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Question 1

Q: 1

What role do the U.S. Department of the Treasury, GAO and OMB have in the standard-setting activities of FASAB?

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Correct Answer:

Explanation

The Federal Accounting Standards Advisory Board (FASAB) was established in 1990 by the U.S.

Department of the Treasury, the Office of Management and Budget (OMB), and the Government

Accountability Office (GAO). These three entities are collectively known as the “sponsors” of FASAB.

Each has a representative who serves as a voting member of the board.

FASAB is responsible for establishing GAAP for federal entities. The sponsor organizations appoint

board members and have authority over standard-setting governance, but do not individually veto

standards. Final standards are issued only after due process, including public comment and sponsor

approval.

Relevant Standards and Reference:

FASAB Memorandum of Understanding (MOU) Among Treasury, OMB, and GAO (as amended):

“These three agencies are the sponsors of FASAB and each appoints one voting member to the

Board.”

FASAB Governance Manual (2023 Edition), Section 2: Identifies Treasury, OMB, and GAO as sponsors

and voting members.

AGA’s “CGFM Study Guide 2,” Chapter 2: Highlights the role of sponsors in the standard-setting

process.

Therefore, Option D is correct.

Question 2

Q: 2

of the following are integral parts of state governments* formal financial statements EXCEPT the

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Correct Answer:

D The formal financial statements of a state or local government include: Basic Financial Statements (government-wide and fund statements) Notes to the Financial Statements Required Supplementary Information (RSI), including MD&A and pension data The auditor’s letter (i.e., Independent Auditor’s Report) is included in the financial section of the ACFR but is not technically part of the financial statements themselves. It is a separate document providing the auditor's opinion. Relevant Reference: GASB Statement No. 34 GFOA ACFR Reporting Guide AICPA Governmental Audit Guide Answer : D. auditor’s letter

Question 3

Q: 3

Which of the following fund types would be used to collect water utility user fees?

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Correct Answer:

D ENTERPRISE FUNDS ARE A TYPE OF PROPRIETARY FUND USED BY GOVERNMENTS TO ACCOUNT FOR OPERATIONS THAT ARE FINANCED AND OPERATED IN A MANNER SIMILAR TO PRIVATE BUSINESS ENTERPRISES. THESE INCLUDE ACTIVITIES LIKE WATER, SEWER, AND ELECTRICITY UTILITIES, WHERE USER FEES OR CHARGES FOR SERVICES ARE THE PRIMARY REVENUE SOURCE. IN THIS CASE, A WATER UTILITY CHARGING USERS IS BEST ACCOUNTED FOR USING AN ENTERPRISE FUND. RELEVANT REFERENCE: GASB CODIFICATION SECTION 1300 – FUND TYPES GASB STATEMENT NO. 34 – FUND CLASSIFICATION GFOA BEST PRACTICES – UTILITY AND ENTERPRISE FUND ACCOUNTING ANSWER : D. ENTERPRISE FUND

Question 4

Q: 4

What fund category traditionally accounts for the general services to the public such as public safety, health, transportation, social services and the administration of the government?

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Correct Answer:

B The governmental fund category is used to account for the core services of a government that are primarily supported by taxes and other non-exchange revenues. These services include public safety, education, health, transportation, and social services. It includes the general fund, special revenue funds, capital projects funds, debt service funds, and permanent funds. While option D (general fund) is technically a fund within the governmental category, the broader and more accurate classification is "governmental." Relevant Reference: GASB Statement No. 34 – Basic Financial Statements for State and Local Governments GASB Codification Section 1300 – Fund Types GFOA Fund Structure Guidance Answer : B. governmental ═════════════════

Question 5

Q: 5

Which of the following events is an example of an expenditure but not an expense?

