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Ch11-14 Student: _ The opinion paragraph of the independent auditor's standard report states the auditor's opinion that the financial statements are free of errors True Financial statement audits of governments are performed to determine if the statements are fair and in accordance with generally accepted accounting principles, but not to determine if there is compliance with laws and regulations True False In evaluating an entity's system of internal controls a reportable condition is a minor deficiency in the design or operation of the internal control structure that could have an adverse effect the entity's ability to administer a federal award program in accordance with laws and regulations, but is not considered likely to so True False Only state and local governments and their component units must have single audits; colleges and universities and other not-for-profit organizations that expend federal financial awards are not required to have single audits True False Performance audits provide an auditor's determination, but not an opinion, of the extent to which government officials are efficiently, economically, and effectively carrying out their responsibilities True False The 2003 revision of Government Auditing Standards provides standards for conducting financial audits, attestation engagements, and performance audits True False Government auditing standards (GAS) apply to audits of state and local governments only if they expend $500,000 or more in federal financial assistance True False Governments often engage one auditor to audit the primary government and other auditors to audit certain component units In such cases the auditor of the primary government is permitted under generally accepted auditing standards (GAAS) to rely on the work of the other auditors True False False In auditing compliance with laws and regulations as part of a single audit, the auditor must render an opinion on the specific requirements applicable to each program for which the entity receives federal financial assistance True False 10 Though used historically by corporate boards of directors, audit committees have great potential in a government setting to improve the quality of financial reporting through the audit process True False 11 An audit of a government, conducted in accordance with generally accepted auditing standards (GAAS), includes A A determination of efficiency and effectiveness B An examination of financial statements and underlying records for conformance with generally accepted accounting principles (GAAP) C Tests for compliance with laws and regulations D Both B and C 12 Audits of state and local governments may be performed by A Independent CPAs B State audit agencies C Federal grantor agencies D All of the above 13 In the auditor's report the financial statements on which the opinion is being expressed are specified in the A Scope paragraph B Opinion paragraph C Opening paragraph D Explanatory paragraph 14 In audits of state and local government units which of the following paragraphs may not be required in the auditor's report for every audit? A Explanatory paragraph B Scope paragraph C Opening paragraph D Opinion paragraph 15 Government Auditing Standards (GAS) issued by the U.S Comptroller General apply to A Financial statement audits of federal organizations made by the Government Accountability Office B Financial statement audits of federal programs made by state auditors C Financial statements of federal grants made by independent CPAs D All of the above 16 The single audit concept refers to A All audits of state and local government reporting entities B Audits to determine efficiency and economy C Audits following the Single Audit Act of 1984 (with 1996 Amendments) and the revised OMB Circular A-133 D Financial and performance audits, and attestation engagements 17 One of the primary purposes of the Single Audit Act of 1984 (amended in 1996) is to A Detect fraud, waste and abuse in government entities B To promote the efficient and effective use of audit resources by consolidating audit activity into one organization-wide audit C Make audit activity legal at the federal level D Allow federal auditors greater access to government entities receiving federal funds 18 Which of the following statements concerning the Single Audit Act of 1984 (with 1996 Amendments) is correct? A Only those entities receiving over $500,000 a year in federal financial assistance are required to have a single audit B The Single Audit Act only applies if an entity has high risk programs C The single audit is optional for all entities receiving federal awards D Those entities expending under $500,000 a year in federal awards are exempt from single audit requirements 19 An internal control structure that is so weak that it does not reduce the risk of material noncompliance to an acceptably low level is called a (an) A Material weakness and reportable condition B System design deficiency C Unacceptable reportable condition D Audit alert item 20 Which of the following statements best describes the phrase "generally accepted auditing standards?" A They set forth a measure of the quality of the performance of audit procedures B They define the nature and extent of the auditor's responsibilities in conducting audits C They provide detailed guidance to the auditor with respect to planning the audit and writing the audit report D They set forth the policies and procedures for conducting an audit 21 A typical objective of a performance audit is for the auditor to A Determine whether the financial statements fairly present the entity's operational results B Judge the appropriateness of an entity's program goals C Make recommendations for improving performance D Attest to whether the financial statements are prepared in accordance with generally accepted accounting principles 22 The scope paragraph of an independent auditor's report on a financial audit of a local government A Specifies the statutes the auditor determined to be relevant to the financial activities of the government B Specifies the financial statements that the auditor has examined C States that all applicable accounting records were located and examined D States that the examination was made in accordance with generally accepted auditing standards 23 Government Auditing Standards (GAS) A Establish the same scope as GAAS, but use wording appropriate to governmental entities instead of business organizations B Are set forth in the "Federal Government Red Book." C Establish more extensive standards than