Chapter 1 Flashcards
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. They serve as a public-sector performance management system
Reliable information is needed to make informed financial decisions. Accounting, financial reporting, 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. [Correct response = B
Who is primarily responsible for accounting?
A. The governing body
B. The independent auditor
C. Management
Accounting for the management of financial resources is primarily the responsibility of those who manage them. [Correct response = C
Who is primarily responsible for financial reporting?
A. The governing body
B. The independent auditor
C. Management
Those entrusted with the management of financial resources are primarily responsible for reporting on the stewardship of the resources committed to their care. [Correct response = C]
Which of the following best describes the relationship between accounting and financial reporting?
A. the two terms are interchangable
B. the two terms are complementary but unique
C. the two terms are unrelated
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 a usable form to those who need it. Thus, accounting and financial reporting complement one another, yet remain distinct. [Correct response = B]
What determines the content and format of internal financial reports?
A. Generally accepted accounting principles
B. Management’s needs and preferences
C. Both A and B
Internal financial reporting focuses on the needs of managers, who are free to design reports to meet their needs and preferences. [Correct response = B
What typically determines the content and format of general purpose external financial reports?
A. Generally accepted accounting principles
B. Management’s needs and preferences
C. Both A and B
General purpose external financial reports are intended to meet the needs of those who are not in a position to obtain information tailored to their 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. [Correct response = A
Which of the following methods of communication would require that a given item meet the definition of a financial statement element?
A. Display
B. Disclosure
C. Both A and B
Only items that meet the definition of a 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 (e.g., commitments and contingencies). [Correct response = A
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
The basic financial statements (that is, display and 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. [Correct response = B
Which of the following is an essential characteristic of accounting data?
A. Precision
B. Comparability
C. Both A and B
The essential characteristics of accounting data are understandability, reliability, relevance, timeliness, consistency, and comparability. Financial data need to be reliable, but not precise. [Correct response = B]
Who is ultimately responsible for a government’s financial reporting?
A. The independent auditor
B. Management
C. The governing body
The governing body is responsible for overseeing management. Therefore, the governing body is ultimately responsible for ensuring that management meets its responsibilities in regard to financial reporting. [Correct response = C]
What is the purpose of financial reporting?
To provide information needed for decision making and stewardship.
What are the three different types of financial reporting?
- Internal reporting
- Special purpose reporting
- General purpose external reporting
What are the three types of communication methods of external financial reporting?
Display, disclosure, and supporting information.
List the elements of financial statements.
Assets, Deferred Outflows, Liabilities, Deferred Inflows, Inflows of resources, Outflows of resources, and Net Position.
What are assets?
Resources with present service capacity that the government controls.