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Correct Answer:

C Comprehensive Detailed In governmental funds (using the modified accrual basis), expenditures are recorded when financial resources are used — typically when cash is disbursed. However, in government-wide statements (accrual basis), only the portion of the asset’s cost consumed in the period is recorded as an expense (i.e., depreciation). Paying for capital assets such as vehicles is an expenditure in the governmental funds, but not an expense in the accrual-based government-wide financials. Instead, the cost is capitalized and depreciated over time. Relevant Reference: GASB Statement No. 34 – Government-wide vs. Fund Financial Reporting GASB Codification Section 1300 – Modified Accrual Accounting GFOA Best Practices – Capital Asset Reporting Answer : C. At the end of the fiscal year, the government pays for ten vehicles which will be depreciated over five years.

Question 6

Q: 6

State and local budgets serve all of the following purposes EXCEPT to

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Correct Answer:

C State and local government budgets primarily serve to: Set public policy priorities Provide legislative control over taxing and spending Serve as a financial planning tool Debt policy is typically established outside the annual budget process and guided by a separate debt management policy that sets borrowing limits, credit rating objectives, and debt service goals. Relevant Reference: GFOA Best Practices – Role of the Budget NASBO Budgeting Handbook GASB Concept Statements – Financial Reporting Objectives Answer : C. determine debt policy

Question 7

Q: 7

A special-purpose government is considered a primary government when it has any of the following characteristics EXCEPT that it

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Correct Answer:

A A special-purpose government (e.g., a school district, utility authority) is considered a primary government when it meets at least one of the following conditions: Has a separately elected governing body Is legally separate Is fiscally independent of other governments The reliance on revenue projections from another entity does not preclude a government from being a primary government. What matters is legal and fiscal independence. Relevant Reference: GASB Statement No. 14 – The Financial Reporting Entity GASB Statement No. 39 and No. 61 (Amendments to Statement 14) GASB Codification Section 2100 – Defining the Financial Reporting Entity Answer : A. relies on revenue projections from another government entity

Question 8

Q: 8

A private bank provides a student loan that the government has insured against default. This is an example of

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Correct Answer:

B When a private bank issues a student loan that is insured by the government in case of default, the federal government is acting as a guarantor—not issuing the loan directly, but promising repayment to the lender if the borrower defaults. This is a classic example of a federal loan guarantee program. Loan guarantees are off-budget unless called, and the government only incurs a liability if the student defaults. Relevant Reference: FASAB SFFAS No. 2 – Accounting for Direct Loans and Loan Guarantees Credit Reform Act of 1990 OMB Circular A-11, Section 185 – Federal Credit Programs Answer : B. a loan guarantee

Question 9

Q: 9

The primary purpose of accumulating and reporting cost information is to O

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Correct Answer:

B The primary purpose of accumulating and reporting cost information—especially in government and nonprofit environments—is to support internal decision-making. Cost data help managers assess program efficiency, evaluate resource use, and make policy or operational decisions. While external financial statements may incorporate summarized cost information, and stockholders and regulatory agencies may have interests in private-sector settings, the most direct and core purpose is to support management. Relevant Reference: FASAB SFFAS No. 4 – Managerial Cost Accounting Concepts and Standards GFOA – Cost Accounting for Decision-Making OMB Circular A-136 and A-11 (federal reporting objectives) Answer : B. provide a means for management to assess decision performance

Question 10

Q: 10

A state had problems with its cash reconciliation resulting in a difference between the total cash per books versus cash balance with banks. The possible loss could only be estimated within a range of $100 million to $300 million with no amount within the range considered a better estimate than any other. The state should recognize a minimum liability of

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Correct Answer:

A GASB Statement No. 62 (based on FASB ASC 450-20) provides guidance on recognizing loss contingencies. If a loss is probable and the amount can only be estimated as a range, and no single amount within the range is better, the minimum amount in the range should be accrued. The remainder of the range should be disclosed in the notes to the financial statements. Thus: Accrue: $100 million Disclose: Additional exposure up to $200 million Relevant Reference: GASB Statement No. 62 – Paragraph 96 GAAP Implementation Guide – Loss Contingencies AICPA Audit Guide – Government Auditing Standards Answer : A. $100 million and disclose in the notes the exposure to an additional $200 million loss

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