those found in GAAS D Establish standard wording of auditor's reports on governmental financial statements 24 In which paragraph of the standard audit report does the auditor communicate to the user that certain combining fund information in the financial statements is not part of the basic financial statements, but that such information has been subjected to auditing procedures and, in his or her opinion, is fairly presented in all material respects in relation to the basic financial statements? A Explanatory paragraph B Scope paragraph C Opening paragraph D Opinion paragraph 25 An unqualified audit opinion rendered on a governmental unit's general purpose external financial statements means those statements A Contain departures from GAAP that may make them misleading B Have been audited by an auditor with limited qualifications C Have been certified as free from error D Present fairly in conformity with GAAP 26 An auditor would not render an opinion on a (an) A Financial audit of financial statements B Performance audit C Audit to determine whether the entity has adhered to specific compliance requirements applicable to a major program D All of the above 27 A single audit conducted pursuant to the Single Audit Act Amendments of 1996 requires which of the following types of audits? A Financial Audit: Yes; Performance Audit: No B Financial Audit: No; Performance Audit: No C Financial Audit: No; Performance Audit: Yes D Financial Audit: Yes; Performance Audit: Yes 28 All of the following reports are included in the reporting package resulting from the single audit except A Financial statements and schedule of expenditures of federal awards B Summary schedule of prior audit findings C Report on efficiency and effectiveness D Corrective action plan 29 Which of the following is not a required audit report for a single audit? A A report from the cognizant agency on auditee compliance B A report on internal controls related to the financial statements and major programs C A report on the entity's financial statements and conformity with GAAP D A report on the entity's compliance with laws and regulations 30 Which of the following best describes the relationship between generally accepted auditing standards (GAAS) and government auditing standards (GAS)? A GAAS apply to independent CPA auditors; GAS apply to governmental auditors B Audits conducted in conformity with the yellow book may also require the auditor to conform to GAAS C Audits done in accordance with GAS must also be done in accordance with GAAS D Audits of state and local governments always required that the audit be conducted in accordance with both GAAS and GAS 31 A performance audit is concerned with which of the following issues? A The extent to which entity programs met their objectives B The extent to which entity programs produced benefits greater than or equal to their costs C Whether the entity has complied with laws and regulations D A and/or B 32 A common reason why a government might receive a "qualified opinion" from the external auditors is A A deficit in the General Fund fund balance B Poor internal controls such that the accounting records could not be audited C A violation of generally accepted accounting principles that may not be material D Liabilities exceed assets 33 The scope paragraph of an independent auditor's report on a financial audit of a local government: A Identifies the financial statements on which the auditor is expressing an opinion B States that generally accepted auditing standards require that the auditor plan and perform the audit to obtain reasonable assurance as to whether the financial are free of material misstatement C States whether, in the auditor's opinion, the financial statements present fairly in conformity with generally accepted accounting principles the financial position of the reporting entity D All of the above 34 Which of the following is not one of the types of opinions an auditor may render in accordance with generally accepted auditing standards? A Satisfactory B Qualified C Unqualified D Adverse 35 Performance audits, as defined in the GAO's Governmental Auditing Standards A Provide a basis for an auditor's opinion as to whether the entity is acquiring, protecting, and using its resources economically and efficiently B Provide assurance that operations are in compliance with all applicable laws and regulations that may have a material effect on the financial statements C Include determining whether or the extent to which government officials are efficiently, economically, and effectively carrying out their responsibilities D Are performed by the internal audit staff to assist the entity's independent auditor 36 Which of the following is the highest in the hierarchy of generally accepted accounting principles according to AICPA Statement of Auditing Standard No 69, as amended by SAS No 91, for state and local governments? A AICPA Audit and Accounting Guide B FASB emerging issues task force reports C FASAB statements D GASB statements 37 Which of the following is outside the scope of the financial statement audit? A Governmental activities B Required supplementary information C Major funds D Business-type activities 38 An auditor performing nonaudit work for a client is in danger of violating the independence rules in Government Auditing Standards when he or she A Conducts a search and recommends a particular person for the position for the client B Maintains the accounting records of the entity C Makes management decisions D All of the above 39 Which of the following is one of the overarching principles in Government Auditing Standards related to auditors performing nonaudit work for clients? A Auditors should not provide training to clients B Auditors should not provide routine advice to clients or serve on advisory committees C Auditors should not audit their own work or provide nonaudit services in situations when the nonaudit services are significant to the audit subject matter D Auditors should not propose adjusting and correction entries 40 Responsibility for setting accounting and reporting standards for federal agencies rests primarily with the Federal Accounting Standards Advisory Board True False 41 The Chief Financial Officer Act of 1990 establishes an office of federal financial management within the OMB, headed by a controller appointed by the President, establishes a chief financial officer position within each major federal department and agency, requires the development of a 5-year financial plan by OMB, and requires some federal agencies to provide audited financial