GAC Governmental Accounting Principles & Standards 3 — Questions and Answers
Question 1: Which GASB statement requires governments to report infrastructure assets using either the depreciation approach or the modified approach?
- GASB Statement No. 25
- GASB Statement No. 34 (Correct answer)
- GASB Statement No. 45
- GASB Statement No. 72
Correct answer: GASB Statement No. 34
GASB 34 requires infrastructure assets to be reported and allows governments to use either the traditional depreciation method or the modified (preservation) approach.
Question 2: What is the primary purpose of the Management's Discussion and Analysis (MD&A) in a government's CAFR?
- To provide an independent auditor's opinion on the financial statements
- To offer management's analytical overview of the government's financial activities (Correct answer)
- To disclose all notes to the financial statements
- To present the government's budget vs. actual comparison
Correct answer: To offer management's analytical overview of the government's financial activities
The MD&A provides management's own analysis of the government's financial condition and results, serving as an introduction to the basic financial statements.
Question 3: Under GASB standards, which of the following is NOT a fiduciary fund type?
- Pension trust fund
- Investment trust fund
- Internal service fund (Correct answer)
- Custodial fund
Correct answer: Internal service fund
Internal service funds are proprietary funds, not fiduciary funds; fiduciary funds include pension trust, investment trust, private-purpose trust, and custodial funds.
Question 4: GASB Statement No. 68 requires employers to record which liability on their government-wide statements?
- Net OPEB liability
- Net pension liability (Correct answer)
- Compensated absences liability
- Claims and judgments liability
Correct answer: Net pension liability
GASB 68 requires governmental employers to recognize their proportionate share of the net pension liability on the government-wide statement of net position.
Question 5: Which component of net position represents the portion associated with capital assets net of related debt?
- Restricted net position
- Unrestricted net position
- Net investment in capital assets (Correct answer)
- Assigned net position
Correct answer: Net investment in capital assets
Net investment in capital assets represents the net book value of capital assets less any outstanding related debt used to acquire those assets.
Question 6: Under GASB standards, when should a government recognize a liability for a loss contingency?
- When the loss is reasonably possible and the amount is reasonably estimable
- When the loss is probable and the amount is reasonably estimable (Correct answer)
- When the loss is remote but material
- When the loss has been adjudicated by a court
Correct answer: When the loss is probable and the amount is reasonably estimable
Consistent with GAAP, a liability is recognized when the loss is probable (likely to occur) and the amount can be reasonably estimated.
Question 7: Which GASB concept statement defines the qualitative characteristics that make governmental financial information useful?
- Concepts Statement No. 1 (Correct answer)
- Concepts Statement No. 2
- Concepts Statement No. 3
- Concepts Statement No. 6
Correct answer: Concepts Statement No. 1
GASB Concepts Statement No. 1, 'Objectives of Financial Reporting,' establishes the foundation including the qualitative characteristics of useful governmental financial information.
GAC Governmental Accounting Principles & Standards 3
Which GASB statement requires governments to report infrastructure assets using either the depreciation approach or the modified approach?