GAC Regulatory Compliance & Standards 3 — Questions and Answers
Question 1: Under the Uniform Guidance, which of the following costs is generally unallowable as a direct charge to a federal award?
- Salaries of employees working directly on the project
- Alcoholic beverages purchased for a program event (Correct answer)
- Travel costs for site visits required by the award
- Office supplies used exclusively for the federal program
Correct answer: Alcoholic beverages purchased for a program event
2 CFR Part 200 explicitly lists alcoholic beverages as an unallowable cost regardless of the funding source or nature of the event.
Question 2: What does the term 'material weakness' mean in the context of governmental auditing under Government Auditing Standards?
- A control deficiency that could result in a misstatement less than the planning materiality threshold
- A deficiency where there is a reasonable possibility that a material misstatement will not be prevented or detected (Correct answer)
- Any internal control finding noted during the audit regardless of severity
- A compliance violation resulting in questioned costs exceeding $25,000
Correct answer: A deficiency where there is a reasonable possibility that a material misstatement will not be prevented or detected
A material weakness is a deficiency, or combination of deficiencies, in internal control such that there is a reasonable possibility that a material misstatement will not be prevented or detected on a timely basis.
Question 3: Which GASB concept statement addresses the objectives of financial reporting for state and local governments?
- Concepts Statement 1 (Correct answer)
- Concepts Statement 4
- Concepts Statement 6
- Concepts Statement 3
Correct answer: Concepts Statement 1
GASB Concepts Statement 1, 'Objectives of Financial Reporting,' establishes the fundamental goals of governmental financial reporting.
Question 4: A 'major program' determination under the Single Audit requires auditors to use the:
- 10% Type A threshold and 25% coverage rule
- Risk-based approach outlined in 2 CFR 200.518 (Correct answer)
- Auditor's professional judgment without any specific criteria
- Federal agency's designation of major programs in the award agreement
Correct answer: Risk-based approach outlined in 2 CFR 200.518
2 CFR 200.518 establishes the risk-based approach for determining which federal programs are major and must be audited.
Question 5: Under GASB 87, how should a government lessee classify a lease on its statement of net position?
- As an operating expense only, with no balance sheet impact
- As a right-to-use lease asset and a corresponding lease liability (Correct answer)
- As a capital asset and debt only if the lease transfers ownership
- As a footnote disclosure only, similar to pre-GASB 87 operating leases
Correct answer: As a right-to-use lease asset and a corresponding lease liability
GASB 87 requires lessees to recognize a right-to-use intangible asset and a corresponding lease liability for all leases with terms greater than 12 months.
Question 6: Which federal agency serves as the standard-setting body for Generally Accepted Government Auditing Standards (GAGAS)?
- Office of Management and Budget (OMB)
- Government Accountability Office (GAO) (Correct answer)
- Inspectors General community (CIGIE)
- Financial Accounting Standards Board (FASB)
Correct answer: Government Accountability Office (GAO)
The U.S. Government Accountability Office (GAO) issues and maintains Generally Accepted Government Auditing Standards, commonly called the 'Yellow Book.'
Question 7: A government receives a federal grant with a requirement that unspent funds be returned. This grant would be classified as:
- Exchange revenue
- Non-exchange revenue with eligibility requirements (Correct answer)
- Non-exchange revenue with time requirements only
- An advance with no revenue recognition until spent
Correct answer: Non-exchange revenue with eligibility requirements
Grants requiring funds to be returned if not spent represent non-exchange transactions with eligibility requirements, recognized as revenue only when all requirements are met.
GAC Regulatory Compliance & Standards 3
Under the Uniform Guidance, which of the following costs is generally unallowable as a direct charge to a federal award?