statements True False 42 The objectives of federal financial reporting are to assist report users in evaluating budgetary integrity, operating performance, stewardship, and adequacy of systems and controls True False 43 Federal departments and agencies should utilize the U.S Government Standard General Ledger as the account structure for their accounting systems True False 44 Current FASAB standards distinguish intragovernmental assets from governmental assets and entity assets from nonentity assets True False 45 Fund balances of a federal agency's various funds are reported in the fund equity section of the agency's balance sheet True False 46 Federal government accounting standards require the measurement of expenses rather than expenditures True False 47 Unexpended appropriations is the component of net position in a federal agency balance sheet that represents the amount of appropriations still available for obligation, or which has been obligated but not yet expended True False 48 Cumulative results of operations is the component of net position in a federal agency balance sheet that represents the amount of appropriations still available for obligation, or which has been obligated but not yet expended True False 49 The federal budgetary term "commitment" is synonymous with "encumbrance" as used in state and local government terminology True False 50 The financial statements of the U.S government are prepared using generally accepted accounting principles promulgated by the Governmental Accounting Standards Board True False 51 Federal government agencies prepare a management's discussion and analysis (MD&A) to be included in their general purpose federal financial report True False 52 The three perspectives from which the federal government can be viewed are organizational, budget, and program True False 53 Objectives that are identified by SFFAS No for federal financial reporting include budgetary integrity, operating performance, transparency, but not stewardship True False 54 Beneficial investments of the federal government in items such as nonfederal physical property, human capital, and research and development on the financial statements is called heritage assets True False 55 Which of the following federal officials is a "principal" of the Joint Financial Management Improvement Program who considers and approves or disapproves accounting and reporting standards recommended by the Federal Accounting Standards Advisory Board? A Chair of the Federal Accounting Standards Advisory Board B Secretary of the Interior C Comptroller General D All of the above 56 FASAB has identified four major user groups of federal financial reports, they are A Congress, executives, program managers, and citizens B Congress, executives, citizens, and bond rating agencies C Congress, program managers, foreign governments, and citizens D Congress, program managers, bond rating agencies, and political parties 57 The "net position" of a federal agency may include which of the following components? A Unexpended Appropriations B Cumulative Results of Operations C Appropriations represented by undelivered orders and unobligated balances D All of the above 58 Which of the following is not an objective identified in FASAB Statement of Accounting and Reporting Concepts No 1? A To assist report users in evaluating budgetary integrity B To assist report users in evaluating the extent to which tax burdens have changed C To assist report users in evaluating stewardship D To assist report users in evaluating operating performance 59 Which of the following statements most accurately describes the dual-track accounting system used in federal agency accounting? A Recording internal budgetary transactions along with financial transactions with external parties B Use of double-entry accounting C Maintaining self-balancing sets of proprietary and budgetary accounts and recording the effects of transactions on both available budgetary resources and proprietary accounts, the latter measured on the accrual basis to better promote agency management D Keeping separate books, one on a tax basis and the other on a GAAP basis 60 In federal government accounting, recording the estimated amount of equipment prior to actually placing an order or entering into a contract is called a (an) A Obligation B Apportionment C Allotment D Commitment A certain federal agency placed an order for office supplies at an estimated cost of $14,400 Later in the same fiscal year these supplies were received at an actual cost of $14,800 Assume commitment accounting is not used by this agency 61 When the order is placed the required journal entry (or entries) will affect the accounts shown in what net amounts: A Budgetary accounts: $14,400; Proprietary accounts: $14,400 B Budgetary accounts: $14,400; Proprietary accounts: $14,800 C Budgetary accounts: $14,400; Proprietary accounts: $0 D Budgetary accounts: $0; Proprietary accounts: $0 62 When the order is received the required journal entry (or entries) will affect the accounts shown in what net amounts: A Budgetary Accounts: $14,400; Proprietary Accounts: $14,400 B Budgetary Accounts: $14,400; Proprietary Accounts: $14,800 C Budgetary Accounts: $400; Proprietary Accounts: $14,800 D Budgetary Accounts: $0; Proprietary Accounts: $14,800 63 Which of the following accounts used in state and local government accounting is most like the federal budgetary account "Undelivered Orders"? A Encumbrance B Expenditure C Appropriation D Reserve for Encumbrance 64 Which of the following financial statements is not required by OMB Bulletin No 01-09? A Statement of budgetary resources B Statement of cash flows C Balance sheet D Statement of changes in net position 65 One of the purposes of the Federal Financial Management Improvement Act of 1996 enacted by Congress was to A Establish a requirement that the financial statements of the federal government as a whole be audited B Improve the effectiveness of programs receiving federal funds C Establish generally accepted federal accounting principles D Rebuild the credibility and restore public confidence in the federal government 66 Which of the following persons has some responsibility for establishing and maintaining a sound financial structure for the federal government? A Chief Financial Officer of the Congressional Budget Office B Chair of the Governmental Accounting Standards Board C Secretary of the Treasury D Chair of the Federal Accounting Standards Advisory Board 67 The Comptroller General of the United States is the head of the: A Government Accountability Office B Office