CGFM MCQ 4 — Questions and Answers
Question 1: Under the Chief Financial Officers (CFO) Act of 1990, which agencies are required to prepare annual audited financial statements?
- All federal agencies receiving more than $10 million in appropriations
- The 24 largest federal agencies designated as CFO Act agencies (Correct answer)
- Only cabinet-level departments and independent regulatory agencies
- All executive branch entities including commissions and boards
Correct answer: The 24 largest federal agencies designated as CFO Act agencies
The CFO Act designated 24 major federal agencies that must prepare annual financial statements subject to audit.
Question 2: A city issues general obligation bonds to finance a new public library. Under GASB standards, the debt service payments should be reported in:
- The General Fund
- The Capital Projects Fund
- The Debt Service Fund (Correct answer)
- The Enterprise Fund
Correct answer: The Debt Service Fund
Debt Service Funds account for the accumulation of resources and payment of principal and interest on long-term general obligation debt.
Question 3: The concept of 'interperiod equity' in governmental accounting means:
- All funds must maintain equal balances at year-end
- Current-year revenues should be sufficient to pay for current-year services (Correct answer)
- Tax burdens must be distributed equitably among taxpayers
- Capital assets should be depreciated equally over their useful lives
Correct answer: Current-year revenues should be sufficient to pay for current-year services
Interperiod equity means that current taxpayers pay for the services they receive and do not shift costs to future taxpayers.
Question 4: Under federal accounting standards (FASAB), which of the following is a stewardship asset?
- Federal buildings and office equipment
- Land purchased for a military base
- National defense assets such as fighter jets
- Heritage assets such as the National Mall (Correct answer)
Correct answer: Heritage assets such as the National Mall
Heritage assets (like national monuments, historic sites, and museum collections) are stewardship assets reported in supplementary information rather than on the balance sheet.
Question 5: An auditor discovers that a federal program's internal controls are weak enough that material misstatements could occur undetected. This should be reported as a:
- Management letter comment
- Significant deficiency
- Material weakness (Correct answer)
- Reportable condition
Correct answer: Material weakness
A material weakness is a deficiency or combination of deficiencies in internal control such that there is a reasonable possibility of material misstatement going undetected.
Question 6: In the federal budget process, a 'continuing resolution' (CR) is used when:
- An agency needs to spend more than its appropriation allows
- Congress has not passed regular appropriations by the start of the fiscal year (Correct answer)
- OMB needs to reprogram funds between budget accounts
- An agency must continue operations after its authorizing legislation expires
Correct answer: Congress has not passed regular appropriations by the start of the fiscal year
A continuing resolution is a temporary appropriations measure that allows agencies to continue operating at prior-year levels when regular appropriations have not been enacted.
Question 7: The 'expenditure' basis used in governmental fund accounting differs from the 'expense' basis in government-wide reporting because expenditures:
- Include only cash payments made during the fiscal year
- Recognize outflows when current financial resources are used, including capital outlays (Correct answer)
- Are always larger than expenses due to depreciation charges
- Exclude transfers to other funds within the same government
Correct answer: Recognize outflows when current financial resources are used, including capital outlays
Expenditures under modified accrual recognize outflows when current financial resources are used, so capital outlays are expenditures rather than capitalized assets subject to depreciation.
CGFM MCQ 4
Under the Chief Financial Officers (CFO) Act of 1990, which agencies are required to prepare annual audited financial statements?