F10 - Governmental Accounting: Part 3

Question 1

M1 - Form and Content of the ACFR

The focus of government-wide financial statements

Answer 1

is the government’s responsibility to report the extent to it has met its operating objectives efficiently and effectively, using all resources available for that purpose, and the extent to which it can continue to meet its objectives for the future.

Government-wide financial statements focus on operational accountability

Question 2

M1 - Form and Content of the ACFR

An Annual Comprehensive Financial lReport (ACFR) is divided into three sections:

Answer 2

• an introductory section,
• the basic financial statements along with other required supplementary informations mandated by GASB 34
• statistical section, which by definition, is NOT part of the basic financial statements.

Question 3

M1 - Form and Content of the ACFR

The Integrated Approach

Answer 3

Is the presentation of government-wide financial statements prepared using a uniform method of accounting and measurement focus in combination with both fund based financial statements that use the method of accounting and measurement focus appropriate to the particular fund type along with appropriate reconciliation.

Question 4

M1 - Form and Content of the ACFR

The government-wide financial statements are presented using the

Answer 4

economic resources measurement focus using the accrual basis of accounting, similar to commercial enterprises.

Question 5

M1 - Form and Content of the ACFR

Fund financial statements

Answer 5

are a component of the basic financial statements that, along with the government-wide financial statements and notes to the financial statements, comprise the basic financial statements of a government.

Question 6

M1 - Form and Content of the ACFR

Operational accountability

Answer 6

takes an economic view that reports on the long-term efficient and effective use of resources.

Question 7

M1 - Form and Content of the ACFR

A municipality preparing its basic financial statements and required supplementary information in accordance with GASB 34 would introduce the basic financial statements and provide analytical overview of the government’s financial statements in:

Answer 7

A section title Management’s Discussion and Analysis as part of the city’s required supplementary information before the basic financial statements.

Question 8

M1 - Form and Content of the ACFR

Which of the following statements are required to be presented for special-purpose governments engaged only in business-type activities (such as utilities)?

Answer 8

The financial statements required for enterprise funds, including MD&A and RSI.

Question 9

M1 - Form and Content of the ACFR

Basic financial statements

established by GASB 34

Answer 9

• Government-wide Financial Statements,
• Fund Financial Statements
• Notes to the Financial Statements

Question 10

M1 - Form and Content of the ACFR

Requires Supplementary Information (RSI)

established by GASB 34

Answer 10

Supplementary information covers a wide range of information including Management’s Discussion and Analysis and supporting schedules, such as combining financial statements by fund type and budget versus actual presentations.

Question 11

M1 - Form and Content of the ACFR

An ACFR includes a statistical section and is divided into three sections:

Answer 11

1. Introductory
2. Financial (which includes both basic FS and RSI as required by GASB 34)
3. Statistical

Neither the introductory section nor the statistical section is audited

Question 12

M1 - Form and Content of the ACFR

The introductory section of a local government’s ACFR would include a

Answer 12

letter of transmittal along with an organization chart and a list of principal officers.

Question 13

M1 - Form and Content of the ACFR

The statistical section of a government’s ACFR is distinguisehd from the information contained in the financial statements by both the character of data presented, including

Answer 13

data covering financial trends, and the number of fiscal years presented.
- The statistical section is likely to include 10 years of both financial and nonfinancial data relevant to financial statement users.

Question 14

M1 - Form and Content of the ACFR

Fiduciary activities

Answer 14

should be excluded from government-wide measures of operational accountability since fiduciary resources cannot be used to support the government’s programs or other services.
- Transactions with fiduciary funds are treated as if those transactions were conducted with an independent trustee for purposes of display in the government-wide financial statements.

Question 15

M1 - Form and Content of the ACFR

What is the basic criterion used to determine the reporting entity for a governmental unit?

Answer 15

Financial accountability

An acountability perspective provides the basis for defining the financial reporting entity.

Question 16

M1 - Form and Content of the ACFR

The reporting status of a governmental unit is determined by whether it can stand alone by ““it SELF”” based on the following organizational characteristics:

Answer 16

• Separately
  
  • Elected governning body
  • Legally separate entity
  • Financially independent status

Governments that meet all three criteria are reported as primary governments, while those that fail any of the criteria are considered component units.

Question 17

M1 - Form and Content of the ACFR

Component units

Answer 17

may be presented using either the discrete or blended method within the financial statements of the primary reporting entity.
- Discrete presentation is an acceptable method to present component units.