of the Management and Budget C Congressional Budget Office D Federal Accounting Standards Advisory Board 68 The required report or statements in the general purpose federal financial report that addresses forward-looking information regarding the possible effects of currently known demands, risks, and uncertainties, and trends in the federal entity is (are): A Basic statements B Required supplemental information C Management discussion and analysis D Related notes to the financial statements 69 Which of the following is an accurate list of the three perspectives from which the federal government can be viewed, as described in SFFAS No "Entity and Display?" A Function, department, and program B Organizational, budget, and program C Budget, program, and line-item D Fund, activity, and account 70 The management's discussion and analysis (MD&A) required in general purpose federal financial reporting is different than that required by GASB of state and local governments in that: A There are no significant differences B It is outside the general purpose federal financial report and is optional, not required C It is a part of the basic financial statements D Federal agencies should address the reporting entity's performance goals and results in addition to financial activities 71 Which of the following federal programs involve nonexchange transactions for which there is some accounting guidance on recording liabilities but for which much more research is needed? A National parks B Social insurance C Post offices D Heritage assets 72 Which of the following describes the usual flow of budgetary authority through the budgetary accounts of a federal agency? A Apportionment, allotment, appropriation, commitment, obligation, expended appropriation B Allotment, commitment, obligation, expended appropriation, apportionment C Appropriation, apportionment, allotment, commitment, obligation, expended appropriation D Commitment, obligation, appropriation, apportionment, allotment, expended appropriation 73 Which of the following statements is not true about the United States government-wide financial report? A Since 1997, the financial statements of the U.S Government as a whole have been audited by the GAO B The majority of the 24 major federal agencies required to be audited have received unqualified audit opinions by the GAO C The federal government received an unqualified opinion from the GAO on the most recent financial statements government as a whole D The Comptroller General of the United States has rendered a disclaimer of opinion on the U.S Government's consolidated financial statements for as long as that office has audited these statements 74 Which of the following is required by OMB Bulletin No 01-09 in the basic financial statements? A Statement of changes in net position B Statement of net assets C Statement of revenues, expenditures, and changes in fund balances D Statement of activities 75 Some of the "rational" budgeting approaches governments have experimented with include performance budgeting, program budgeting, the planning-programming-budgeting system, and zero-based budgeting True False 76 One of the major advantages of incremental budgeting is that it focuses largely on inputs True False 77 The type of budgeting that relates input of resources to output of services is performance budgeting True False 78 Governmental budgets must be made available for public scrutiny, and public hearings must be held to provide adequate opportunity for citizens' input, prior to legislative adoption of the budget True False 79 In budgeting for the inflow of financial resources, government officials need only concern themselves with revenues and not other financing sources True False 10 106 Effective capital budgeting for general capital assets of a government requires A Intermediate and long-range capital improvement plans for general capital assets B Nonfinancial information on physical measures and service condition of capital assets of component units C Consideration of how proprietary fund capital projects will be financed D None of the above Content: Concept Level: Medium Wilson - Chapter 13 #32 107 Which of the following is not an element of a typical governmental total quality Management (TQM) structure? A B C D Customer orientation Support and commitment of top-level officials Strong central control over personnel classifications, budget allocations, and procurement Reduction of barriers to productivity and quality improvement Content: Concept Level: Medium Wilson - Chapter 13 #33 108 Which of the following might appropriately be termed an outcome indicator for a police department that reports service efforts and accomplishments (SEA) indicators? A B C D Number of crimes investigated Value of property lost due to crime Hours of patrol Number of personnel hours expended Content: Concept Level: Medium Wilson - Chapter 13 #34 109 Which basis of accounting best contributes to measuring the cost of services for rational budgeting purposes? A B C D Accrual Modified cash Modified accrual Cash Content: Concept Level: Medium Wilson - Chapter 13 #35 110 One characteristic that distinguishes "cost determination" from "cost accounting" is that cost determination A Relies on routine collection of cost data by department, programs, or products by use of a double-entry bookkeeping system B Does not require a self-balancing set of cost accounts C Can use either job order or process costing D Can use cost standards to control operations Content: Concept Level: Medium Wilson - Chapter 13 #36 25 111 A cost that can be identified specifically with a particular cost objective is termed a (an) A B C D Common cost Indirect cost Direct cost Sunk cost Content: Concept Level: Easy Wilson - Chapter 13 #37 112 State and local governments and not-for-profit organizations that receive grants or contracts from the federal government should charge costs of these grants or contracts in conformity with A B C D Cost Accounting Standards Board standards Office of Management and Budget cost circulars Financial Accounting Standards Board standards Governmental Accounting Standards Board standards Content: Concept Level: Medium Wilson - Chapter 13 #38 113 Which of the following costs would be allowable under OMB Circular A-87? A B C D Advertising on the Internet by a defense contractor Lobbying for continuation of an educational program by the school administrator Indirect costs of the state legislature Depreciation expense on the equipment used in a federal research grant Content: Concept Level: Medium Wilson - Chapter 13 #39 114 Which of