Acct: Financial Reporting Of State And Local Governments. Trivia Quiz!
Welcome to this ACCT quiz on financial Reporting Of State And Local Governments! Proper reporting of State and Local Governments of their financial position and activities to the public at large is essential, especially for accountability and funding. These reports are the standard that citizens, oversight bodies, and other stakeholders use to judge their government's efficiency, effectiveness, and overall financial condition. Take the quiz below see how much you know.
- 1.
Under the hierarchy of GAAP for a state and local government, which of the following has the highest level of authority?
- A.
AICPA practice bulletins
- B.
Consensus positions of the GASB Emerging task force
- C.
Implementation guides published by GASB staff
- D.
AICPA industry audit and accounting guides
Correct Answer
D. AICPA industry audit and accounting guidesExplanation
AICPA industry audit and accounting guides have the highest level of authority under the hierarchy of GAAP for a state and local government. These guides are issued by the American Institute of Certified Public Accountants (AICPA) and provide authoritative guidance on specific industry practices and accounting principles. They are considered more authoritative than AICPA practice bulletins, consensus positions of the GASB Emerging task force, and implementation guides published by GASB staff.Rate this question:
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- 2.
An adverse opinion is most likely to be rendered when:
- A.
Fund financial statements are presented along with government wide statements in the basic financial statements
- B.
There is a violation of generally accepted accounting principles that does not cause a material mistatement
- C.
The auditor is not independent of the government being audited
- D.
The government issues inaccurate financial statements
Correct Answer
D. The government issues inaccurate financial statementsExplanation
An adverse opinion is most likely to be rendered when the government issues inaccurate financial statements. This means that the financial statements provided by the government are not reliable or accurate, which can significantly impact the decision-making process of users relying on these statements. An adverse opinion indicates that the auditor has found significant issues or errors in the financial statements, leading to a lack of confidence in their accuracy. It is a serious concern as it suggests that the government's financial reporting is unreliable and may require further investigation or corrective actions.Rate this question:
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- 3.
Which of the following is a true statement about the relationship between GAGAS and GAAS?
- A.
GAGAS and GAAS provide standards for financial audits, attestation engagements, and performance audits
- B.
GAGAS encompass GAAS and supplement certain GAAS
- C.
Single audits must be performed using GAGAS and GAAS
- D.
GAGAS are promulgated by the government accountability office and GAAS are promulgated by the governmental Accouting standards board
Correct Answer
B. GAGAS encompass GAAS and supplement certain GAASExplanation
GAGAS (Generally Accepted Government Auditing Standards) encompass GAAS (Generally Accepted Auditing Standards) and supplement certain GAAS. This means that GAGAS includes all the standards set by GAAS and also adds additional requirements and guidelines specifically for government audits. In other words, GAGAS builds upon GAAS to provide a more comprehensive framework for auditing in the government sector.Rate this question:
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- 4.
The GAGAS conceptual framework for independence should be employed:
- A.
Annually
- B.
At the end of the audit engagement
- C.
When taking on a nonaudit service engagement at an audited entity
- D.
All of the above
Correct Answer
C. When taking on a nonaudit service engagement at an audited entityExplanation
The GAGAS conceptual framework for independence should be employed when taking on a nonaudit service engagement at an audited entity. This means that auditors should consider and ensure their independence before accepting any nonaudit service engagement at an audited entity. This is important to maintain objectivity, integrity, and impartiality in the audit process and to avoid any conflicts of interest that could compromise the auditor's independence. By conducting this assessment, auditors can ensure that they are able to perform their duties objectively and without any bias or undue influence.Rate this question:
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- 5.
The goal of a performance audit is to:
- A.
Provide information to improve program operations and facilitate decision making by management
- B.
Determine whether government programs and activites are meeting their stated goals and objectives
- C.
Determine whether governments are performing their duties in the most economic and efficient manner possible
- D.
All of the above
Correct Answer
D. All of the aboveExplanation
A performance audit aims to provide information that can be used to enhance program operations and aid management in making decisions. It also seeks to assess whether government programs and activities are achieving their intended goals and objectives. Additionally, it evaluates whether governments are carrying out their responsibilities in the most cost-effective and efficient manner. Therefore, the correct answer is "all of the above" as all three options accurately describe the goals of a performance audit.Rate this question:
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- 6.
