Appendix 10: Answers to Reinforcement Quiz ñ Section II, Chapter 1
Answers to Reinforcement Quiz ñ Section II, Chapter 1
1. The reporting model for state and local governments focuses only on fiscal
accountability. True or false?
Answer: False. The reporting model focuses on both fiscal accountability,
through fund-level reporting, and operational accountability, through
government-wide reporting.
2. Describe how financial reporting can assist in fulfilling governmentís duty
to be publicly accountable.
Answer: Financial reporting by governments assists users in assessing
accountability and assists in making economic, social and political
decisions.
3. Which of the following is not a primary user of external financial reports
according to the GASB?
a. the media
b. investors
c. department managers
d. city council
Answer: Department managers (c) are internal users of reports. GASB
only considers external users of reports in the standard-setting process.
4. If a preparer or auditor wants to find out how a transaction should be
reported, the authoritative place to look would be the standards and
interpretations issued by the GASB. True or false?
Answer: True. According to GASB Statement 55, the first level in the
hierarchy of governmental accounting principles is GASB standards and
interpretations.
5. Describe the financial reporting entity for state and local governments.
Answer: The financial reporting entity consists of (1) the primary
government, (2) organizations to which the primary government is
financially accountable and (3) other organizations for which the nature
and significance are such that their exclusion would cause the reporting
entityís financial statements to be misleading or incomplete.
Online version, for personal use only AGA Study Guide 2, 2016 Edition

Appendix 10: Answers to Reinforcement Quiz ñ Section II, Chapter 1
6. Which of the following is the most important factor in determining if a
government is part of a primary government?
a. misleading to exclude
b. services provided
c. financial accountability
d. affiliation to primary government
Answer: Financial accountability (c) is the most important factor.
7. In determining component units of the primary government, legal standing
is the first criterion to consider. True or false?
Answer: True. The first question that needs to be addressed in
determining the status of a potential component unit is whether it is legally
separate from the primary government.
8. Describe three ways that a primary government can impose its will over a
component unit.
Answer: The following are all manifestations of imposition of will:
.
Ability to remove appointed members of the governing body at will
.
Ability to modify or approve the budget
.
Ability to modify or approve rate or fee changes
.
Ability to veto, overrule or modify decisions of the unit
.
Ability to appoint, hire, reassign or dismiss personnel
9. Which of the following is not a method of displaying component units or
related organizations?
a. consolidation
b. inclusion as a fiduciary fund
c. blending
d. discrete presentation
Answer: (a).
10.The GASB requires all governments to prepare and issue a
comprehensive annual financial report. True or false?
Answer: False. The GASB recommends that all governments issue a
CAFR, but it is not a requirement.
11.Describe what is included in the basic financial statements.
Answer: The basic financial statements consist of the government-wide
financial statements, fund financial statements and notes.
Online version, for personal use only AGA Study Guide 2, 2016 Edition

Appendix 10: Answers to Reinforcement Quiz ñ Section II, Chapter 1
12.Which of the following is included in the summary of significant accounting
policies in the notes to the financial statements?
a. commitments under capital leases
b. descriptions of transactions included in program revenues
c. significant effects of subsequent events
d. debt service requirements to maturity
Answer: Descriptions of transactions included in program revenues (b) is
included in the summary of significant accounting policies. The other
choices are individual note disclosures.
13.The CAFR should contain the basic financial statements. True or false?
Answer: True. The basic financial statements are included in the financial
section of the CAFR.
14.Describe the three sections of the CAFR.
Answer: The three sections of the CAFR are introductory, financial, and
statistical.
15.Which of the following is not included in the financial section of the CAFR?
a. required supplementary information
b. Schedule of Legal Debt Margin
c. fund financial statements
d. managementís discussion and analysis
Answer: Schedule of Legal Debt Margin (b).
16.The GASB prescribes the form and content of popular reports. True or
false?
Answer: False. The GASB encourages governments to experiment with
popular reporting.
17.Describe the purpose of popular reports.
Answer: Popular reports are intended to provide condensed financial
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AGA CGFM Study Guide 2: Governmental Accounting, Financial Reporting and Budgeting