Question 18

M1 - Form and Content of the ACFR

The failure of a legal entity component of the SELF test results in using

Answer 18

the blended method to report.

Question 19

M1 - Form and Content of the ACFR

Blending

Answer 19

is used when the component unit is so intertwined with the primary government that it is in substance the same as the primary government.
- One indication of a component unit’s blending with the primary government is its failure of the “legal entity” test.
- Entities that are NOT legally separate entities are blended with the primary government.

Question 20

M2 - Government-wide Financial Statements

The government-wide financial statements (statement of net position and statement of activities) are reported using..

Answer 20

economic resources measurement focus and the full accrual basis of accounting.

Question 21

M2 - Government-wide Financial Statements

The statement of activities is the government-wide financial statement used to report

Answer 21

revenues and expenses for governmental and business-type activities.

Question 22

M2 - Government-wide Financial Statements

Proprietary funds, such as enterprise funds, carry their own debt.

Answer 22

Amounts associated with “enterprise fund” debt is statement of net position.

Question 23

M2 - Government-wide Financial Statements

When special assessment debt is to be repaid from general resources of the government,

Answer 23

the debt should be recorded as general long-term liabilities in the governmental activities column of the government-wide statement of net position.

Question 24

M2 - Government-wide Financial Statements

Government-wide financial statements should classify net assets as:

Answer 24

1. Net investment in capital assets
2. Restricted
3. Unrestricted

Question 25

# M2 - Government-wide Financial Statements The government-wide statement of net position must include a

Answer 25

A distinction between governmental and business-type activities - Transactions from the governmental (GRaSPP) funds and (usually) the internal service funds (the "S") are displayed as governmental activities, and enterprise funds are displayed as business-type activities.

Question 26

# M2 - Government-wide Financial Statements When government-wide financial statements are prepared for a governmental entity, interfund receivables and payables that occur between funds categorized as governmental activities and funds classified as business-type activities should be

Answer 26

**reported as internal balances** and aligned so thaat they sum to zero on the financial statements.

Question 27

# M2 - Government-wide Financial Statements For purposes of government-wide financial statement

Answer 27

**internal service funds** are normally reported in the governmental activities column of the government-wide *Statement of Net Position* and the *Statement of Activities* since they are generally established to service the **governmental funds**.

Question 28

# M2 - Government-wide Financial Statements Under the modified approach

Answer 28

Infrastructure expenditures are reported as expenses except for outlays that result in additions or improvments, which would be capitalized.

Question 29

# M2 - Government-wide Financial Statements Donated works of art meeting certain criteria are eligible for **optional** capitalization at the election of the government receiving the works of art and depreciation is **NOT** required even if the government elects to capitalize.

Answer 29

To qualify for this treatment, the works of art must be held for **public exhibition**, be **protected/unencumbered** and the **proceeds** from the sale of any of the works must be **reinvested** in more works of art.

Question 30

# M2 - Government-wide Financial Statements The modified approach allows governments to not report depreciation expense for eligible infrastructure asets if

Answer 30

- the government manages the eligible infrastructure assets using an asset management system that possesses certain characteristics - documents that the eligible infrastructure assets are being **preserved** ar (or above) a condition level established by the government.

Question 31

# M2 - Government-wide Financial Statements Lease obligations representing contracts that transfer ownership associated with general governmental activities are recorded as an **asset** and as a **liability** on the ***full accrual*** government-wide financial statements.

Answer 31

Governmental fund financial statements would record the asset financed by agreements of this type as an **expenditure** and the lease financing as **other financing sources** under ***modified accrual*** accounting.

Question 32

# M2 - Government-wide Financial Statements Capital assets donated to a governmental unit should be recorded

Answer 32

at their **estimated fair value** at time of acquisition, plus ancilarry charges, if any.

Question 33

# M2 - Government-wide Financial Statements The Statement of Activities in the government-wide financial statements includes

Answer 33

Separate columns for governmental activities, business-type activities, and discretely presented component units.

Question 34

# M2 - Government-wide Financial Statements A local government would report expenses in its government-wide statement of activities by **function** on the full accrual basis representing the expenses directly associated with each of the functions or programs listed.

Answer 34

Special and extraordinary items would be displayed in a separate section of the statement beneath separate computations of net (expenses) and revenues for governmental and business-type activities.

Question 35

# M2 - Government-wide Financial Statements Compensated absence liability should be calculated based uppon the pay or salary rates in effect **at the balance sheet date**.

Answer 35

The valuation of the non-current liability on the government-wide statement of net position will be equal to the number of hours employees are entitled to receive upon termination times the rate of pay earned at the balance sheet date, a point in time.

