Financial Reporting Ch 1-3 of blue book.

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Financial Reporting Ch 1-3 of blue book.
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2013-11-12 04:30:43
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CGFO CPFO Financial Reporting blue book
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Financial Reporting CPFO exam. Chapter 1-3 of blue book.
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  1. Which of the following best describes the role that accounting, financial reporting, and the financial statement audit play for state and local governments?
    A. They comprise a comprehensive framework of internal control.
    B. They provide the informational infrastructure of public finance
    C The serve as a public sector performance management system.

     
    B. They provide the informational infrastructure of public finance.- Reliable information is needed to make informed decisions, and the financial statement audit together provide that information. Thus, accounting, financial reporting and the financial statement audit serve as the informational infrastructure of public finance.

  2. Who is primarily responsible for accounting?
    A. The governing body.
    B. The independent auditor
    C. Management

     
    C. Management-Accounting for the management of financial resources is primarily the responsibility of those who manage them.

  3. Who is primarily responsible for financial reporting?
    A. The governing body.
    B. The independent auditor
    C. Management

     
    C. Management-Those committed with the management of financial resources are primarily responsible for reporting on their stewardship of the resources committed to their care.

  4. Which of the following best describes the relationship between accounting and financial reporting?
    A. The two terms are essentially interchangeable
    B. The two terms are complementary but distinct
    C. The two terms are unrelated

     
    B. The two terms are complementary but distinct. Accounting is the process of assembling, analyzing, classifying, and recording data relevant to a government's finances. Financial reporting is the process of taking that information and providing it in usable form to those who need it. Thus, accounting and financial reporting complement one another, yet remain distinct.

  5. What determines the content and format of internal financial reports?
    A. Generally accepted accounting principles
    B. Management's need and preferences
    C. Both A and B

     
    B. Managements needs and preferences-Internal financial reporting focuses on the needs of managers, who are free to design reports to meet their needs and preferences.

  6. What typically determines the content and format of general purpose financial reports?
    A. Generally accepted accounting principles
    B. Management's need and preferences
    C. Both A and B

     
    A. Generally accepted accounting principles-General purpose external financial reports are intended to meet the needs of those who are not in a position to obtain information tailored to the specific needs and preferences. It is the role of GAAP, which set the format and contents of such reports, to ensure that their users have all of the basic information needed to make an informed assessment of a government's finances.

  7. Which of the following methods of communication focuses on providing an operational, economic, or historical context?
    A. Disclosure
    B. Supporting information
    C. Both A and B

     
    B. Supporting information-The basic financial statement (that is, display + disclosure) form the irreducible core of general purpose external financial reporting. The role of supporting information is to provide an operational, economic, or historical context for understanding the basic financial statements.

  8. Which of the following methods of communication focus would require that a given items meet the definition of a financial statement element?
    A. Display
    B. Disclosure
    C. Both A and B

     
    A. Display-Only the items that meet the definition of financial statement element qualify for display on the face of the financial statements. In contrast, items that do not meet the definition of a financial statement element can be disclosed in the notes to the financial statements. (commitments and contingencies)

  9. Which of the following is an essential characteristic of accounting data?
    A. Precision
    B. Comparability
    C. Both A and B

     
    B. Comparability-The essential characteristics of accounting data are understandability, reliability, relevance, timeliness, consistency, and comparability. Financial data need to be reliable, but not precise.

  10. The principle that a local government possesses only those powers that are expressly granted to it by the state, or that are otherwise indispensable to its continued existence and functioning, is known as:
    A. Home Rule
    B. Dillon's Rule
    C. Comity of powers
    D. Federalism

     
    B. Dillon's Rule-The term Dillon's Rule is used to describe the legal notion that local governments possess only those powers that are expressly granted to them by the state, or that are otherwise indispensable to their continued existence and functioning. The notion of home rule implies additional powers. The term comity of powers is used to describe mutual recognition and cooperation among governments.

  11. There are two basic categories of local government. On that basis, which of the following does NOT belong with the others?
    A. Township
    B. Utility
    C. Municipality
    D. County

     
    B. Utility. It is common to distinguish general purpose governmental from special purpose governments. Townships, muni, and counties are all examples of the former, whereas a utility is an example of the latter.

  12. The key difference between accounting and financial reporting for businesses and accounting and financial reporting for state and local government as are primarily attributable to:
    A. Differences in environment
    B. Difference in standard setting
    C. Differences in law
    D. Differences in accounting theory

     
    A. Differences in environment - Environmental differences (the absence of a profit motive, a heightened focus on stewardship, the unique role played by the budget in the public sector) explain the most prominent features that distinguish state and local government accounting and financial reporting from accounting and financial reporting for private sector business enterprises.

  13. Which of the following statements is true concerning the relationship between revenues earned and related costs?
    A. It is of most interest to a business
    B. It is of most interest to a government
    C. It is of equal interest to both.

    A-It is of most interest to a business-Businesses focus primarily on whether revenues earned in a given period were sufficient to cover costs, whereas state and local governments, in the absence of profit motive, tend to concentrate instead on near term liquidity

  14. Which of the following state is true concerning the relationship between revenue generation and the provision of goods and services?
    A. The relationship is more direct for a business
    B. The relationship is more direct for a government
    C. The relationship is essentially the same for both

     
    A-The relationship is more direct for a business-In a business setting there typically is a discernible relationship between what an individual pays and the that same individual receives. The relationship between what a given citizen pays in taxes and the specific services that same citizen receives from the government is much less direct.

  15. Which of the following is a tool used by state and local governments to help assess stewardship and compliance?
    A. Consolidation
    B. Aggregation
    C. Fund accounting
    D. Cost accounting

     
    C-Fund Accounting-A big picture approach normally is insufficient for assessing stewardship and compliance. Rather, a tool is needed for organizing and presenting data about financial resources in a manner that highlights the fact that certain resources have been 'segregated for the purpose of carrying on specific activities or attaining certain objectives in accordance with special regulations, restrictions, or limitations.' For state and local governments, that tools is fund accounting.

  16. Which of the following statements is true concerning the presentation of budgetary comparison in connection with financial statements.
    A. It is required for state and local governments
    B. It is required for businesses
    C. Both A and B
    D. Neither A nor B

     
    A-It is required for state and local governments. The budget of a private sector business is essentially a managerial tool of no direct concern to users of external financial reports. In contrast, the budget of a state or local government typically has the force of law and, therefore, is of concern to the interest in compliance with finance related local provisions. Accordingly, budgetary comparison are required in connection with most state or local government financial statements, whereas budgetary comparison is presented in connection with the basic financial statements of a private sector business.

  17. True or False-For all practical purposes, citizens are the public sector equivalent of private sector investors.
     
    False-The information needs of citizens bear little resemblance to those of private sector investors in equity securities.

  18. True or False-The extent to which special purpose government are used can vary significantly from one state to another.
     
    True-the use of special purpose local governments varies considerably from state to state. A citizen in one state might be serves by multiples special purpose governments, while that citizen's counterpart is a neighboring state might receive the same services from a single, general purpose government.

  19. True or False-If some of a government's activities function much like a business, while others do not, the government should use more than one measurement focus.
     
    True-The measurement focus used for funds that report business type activities is different from the measurement focus used for funds that report tax supported activities.

  20. GAAP provide authoritative guidance for which of the following?
    A. Internal financial reporting
    B. General purpose external financial reporting
    C. Special purpose external financial reporting
    D. All of the above.

    B. General purpose external financial reporting. Managers typically determine the format and contents of internal financial reports. Similarly, the format and contents of special purpose external financial reports normally are set by their intended recipients. GAAP are designed to provide authoritative guidance on the format and contents of general purpose external financial reports.
    (this multiple choice question has been scrambled)

  21. Which of the following is always issued as part of the GASB's due process?
    A. Invitation to comment
    B. Discussion memorandum
    C. Preliminary views
    D. None of the above

    D. None of the above. The GASB is required to issue an ED of a proposed standard. The issuance of other types of due process remains at the discretion of the GASB.

  22. Which of the following has the highest status on the GAAP hierarchy for statement and local governments?
    A. AICPA issues paper
    B. AICPA state of position specific to government and cleared by the GASB
    C. NCGA statement
    D. GASB implementation guide

    C. NCGA statement. The highest status on the GAAP hierarchy is reserves for statements and interpretations of the GASB and of its predecessor, the NCGA.
    (this multiple choice question has been scrambled)

  23. Which of the following would be covered by the AICPA's Ethics Rule 202?
    A. GASB implementation guide
    B. GASB technical bulletin
    C. Widely recognized and prevalent practice
    D. All of the above.
    • D. All of the above. The AICPA's Ethics Rule 202 applies to all of the guidance on the GAAP hierarchy below the highest level. (which is covered by the AICPA's Ethics Rule 203)

  24. Which of the following would be covered by the AICPA's Ethics Rule 203?
    A. GASB implementation guide
    B. GASB interpretation
    C. AICPA audit and accounting guide, State and Local Governments
    D. None of the above

    B. GASB interpretation-The AICPA's Ethics Rule 203 applies to guidance on the highest level of the GAAP hierarchy, which is reserved for statements and interpretations of the GASB and of its predecessor, the NCGA.
    (this multiple choice question has been scrambled)

  25. Which of the following is not necessarily definitive when determining whether a given entity should be considered a state or local government for purposes of GAAP?
    A. Ability to unilaterally disable with reversion of assets to a governments
    B. Elections of officers in a general election
    C. Ability to enact and enforce a tax levy
    D. The ability to issue tax exempt debt

    D. The ability to issue tax exempt debt.-An entity that has the ability to issue federal tax exempt debt is presumed to be a state or local government, the presumption may be rebutted by compelling, relevant evidence.
    (this multiple choice question has been scrambled)

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