the following costs incurred by a city for a federal grant program would likely be considered unallowable under OMB Circular A-87? A B C D Depreciation expense on equipment The salary of the person administering the grant Salary expense of the mayor Advertising for a secretary to help the program administrator Content: Concept Level: Medium Wilson - Chapter 13 #40 115 Which of the following systems of cost accounting is permissible in governmental accounting? A B C D Process Job order Standard All of the above Content: Concept Level: Easy Wilson - Chapter 13 #41 26 116 Which of the following would be the preferred allocation base for charging computing and computer personnel costs? A B C D Computer usage time and personnel time Number of computer printouts requested Lines of computer print typed and requested Number of work requests submitted Content: Concept Level: Medium Wilson - Chapter 13 #42 117 Which of the following has contributed most to governments' increased interest in activity-based accounting? A GASB standards B Implementation of innovative management approaches (such as TQM and SEA measures) in response to public demand for greater accountability and productivity C Increased demand for high profile management tools to bolster image of the government D The Single Audit Act of 1984 (and 1996 Amendments) Content: Concept Level: Medium Wilson - Chapter 13 #43 118 Which of the following is an objective of activity-based cost (ABC) accounting in government? A B C D To preserve, at a minimum, the present quality and availability of services To help find lower cost alternatives to providing services To make increases in the volume of services dependent on reducing costs All of the above are objectives of ABC Content: Concept Level: Medium Wilson - Chapter 13 #44 119 Which of the following statements is correct regarding cost determination? A Costs cannot be determined for general governmental activities since governmental fund types record expenditures rather than expenses B Costs of governmental activities appear on the statement of activities using accrual accounting to record all direct and indirect costs of the activities, including depreciation C Costs cannot be determined for general governmental activities since governmental fund types not record depreciation on capital assets D The cost of determining the costs for governmental activities usually outweighs the limited benefits of doing so Content: Concept Level: Medium Wilson - Chapter 13 #45 27 120 Under current accounting and reporting standards nongovernmental, not-for-profit organizations (NPOs) must utilize the fund accounting structure set forth in the AICPA Audit and Accounting Guide Not-for-Profit Organizations FALSE Most NPOs are nongovernmental in nature and are therefore subject to SFAS No 116 on contributions and SFAS No 117 on financial statement display SFAS No 117 neither requires nor precludes the use of fund accounting; however, many NPOs will continue voluntarily to use fund accounting for internal management and accountability for restricted purposes, such as grants The AICPA Audit and Accounting Guide on NPOs describes optional fund accounting Content: Concept Level: Easy Wilson - Chapter 14 #1 121 A voluntary health and welfare organization (VHWO) is a type of NPO that depends primarily on charges for services as a source of revenue, rather than contributions from the public at large and provides health and welfare services to the public for a nominal or no fee FALSE The definition of voluntary health and welfare organizations is one that depends primarily on contributions from the public at large and provides health and welfare services to the public for a nominal or no fee These organizations are sometimes called human service organizations Content: Concept Level: Easy Wilson - Chapter 14 #2 122 Cash received by a nongovernmental NPO in year that the donor stipulates is to cover operating expenses of the following year should be recognized as an "increase in temporarily restricted net assets" in year and as "net assets released from restrictions" in year TRUE This approach results in matching the operating resource (net assets released from restrictions) and the related expenses that both affect unrestricted net assets in the same fiscal year The contribution is reported in the statement of activities for year 1, under the caption "changes in temporarily restricted net assets." Year will show a decrease in temporarily restricted net assets and an increase in unrestricted net assets in equal amounts Content: Concept Level: Medium Wilson - Chapter 14 #3 28 123 Not-for-profit organizations should be conservative and record pledges as support (contributions) only when received in cash FALSE NPOs following generally accepted accounting principles will use accrual accounting Pledges should be recorded as receivables and support in the year received An allowance should be established for estimated uncollectible pledges, if deemed necessary Support (contributions) should be reported in the statement of activities in the appropriate section, as a change in either unrestricted, temporarily restricted, or permanently restricted net assets Content: Concept Level: Medium Wilson - Chapter 14 #4 124 Donated services should be recorded as contributions by a nongovernmental, not-for-profit organization if material, and if they meet the criteria set out in SFAS No 116 TRUE Donated services are recorded as contributions and as expenses only when the service is one that meets the SFAS No 116 criteria discussed in Chapter 14 under the caption "Donated Services." Services must create or enhance nonfinancial assets (such as a carpenter constructing a building), or be provided by individuals possessing specialized skills that typically would need to be purchase if not provided by donations (e.g., accountants or lawyers) Content: Concept Level: Medium Wilson - Chapter 14 #5 125 SFAS No 117 requires that support from special events, if related to the central ongoing and major activities of the organization, and related direct costs, be reported at their gross amounts in the statement of activities rather than reporting the special events support net of direct costs TRUE Netting direct costs against special events support is permitted, however, if the special events are of a peripheral or incidental nature Content: Concept Level: Medium Wilson - Chapter 14 #6 126 Depreciation expense is reported in the statement of activities prepared by nongovernmental, not-for-profit organizations TRUE Depreciation expense is reported in the statement of activities and allocated among the program services and supporting services expense categories to which it applies, rather than being reported as a separate item on its own line Content: Concept Level: Easy Wilson - Chapter 14 #7 29 127 Supporting services expenses include fund-raising and management and general expenses that are not directly attributable to specific programs TRUE This is the classification scheme illustrated and discussed in Chapter 14 Content: Concept Level: Easy Wilson - Chapter 14 #8 128 Contributions received in a prior period and restricted by the donor for construction of a building were reported as increases to "temporarily restricted net assets" in the period received When the building is constructed in a subsequent period an NPO would report "contributions" for the amount released from restrictions FALSE The cost of the constructed building would be reported in the statement of activities as "net assets released from restrictions of equipment acquisition restrictions," rather than again as "contributions." Content: Concept Level: Medium Wilson - Chapter 14 #9 129 The statement of activities for an NPO must be prepared exactly as prescribed by the Financial Accounting Standards Board in SFAS No 117 FALSE SFAS No 117 allows considerable discretion in presenting the statement of activities as long as changes in all three net asset classes are displayed: unrestricted, temporarily restricted, and permanently restricted net assets Content: Concept Level: Easy Wilson - Chapter 14 #10 130 The statement of financial position prepared by nongovernmental NPO presents net assets in these categories: unrestricted; temporarily restricted; invested in capital assets, net of related debt; and permanently restricted FALSE Three of those categories listed are those required by SFAS No 117: unrestricted, temporarily restricted, and permanently restricted The category of capital assets, net of related debt is found in governmental entities that follow GASBS 34 Content: Concept Level: Easy Wilson - Chapter 14 #11 30 131 NPOs are required to prepare a statement of cash flows TRUE A statement of cash flows is one of the basic financial statements required by SFAS No 117 for all nongovernmental not-for-profit organizations and by GASBS for governmental not-for-profit organizations that use proprietary fund accounting Content: Concept Level: Easy Wilson - Chapter 14 #12 132 Expense amounts by natural classification can be determined from the statement of functional expenses, as well as by program services and supporting services categories TRUE The statement of functional expenses provides totals both for natural expense classifications (object-of-expenses) and program services and supporting services classifications, although the statement is only required for VHWOs Content: Concept Level: Easy Wilson - Chapter 14 #13 133 All not-for-profit organizations covered by the AICPA Audit and Accounting Guide Not-for-Profit Organizations are under the standards-setting jurisdiction of the FASB FALSE It is true that the FASB has standards-setting jurisdiction for nongovernmental not-for-profit organizations (which is probably a majority of such organizations); however, many not-for-profit organizations (museums, cemeteries, libraries, etc.) are operated by or supported by governments For these organizations the GASB is assigned primary standards-setting responsibility To date, the GASB has issued two statements applicable to governmental not-for-profit organizations, GASBS 20 and GASBS 29 These statements permit governmental NPOs that use proprietary fund accounting to either follow all applicable FASB pronouncements or only those FASB pronouncements issued before November 30, 1989, providing they not conflict with GASB standards (e.g., GASBS 34) Content: Concept Level: Medium Wilson - Chapter 14 #14 134 A statement of functional expenses is not required of all voluntary health and welfare organizations FALSE Other nongovernmental NPOs should show expenses by function, but not need to prepare a statement of functional expenses Content: Concept Level: Medium Wilson - Chapter 14 #15 31 135 Hospitals, colleges and universities, voluntary health and welfare organizations, and not-for-profit organizations all follow the same standards for recognition of revenues and expenses These organizations are sometimes called human service organizations FALSE Each of these organizations may have different standards for revenue and expense recognition, particularly if they are governmentally owned or affiliated In fact, some public colleges and universities recognize expenditures, not expenses It is true, however, that all nongovernmental entities of these types, those subject to FASB jurisdiction, report support, revenues, and expenses on a similar basis for external financial reporting purposes Content: Concept Level: Medium Wilson - Chapter 14 #16 136 Donated materials are seldom recognized as a contribution and as an expense, by a not-for-profit organization FALSE Although SFAS No 116 criteria for recognizing revenue for donated materials are quite restrictive and greatly limit recognition of donated materials by not-for-profit organizations, many NPOs report donated materials Guidance in the AICPA Audit and Accounting Guide Not-for-Profit Organizations suggests that donated materials (gifts-in-kind) should be recorded as contributions and as expenses (supplies expense or cost of goods sold) at fair value on the date of the gift if an objective, clearly measurable basis for fair value can be established Content: Concept Level: Medium Wilson - Chapter 14 #17 137 Donor-imposed restrictions must be clearly reflected in financial statements of not-for-profit organizations TRUE Those not-for-profit organizations that prepare financial statements in conformity with FASB standards are required to report net assets in three categories: unrestricted, temporarily restricted, and permanently restricted Content: Concept Level: Medium Wilson - Chapter 14 #18 32 138 Investments should be recorded at cost, or in the case of donated investments, at fair value as of the date of the gift On subsequent balance sheets investments should be marked to and reported at market value with the valuation method disclosed and consistently followed TRUE SFAS No 124 requires that investments be marked to fair value whenever financial statements are presented Unrealized gains and losses are reported on the statement of activities In general, the accounting treatment of investments is similar to that of for-profit organizations (under SFAS No 115) and