CDFM Accounting and Finance 4 — Questions and Answers
Question 1: The concept of 'materiality' in federal financial reporting means that an item should be disclosed if omitting it would:
- Increase audit costs
- Cause the financial statements to mislead a reasonable user (Correct answer)
- Require a congressional notification
- Delay the annual report submission
Correct answer: Cause the financial statements to mislead a reasonable user
Materiality is the threshold at which omission or misstatement of information could influence the decisions of a reasonable user of the financial statements.
Question 2: Under SFFAS No. 5, a federal entity must recognize a contingent liability when two conditions are met. Which pair correctly states those conditions?
- The loss is remote and the amount is known
- The loss is probable and the amount can be reasonably estimated (Correct answer)
- The loss is possible and documented
- The loss is reasonably possible and the amount is material
Correct answer: The loss is probable and the amount can be reasonably estimated
SFFAS No. 5 requires liability recognition when a future outflow is probable and the amount can be reasonably estimated.
Question 3: What is the purpose of the DoD's Standard Financial Information Structure (SFIS)?
- To track contractor performance metrics
- To standardize financial data elements across all DoD components for consistent reporting (Correct answer)
- To manage the DoD travel card program
- To authorize supplemental appropriations
Correct answer: To standardize financial data elements across all DoD components for consistent reporting
SFIS provides a common data standardization framework to enable consistent financial reporting, auditing, and decision-making across all DoD components.
Question 4: In DoD budgetary accounting, which event first establishes a legal claim against an appropriation?
- Expenditure
- Accrual
- Obligation (Correct answer)
- Disbursement
Correct answer: Obligation
An obligation is the legal reservation of funds, such as a signed contract or purchase order, that creates a binding commitment against the appropriation.
Question 5: A military installation receives an advance payment from a non-federal customer for services to be performed next quarter. How should this be recorded initially?
- Revenue
- Deferred revenue (liability) (Correct answer)
- Accounts receivable
- Appropriated capital used
Correct answer: Deferred revenue (liability)
Cash received before earning revenue is recorded as deferred revenue, a liability, until the service is performed.
Question 6: Which internal control framework does OMB Circular A-123 require federal agencies to follow when assessing management's responsibility for internal control?
- ISO 31000
- COBIT 5
- COSO Internal Control – Integrated Framework (Correct answer)
- NIST Cybersecurity Framework
Correct answer: COSO Internal Control – Integrated Framework
OMB Circular A-123 aligns federal internal control assessments with the COSO Internal Control – Integrated Framework.
Question 7: Under the Federal Acquisition Regulation (FAR), which contract type places maximum cost risk on the contractor?
- Cost-plus-fixed-fee
- Time-and-materials
- Firm-fixed-price (Correct answer)
- Cost-plus-incentive-fee
Correct answer: Firm-fixed-price
Under a firm-fixed-price contract, the contractor bears full responsibility for cost overruns since the price does not change regardless of actual costs.
CDFM Accounting and Finance 4
The concept of 'materiality' in federal financial reporting means that an item should be disclosed if omitting it would: