CGA Public Sector & Not-for-Profit Accounting 1 — Questions and Answers
Question 1: Which accounting standard-setter governs financial reporting for Canadian federal government entities?
- IASB
- FASB
- PSAB (Correct answer)
- AASB
Correct answer: PSAB
The Public Sector Accounting Board (PSAB) establishes accounting standards for Canadian public sector entities, including federal, provincial, and territorial governments.
Question 2: Under public sector accounting, the modified accrual basis primarily differs from full accrual by:
- Recognizing revenues only when cash is received
- Recognizing expenditures when the related liability is expected to be paid within the current period or shortly after (Correct answer)
- Eliminating depreciation of capital assets entirely
- Recording all long-term liabilities off-balance-sheet
Correct answer: Recognizing expenditures when the related liability is expected to be paid within the current period or shortly after
Modified accrual recognizes revenues when measurable and available, and recognizes expenditures when the liability is incurred and expected to be liquidated with current resources.
Question 3: A not-for-profit organization (NPO) receives a donation restricted for building construction. Under Canadian GAAP for NPOs, which method allows this donation to be deferred until the asset is amortized?
- Restricted fund method only
- Deferral method only
- Either the deferral method or restricted fund method (Correct answer)
- Neither — all contributions must be recognized immediately
Correct answer: Either the deferral method or restricted fund method
Under Canadian GAAP for NPOs, organizations may use either the deferral method or the restricted fund method to account for restricted contributions; both permit deferral matched to asset amortization.
Question 4: In fund accounting used by governments, a debt service fund is established to:
- Account for resources used to acquire long-lived capital assets
- Accumulate resources for repayment of long-term debt principal and interest (Correct answer)
- Account for activities of government business enterprises
- Record general governmental operating revenues and expenditures
Correct answer: Accumulate resources for repayment of long-term debt principal and interest
A debt service fund accumulates financial resources set aside for the payment of long-term debt principal and interest obligations.
Question 5: Which financial statement is unique to public sector entities and not typically found in private sector reporting?
- Statement of Financial Position
- Statement of Remeasurement Gains and Losses (Correct answer)
- Statement of Cash Flows
- Statement of Comprehensive Income
Correct answer: Statement of Remeasurement Gains and Losses
PSAB requires a Statement of Remeasurement Gains and Losses to separately report gains and losses arising from remeasuring financial instruments and foreign currency items at year-end.
Question 6: An NPO uses the restricted fund method. An endowment contribution of $500,000 is received with the principal to be kept intact permanently. How should this be recorded?
- As revenue in the general fund
- As a liability until the restriction is lifted
- As revenue in the endowment fund (Correct answer)
- As deferred revenue in the general fund
Correct answer: As revenue in the endowment fund
Under the restricted fund method, endowment contributions are recognized as revenue in the endowment fund in the period received, as a separate fund exists for that purpose.
Question 7: Government business enterprises (GBEs) in Canada are required to follow which accounting standards?
- PSAB standards exclusively
- IFRS as adopted in Canada (Correct answer)
- Accounting Standards for Private Enterprises (ASPE)
- A hybrid of PSAB and IFRS chosen by management
Correct answer: IFRS as adopted in Canada
Government business enterprises that operate on a commercial basis and are financially self-sustaining must apply IFRS as adopted in Canada, not PSAB standards.
CGA Public Sector & Not-for-Profit Accounting 1
Which accounting standard-setter governs financial reporting for Canadian federal government entities?