governmental entities (under GASBS 31) although differences exist Content: Concept Level: Medium Wilson - Chapter 14 #19 139 Museums and religious organizations must capitalize and report in their balance sheets assets such as works of art, historical treasures, historical archives, and similar collectible items if they are held for public inspection FALSE Current standards not require balance sheet valuation of such collectible items that are held for public inspection since the conventional wisdom is that reporting a dollar cost value would not provide useful information to the readers of financial statements NPOs can choose nonrecognition but only if the items are added to collections meet SFAS No 116 conditions explained in Chapter 14 under the heading "Collections", for example, when collections are being held in the public interest rather than to achieve a financial gain from trading the collectible items Content: Concept Level: Medium Wilson - Chapter 14 #20 140 All of the following are characteristics of not-for-profit organizations (NPOs) that distinguish them from business organizations except A B C D Contributions by resource providers who not expect a return on investment Ability to impose taxes on citizens Operating purposes other than to earn a profit Absence of ownership interests Content: Concept Level: Medium Wilson - Chapter 14 #21 141 Responsibility for promulgating generally accepted accounting principles for nongovernmental, not-for-profit entities rests with the FASB and was most clearly established A B C D In the 1930s When the FASB was created in 1974 When the GASB was created in 1984 In the AICPA's Statement of Auditing Standards No 69 (hierarchy of GAAP) in 1992 Content: Concept Level: Easy Wilson - Chapter 14 #22 33 142 Statement of Financial Accounting Standards (SFAS) No 116 on contributions received and contributions made describes measurement and reporting rules for A B C D Exchange transactions, such as membership dues and charges for services Nonexchange transactions, such as unrestricted and restricted gifts Gains and losses on investment income All of the above Content: Concept Level: Medium Wilson - Chapter 14 #23 143 Statement of Financial Accounting Standards (SFAS) No 117 requires the following financial statements for all nongovernmental, not-for-profit organizations A Statement of financial position, statement of activities, statement of cash flows, and statement of functional expenses B Statement of financial position, statement of operations, statement of cash flows, and statement of functional expenses C Statement of financial position, statement of activities, and statement of cash flows D Statement of financial position, statement of revenues and expenses, and statement of cash flows, and statement of functional expenses Content: Concept Level: Medium Wilson - Chapter 14 #24 144 Which of the following statements is true regarding fund accounting for not-for-profit organizations (NPOs)? A B C D It may provide a good mechanism for facilitating reporting to donors for restricted grants It may be used by NPOs for external purposes, but not internal purposes It is not allowed SFAS Nos 116 and 117 method of reporting three classes of net assets (unrestricted, temporarily restricted, and permanently restricted) replaces fund accounting for both internal and external reporting purposes Content: Concept Level: Medium Wilson - Chapter 14 #25 145 Which of the following are conditions that must be met for contributed services to a not-for-profit organization (NPO) to be recorded as both a contribution and as an expense? A The services create or enhance nonfinancial assets, such as a carpenter renovating a building B The service is provided by someone who possesses specialized skills, such as a lawyer preparing contracts C The services would have to be purchased if not donated, such as the salary of a full time secretary D All of the above are conditions that are relevant in deciding whether to record contributed services Content: Concept Level: Medium Wilson - Chapter 14 #26 146 Investments in equity securities that have a readily determinable market value and all debt securities of a not-for-profit organization are reported at A B C D Lower of cost or market Amortized cost Fair value Cost Content: Concept Level: Medium Wilson - Chapter 14 #27 34 147 An example of an increase in net assets for a not-for-profit organization that would be labeled revenue rather than support is A B C D An unconditional promise to give Investment income A restricted gift All of the above Content: Concept Level: Medium Wilson - Chapter 14 #28 148 Which of the following statements is true about financially related not-for-profit entities? A If an NPO has a controlling interest in a for-profit entity, it should consolidate that entity's financial information with its own B If an NPO has significant influence over a for-profit entity, it should use the equity method to report that investment on its financial statement C If an NPO has an economic interest in another entity but not control, it should disclose that in the notes to the financial statements D All of the above statements are true Content: Concept Level: Hard Wilson - Chapter 14 #29 149 Depreciation expense in a not-for-profit organization should be A B C D Allocated to the functions to which it relates Reported as a functional support expense under management and general Disclosed in the notes to the financial statements Allocated to program but not support functions Content: Concept Level: Easy Wilson - Chapter 14 #30 150 A good reason for an NPO to adopt fund accounting even though FASB standards not require it is that A B C D The NPO provides more than one type of program service The NPO's capital assets are significant Restrictions have been placed on the use of certain of its assets by donors The NPO's donated services are significant Content: Concept Level: Medium Wilson - Chapter 14 #31 151 Temporarily restricted net assets are released from restrictions A B C D When funds are returned to the donor As assets are spent for the purposes intended by the donor At the end of each fiscal year When they are converted to permanently restricted net assets Content: Concept Level: Medium Wilson - Chapter 14 #32 35 152 A local philanthropist pledged to make a donation of $100,000 to an NPO to be paid in five equal installments of $20,000 beginning in the next fiscal year Under FASB standards the pledge would be recognized as A B C D Support of $20,000 in each of the following five years Support of $20,000 in the year the pledge was