund transfers are reported in the statement of activities when transfers occur among governmental funds. C) Interfund transfers are reported in the statement of revenues, expenditures, and changes in fund balance and the statement of activities when transfers occur among governmental funds. D) Interfund transfers are reported as internal balances on the statement of net position when activity occurs among governmental activities and business-type activities.

The following are key terms in Chapter 9 that relate to the reporting entity: A.Component unit B.Financial reporting entity C.Financial accountability D.Joint venture E.Other stand-alone government F.Primary government For each of the following definitions,indicate the key term from the list above that best matches by placing the appropriate letter in the blank space next to the definition.

For the following items that require reconciliation between governmental funds financial statements and governmental activities financial statements at the government-wide level according to GASB standards,indicate whether the reconciliation will (A)always be subtracted from fund balances-governmental funds,(B)always be added to fund balances-governmental funds,or (C)may be added to or subtracted from fund balances-governmental funds in arriving at net position of governmental activities. _____ 1.Capital assets used in governmental activities _____ 2.Long-term liabilities that are not payable in the current period _____ 3.Net position of internal service funds that are primarily governmental in nature _____ 4.Accrued interest payable not due in the current period

"Interim financial reports are needed for state and local governments even though external users of financial reports have no need to assess monthly or quarterly performance of the government." Do you agree? Why or why not?

What is meant by the term "reporting entity" in accounting for state and local governments?

In your own words,describe the relationships between a component unit and a primary government.Provide some examples and describe the financial reporting for a component unit.

Describe what the government-wide statements are intended to convey to readers and contrast with the intent of the fund financial statements.

Describe the alternative processes for capturing the financial accounting information required for government-wide financial statements.

Explain why other comprehensive bases of accounting (OCBOA)may be used by a state or local government instead of GASB standards which are generally accepted accounting principles (GAAP).

Describe some items requiring adjustments when modified accrual basis accounting information must be converted to accrual basis accounting in preparation of government-wide statements.