CGFM CGFM 4 — Questions and Answers
Question 1: Which of the following best describes 'inter-period equity' in governmental financial reporting?
- Equal distribution of tax burdens across income groups
- Current-year revenues sufficient to pay for current-year services (Correct answer)
- Consistent accounting methods applied across fiscal years
- Equitable allocation of costs between departments
Correct answer: Current-year revenues sufficient to pay for current-year services
Inter-period equity means that current taxpayers pay for services they receive today, rather than shifting costs to future taxpayers.
Question 2: In a Cost-Benefit Analysis (CBA), which discount rate is typically recommended by OMB Circular A-94 for federal regulatory analysis?
- 3%
- 5%
- 7% (Correct answer)
- 10%
Correct answer: 7%
OMB Circular A-94 recommends a 7% real discount rate for regulatory cost-benefit analyses, representing the opportunity cost of capital.
Question 3: A state government's Statement of Net Position must classify assets and liabilities as current and noncurrent under which reporting model?
- Fund financial statements only
- Government-wide financial statements only
- Both government-wide and proprietary fund statements (Correct answer)
- Statistical section only
Correct answer: Both government-wide and proprietary fund statements
Both the government-wide statements and proprietary fund statements present assets and liabilities using the economic resources measurement focus, requiring current/noncurrent classification.
Question 4: Which activity is part of the federal budget 'execution' phase?
- Submitting the President's budget to Congress
- Congressional markup of appropriations bills
- Apportioning funds by OMB after appropriations are enacted (Correct answer)
- Developing agency strategic plans
Correct answer: Apportioning funds by OMB after appropriations are enacted
Budget execution begins after appropriations are enacted; OMB apportions funds to agencies to control the rate of spending.
Question 5: Which type of governmental audit opinion indicates that financial statements are presented fairly in all material respects?
- Adverse opinion
- Disclaimer of opinion
- Unmodified opinion (Correct answer)
- Qualified opinion
Correct answer: Unmodified opinion
An unmodified (clean) opinion means the auditor found the financial statements conform to GAAP with no material misstatements.
Question 6: Under the Uniform Guidance (2 CFR Part 200), 'administrative costs' of federal grants that benefit multiple programs are classified as:
- Direct costs
- Unallowable costs
- Indirect costs (Correct answer)
- Capital costs
Correct answer: Indirect costs
Indirect costs (overhead) benefit multiple programs and cannot be easily assigned to a single award without undue effort.
Question 7: Which financial ratio measures a government's ability to meet short-term obligations using liquid assets?
- Debt service coverage ratio
- Current ratio (Correct answer)
- Long-term debt per capita
- Net revenue margin
Correct answer: Current ratio
The current ratio (current assets ÷ current liabilities) assesses short-term liquidity and a government's ability to pay near-term obligations.
CGFM CGFM 4
Which of the following best describes 'inter-period equity' in governmental financial reporting?