Question 36

# M2 - Government-wide Financial Statements Program revenues include earnings classified as

Answer 36

- charges for **S**ervices, - **O**perating grants and contributions, and - **C**apital grants and contributions. | **SOC**

Question 37

# M2 - Government-wide Financial Statements Nonexchange revenues in support of governmental activities, such as taxes for improvements to roads, are classified as

Answer 37

"**general revenues**" on the government-wide statement of activities.

Question 38

# M2 - Government-wide Financial Statements Program revenue

Answer 38

is revenue directly associated with a program or function.

Question 39

# M2 - Government-wide Financial Statements Franchise fees

Answer 39

are displayed after computation of net program (expenses) revenues for all programs by function.

Question 40

# M3 - Fund Financial Statements Major fund treatment

Answer 40

for purposes of fund financial statement presentation requires that a fund be both **10%** of its fund category's assets, revenues, or expenditures/expenses *and* **5%** of the **combined** governmental and enterprise assets, revenues and expenditures/expenses. ## Footnote The general fund, regardless of if it meets the criteria, is ALWAYS treated as a major fund.

Question 41

# M3 - Fund Financial Statements Governmental funds must persent their statement of financial position in a balance sheet rather than net position format.

Answer 41

A balance sheet formate sets: - **Assets** and deferred **outflows** of resources ***equals*** **Liabilities** and deferred **inflows** of resources ***plus*** fund balance.

Question 42

# M3 - Fund Financial Statements Depreciation

Answer 42

is recognized as a component of operating expenses in proprietary funds such as internal services funds.

Question 43

# M3 - Fund Financial Statements Statement of Cash Flows

Answer 43

should be issued for all **Proprietary funds** (enterprise and internal service funds). NO statement of cash flows should be issued for either governmental funds (GRaSPP) or Fiduciary funds (CIPPOE).

Question 44

# M3 - Fund Financial Statements Cash equivalents

Answer 44

include highly liquid items that mature within 3 months of acquisition.

Question 45

# M3 - Fund Financial Statements In a governmental entity's statement of cash flows

Answer 45

Cash flows from capital financing activities are reported **separately** from cash flows from non-capital financing activities.

Question 46

# M3 - Fund Financial Statements Capital financing activities

Answer 46

include **acquiring** and disposing of capital assets and any related debt.

Question 47

# M3 - Fund Financial Statements Non-capital financing activities

Answer 47

include **borrowing** money for other than capital expenditures, such as tax anticipation notes. ## Footnote Includes: - Proceeds or payments related to borrowing not attributable to the acquisition, construction or improvement of capital assets. - Cash receipts or payments related to grants or subsidies not attributable to capital purposes. - Property taxes not designated for capital purposes. - Cash paid to other funds (other than for interfund services)

Question 48

# M3 - Fund Financial Statements Investing activities

Answer 48

include making and collecting loans and acquiring and disposing of debt or equity instruments including interest and dividend income.

Question 49

# M3 - Fund Financial Statements Operating income is used to reconcile to cash flows from operations.

Answer 49

Non operating income items (such as revolving debt financing and gains on the sale of assets) are excluded from the reconciliation.

Question 50

# M3 - Fund Financial Statements Cash flows from capital and related financing activities

Answer 50

include contributions from subdividers and proceeds from sale of revenue bonds.

Question 51

# M3 - Fund Financial Statements Capital and related financing activities

Answer 51

include acquiring and disposing of capital assets, borrowing money for capital acquisitions and repaying amounts borrowed (including interest) as well as capital grants, special assessments levied for capital acquisitions, etc.

Question 52

# M3 - Fund Financial Statements Payment of services to other funds, including payments in lieu of taxes

Answer 52

are treated as **operating**

Question 53

# M3 - Fund Financial Statements Fiduciary funds must present their statement of financial position in a net position format.

Answer 53

Assets and deferred outflows of resources **minus** liabilities and deferred inflows of resources ***equals*** net position

Question 54

# M4 - Deriving Government-wide Financial Statements and Reconciliation Re Reconciliation of Governmental Funds Statement of Revenues, Expenditures, and Changes in Fund Balance to the Government-wide Statement of Activities

Answer 54

Net change in fund balance--total governmental funds ' **+** **Capital** outlay ' **+** **Principal** payments on non-current debt ' **-** **Asset** disposals (net book value) ' **-** **Sources** (other financing sources-debt proceeds) ' **+** **Revenue** (measurable but unavailable) ' **-** **Interest** expense (accrued) ' **-** **Depreciation** **Expense** ' **+** Internal **Service** fund net revenue = **Change** in net position of governmental activities | CPAS RIDES mnemonic

Question 55

# M4 - Deriving Government-wide Financial Statements and Reconciliation Re Reconciliation of the Governmental Funds Balance Sheet to the Government-wide Statement of Net Position

Answer 55

Total govenrmental fund balance ' **+ Capital** assets (existing and current) ' **- Accumulated** depreciation ' **- Non-current** liabilities (existing) ' **+** Eliminate/reverse deferred inflows (add the reduction of deferred inflows associated with revenue recognized and closed to net position as an addition to net position) ' **-** Accrued interest payable ' **+** Internal **Service** fund net position = Net position from governmental activities | CANS mnemonic

Question 56

# M4 - Deriving Government-wide Financial Statements and Reconciliation Re The entries to convert the acquisition of a long-lived asset acquired through a lease transaction from the current financial resources measurement focus to the economic resources measurement focus would eliminate the capital outlay expenditure and related other financing sources and create a capital asset and lease liability.

Answer 56

**DR** Capital assets **CR** Capital outlay expenditure **DR** Other financing sources **CR** Lease Liability"

Question 57

# M4 - Deriving Government-wide Financial Statements and Reconciliation Re Workpaper entry to establish non-current debt

Answer 57

**DR** Net position, governmental activities **CR** Non-current debt

Question 58

# M5 - Notes and Supplementary Information One of the major components of the MD&A

Answer 58

is the description of the financial statements, which includes an analysis of the government's overall financial position and the results of operations, including reasons for changes from the prior year.

Question 59

# M5 - Notes and Supplementary Information BUdgetary comparison schedules should be prepared for the general fund each major special revenue fund qhich requires a budget.

Answer 59

Budgetary comparison schedules should display **A schedule showing the original budget, the final appropriations budget, and actual inflows, outflows, and balances on a budgetary basis.**

Question 60

# M5 - Notes and Supplementary Information Management's Discussion and Analysis

Answer 60

is a required component of the required supplementary information preceding(**before**) the basic financial statements for general-purpose governments.

Question 61

# M5 - Notes and Supplementary Information RSI is reported BEFORE (MD&A) or after (budget, infrastructure, pension) the basic financial statements.

Answer 61

The notes to the financial statements are integral to the financial statements and include important disclosures about the basic financial statements, not required supplementary information. - Separate note disclosures may accompany the schedules that comprise the RSI. These disclosures (and related RSI) would follow the basic financial statements.

Question 62

# M5 - Notes and Supplementary Information As part of their generic disclosures,

Answer 62

governments would report a description of the modified approach for reporting infrastructure, if used.

Question 63

# M5 - Notes and Supplementary Information Variances between the final budget and actual amounts are

Answer 63

**NOT** a part of the budgetary copmarison schedule presented by a state or local government as part of RSI. ## Footnote Variances may be presented at the option of the government but are NOT required.

Question 64

# M5 - Notes and Supplementary Information Financial statements prepared in accordance with the provisions of GASB34 will include:

Answer 64

- Government-wide financial statements prepared using accrual basis accounting, - fund financial statements, - notes to the financial statements - RSI that encompasses a letter titled "MD&A", and budget versus actual comparisons inclusing display of the originally adopted budget and the changes that resulted in the final amended budget.

Question 65

# M5 - Notes and Supplementary Information The original budget is needed to prepare the budgetary comparison schedules for alocal government.

Answer 65

Budgetary comparison schedules must show the original budget, the final amended budget, and actual amounts. | Variance computations and process descriptions are *optional*.

Question 66

# M5 - Notes and Supplementary Information On what accounting basis does GASB recommend that governmental fund budgets be prepared

Answer 66

Modified accrual

Question 67

# M5 - Notes and Supplementary Information Budgetary comparison schedules should be presented

Answer 67

as RSI or in the Basic Financial Statements for the general fund and for each major special revenue fund that has a legally adopted annual budget.

Question 68

# M5 - Notes and Supplementary Information Budgetary comparisons must be presented on the

Answer 68

same basis of accounting as the adopted budget. ## Footnote Example: - modified accrual with modified accrual - cash basis with cash basis, etc

Question 69

# M5 - Notes and Supplementary Information Reporting the **combining** fund financial statements is

Answer 69

OPTIONAL

Question 70

# M5 - Notes and Supplementary Information