made and $80,000 as deferred support Deferred support of $100,000 in the year the pledge was made Support of $100,000 in the year the pledge was made Content: Concept Level: Medium Wilson - Chapter 14 #33 153 Which of the following statements is correct regarding reporting of special events and related direct costs under current FASB standards? A Special events and related direct costs must be reported separately at their gross amounts if they relate to the ongoing major operations of an NPO B Special events may be reported net of related direct costs if they are of a peripheral or incidental nature C Expenses of promoting and conducting special events should be reported as part of fund-raising expense rather than netting them against special events support D All of the above are correct statements Content: Concept Level: Medium Wilson - Chapter 14 #34 154 An NPO incurred $10,000 in management and general expenses in the current fiscal year In the organization's statement of activities prepared in conformity with FASB standards, the $10,000 would be reported as A B C D A deduction from program revenue Program services expenses Supporting services expenses A reduction of permanently restricted assets Content: Concept Level: Medium Wilson - Chapter 14 #35 155 Which of the following would be considered "support" rather than "revenue" of an NPO? A B C D Gain on disposal of capital assets Contributions received from a fund-raising campaign Rent earned from rental of surplus office space Investment earnings Content: Concept Level: Medium Wilson - Chapter 14 #36 156 Securities donated to an NPO should be recorded at the A B C D Donor's recorded amount Fair market value at the date of the gift, or the donor's recorded amount, whichever is lower Fair market value at the date of the gift, or the donor's recorded amount, whichever is higher Fair market value at the date of the gift Content: Concept Level: Medium Wilson - Chapter 14 #37 36 157 Accounting standards for NPOs require A B C D Full accrual accounting Modified accrual accounting Fund accounting Capitalization of collections Content: Concept Level: Medium Wilson - Chapter 14 #38 158 Which of the following organizations would be covered by the AICPA Audit and Accounting Guide Not-for-Profit Organizations? A B C D Political parties Employee benefit and pension plans Proprietary hospitals Farm cooperatives Content: Concept Level: Medium Wilson - Chapter 14 #39 159 Which of the following contributions would not have to be reported as an asset on the statement of financial position of a not-for-profit organization? A Land was donated to the Friends of the Forest Society for conversion into a nature trail B The original courthouse was donated to the Historical Preservation Society that is converting the courthouse to a museum C An art collector donated a famous oil painting to a local nongovernmental art museum for display in its exhibit hall D None of the above donated assets would have to be reported on the balance sheets of the not-for-profit organization Content: Concept Level: Medium Wilson - Chapter 14 #40 160 The primary standards-setting body for a public museum that receives the majority of its funding from local property taxes is A B C D American Institute of CPAs (AICPA) Financial Accounting Standards Board (FASB) Government Accountability Office (GAO) Governmental Accounting Standards Board (GASB) Content: Concept Level: Medium Wilson - Chapter 14 #41 161 A not-for-profit organization, in order to conform to generally accepted accounting principles (GAAP), displays the changes in all classes of net assets on the A B C D Statement of financial position Statement of cash flows Statement of activities Statement of functional expenses Content: Concept Level: Medium Wilson - Chapter 14 #42 37 162 When a not-for-profit (nongovernmental) organization spends money for the purpose for which an external donor intended, then the expense is reported as a A B C D Decrease in temporarily restricted net assets Decrease in unrestricted net assets Decrease in permanently restricted net assets Decrease in current-restricted fund balance Content: Concept Level: Medium Wilson - Chapter 14 #43 163 The purpose of a statement of functional expenses is to A B C D Report on the net income of each program compared to that of supporting the programs Report on program expenses and supporting expenses Report on the natural expenses (object-of-expense), as well as by program and support functions Report on the cash flows of each program and that of supporting the programs Content: Concept Level: Medium Wilson - Chapter 14 #44 164 Unrealized gains on the investment portfolio of a not-for-profit organization are A B C D Reported on the statement of activities Reported in the net asset section of the balance sheet Depends on whether the gains relate to trading, available-for-sale, or held-to-maturity assets Not recognized Content: Concept Level: Medium Wilson - Chapter 14 #45 165 Which of the following is not one of the criteria specified in AICPA Statement of Position 98-2 that provides guidance on when joint costs with a fund-raising appeal can be reported with program expenses rather than as fund-raising expenses? A B C D Purpose Audience Time period Content Content: Concept Level: Easy Wilson - Chapter 14 #46 166 Which of the following terms is used to indicate that a donor provided a gift with explicit instructions that the gift is to be used for a specific purpose by the NPO but the entire amount may be spent right away? A B C D Board-designated net assets Permanently restricted net assets Endowment assets Temporarily restricted net assets Content: Concept Level: Easy Wilson - Chapter 14 #47 38 Ch11-14 Summary Category # of Questions Content: Compute Content: Concept 164 Content: Journal Entry Level: Easy 52 Level: Hard Level: Medium 113 Wilson - Chapter 11 39 Wilson - Chapter 12 36 Wilson - Chapter 13 45 Wilson - Chapter 14 47 ... Cost Accounting Standards Board standards B Office of Management and Budget cost circulars C Financial Accounting Standards Board standards D Governmental Accounting Standards Board standards 113 .Which... appointed officials, investors and creditors, and other interested parties evaluate the government's performance in the absence of a "bottom line" measure such as exists for for-profit entities... Chief Financial Officer of the Congressional Budget Office B Chair of the Governmental Accounting Standards Board C Secretary of the Treasury D Chair of the Federal Accounting Standards Advisory
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