Under GASB reporting model, materiality is determined:
- A.
For opinion units
- B.
At the government wide level
- C.
At the fund level
- D.
For governmental and business type activities and the aggregate discretely presented component units only
Correct Answer
A. For opinion unitsExplanation
Materiality under the GASB reporting model is determined for opinion units. This means that the determination of what is considered material or significant for reporting purposes is based on the specific entities or units for which an opinion is being expressed. This could include individual government entities, funds, or other reporting units. The materiality determination is not based on the government-wide level or the fund level as a whole, but rather on the specific units for which an opinion is being provided. Additionally, materiality is only considered for governmental and business type activities, as well as the aggregate discretely presented component units.Rate this question:
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- 7.
Single Audits performed pursuant to OMB circular A-133:
- A.
Apply to all entities that recieve 500,000 or more in a fiscal year
- B.
Result in the same number of reports as a GAGAS or yellow book audit
- C.
Must be performed in accordance with GAGAS
- D.
Result in a reporting package that is submitted to the government accountability office
Correct Answer
C. Must be performed in accordance with GAGASExplanation
Single audits performed pursuant to OMB circular A-133 must be performed in accordance with GAGAS (Generally Accepted Government Auditing Standards). GAGAS provides guidelines and standards for conducting audits of government organizations, programs, activities, and entities that receive federal funds. These audits ensure that the funds are used appropriately and in compliance with applicable laws and regulations. Therefore, single audits performed under OMB circular A-133 must adhere to GAGAS to maintain consistency and quality in the auditing process.Rate this question:
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- 8.
An auditor must audit a major program:
- A.
All type A programs, unless the auditor has identified them as low risk
- B.
All type A programs, including and the auditor considers low risk programs
- C.
All type B programs
- D.
At least 50 percent of all federal funds received
Correct Answer
A. All type A programs, unless the auditor has identified them as low riskExplanation
The correct answer is "All type A programs, unless the auditor has identified them as low risk". This means that the auditor must audit all type A programs, unless they have determined that those programs are low risk. This allows the auditor to prioritize their resources and focus on auditing programs that are considered to be higher risk. It also ensures that all type A programs are audited, unless they are deemed low risk.Rate this question:
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- 9.
OMB circular A-133 and the related Compliance Supplement provide guidance for auditors in:
- A.
Conducting a financial audit of governmental entities
- B.
Conducting financial audits, attestation engagements, and performance audits of governmental units
- C.
Conducting a single audit of a government that has expended more than 500,000 in federal financial assistance
- D.
None of the above
Correct Answer
C. Conducting a single audit of a government that has expended more than 500,000 in federal financial assistanceExplanation
The correct answer is conducting a single audit of a government that has expended more than 500,000 in federal financial assistance. This is because OMB Circular A-133 and the related Compliance Supplement provide guidance specifically for auditors who are conducting a single audit of a government entity that has received federal financial assistance exceeding $500,000. This guidance helps auditors ensure that the government entity is in compliance with the relevant laws and regulations regarding the use of federal funds.Rate this question:
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- 10.
The auditors responsibility for required supplementary information RSI is:
- A.
The same as with the basic financial statements
- B.
To perform certain limited procedures to ensure that RSI is fairly presented in relation to the audited financial statements
- C.
The same as for all information in the financial section of a comprehensive annual financial report
- D.
To render an opinion as to the fairness of the RSI and whether it conforms to GAAP
Correct Answer
B. To perform certain limited procedures to ensure that RSI is fairly presented in relation to the audited financial statementsExplanation
The auditors are responsible for performing certain limited procedures to ensure that the required supplementary information (RSI) is fairly presented in relation to the audited financial statements. This means that the auditors must review the RSI and ensure that it accurately reflects the information presented in the financial statements. They are not required to render an opinion on the fairness of the RSI or whether it conforms to GAAP, as stated in the other answer choices.Rate this question:
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- 11.
The FASB's objectives of financial reporting for not for profit organizations includes which of the following
- A.
Assesing fiscal responsibility
- B.
Assessing management and stewardship and performance
- C.
Assessing budget to actual performance for the period
- D.
All of the above
Correct Answer
B. Assessing management and stewardship and performanceExplanation
The FASB's objectives of financial reporting for not-for-profit organizations include assessing management and stewardship and performance. This means that the FASB aims to evaluate how well the organization is being managed, how effectively resources are being utilized, and how well the organization is achieving its goals and objectives. By assessing these factors, the FASB can provide transparency and accountability in the financial reporting of not-for-profit organizations.Rate this question:
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- 12.
Voluntary health and welfare organizations are required to present which of the following financial statements?
- A.
Statement of financial position
- B.
Statement of cash flows
- C.
Statement of functional expenses
- D.
All of the above are required
Correct Answer
D. All of the above are requiredExplanation
Voluntary health and welfare organizations are required to present all of the above financial statements. The statement of financial position provides information about the organization's assets, liabilities, and net assets at a specific point in time. The statement of cash flows shows the organization's cash inflows and outflows during a specific period. The statement of functional expenses reports the organization's expenses by program or function. By presenting all three statements, these organizations can provide a comprehensive view of their financial position, cash flows, and expenses to stakeholders and donors.Rate this question:
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- 13.
Temporarily restricted net assets may be released from restriction by:
- A.
Written authorization of the organizations board of directors
- B.
Approval of the independent auditor
- C.
Satisfaction of purpose restrictions
- D.
Advice of legal counsel
Correct Answer
C. Satisfaction of purpose restrictionsExplanation
Temporarily restricted net assets are funds that have been set aside for a specific purpose by the organization's board of directors. These funds can only be released from restriction when the purpose for which they were initially designated has been fulfilled or satisfied. Therefore, the correct answer is "satisfaction of purpose restrictions" as it refers to the condition that needs to be met in order for the temporarily restricted net assets to be released and used for other purposes.Rate this question:
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- 14.
In a local NFP elementary school's statement of cash flows, a contribution restricted for use on new building project would be reported as:
- A.
A financial activity
- B.
A capital and related financing activity
- C.
An investing activity
- D.
An operating activity
Correct Answer
A. A financial activityExplanation
A contribution restricted for use on a new building project would be reported as a financial activity in the local NFP elementary school's statement of cash flows. This is because the contribution is considered a financing transaction, as it involves the inflow of cash that is specifically designated for the purpose of funding a capital project. It is not related to the school's day-to-day operations (operating activity), nor does it involve the purchase or sale of investments (investing activity). Therefore, it is classified as a financial activity.Rate this question:
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- 15.
A wealthy donor promised 1 million to the local art museum contingent on the museum obtaining a grant from the state for 500,000. Upon completing a signed agreement with the donor, the museum should:
- A.
Record a debit to contributions recievable 1,000,000
- B.
Record a debit contributions receivable 500,000
- C.
Not make a journal entry
- D.
Either a or c
Correct Answer
C. Not make a journal entryExplanation
The museum should not make a journal entry because the promised donation is contingent upon the museum obtaining a grant from the state. Until the grant is obtained, the donation is not yet receivable, and therefore should not be recorded in the books.Rate this question:
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- 16.
A local CPA volunteered their time to develope a computerized accounting system. If she wouldnt have done this the school would have had to hire someone. The value of sharons time devoted to this project should be recorded as:
- A.
Contribution revenue
- B.
A supporting services expense
- C.
Neither a or b
- D.
Both a and b
Correct Answer
D. Both a and bExplanation
The value of Sharon's time devoted to developing the computerized accounting system should be recorded as both a contribution revenue and a supporting services expense. It can be considered as a contribution revenue because she volunteered her time, which can be seen as a donation of services. On the other hand, it can also be recorded as a supporting services expense because if Sharon hadn't volunteered, the school would have had to hire someone to do the job, which would have incurred an expense. Therefore, it can be recorded as both revenue and an expense.Rate this question:
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- 17.
Many not for profit organizations attempt to classify fund raising expenses as program service expenses by making the activities look educational. For such expenses to be reported as program expenses, they must meet which of the following three criteria:
- A.
Purpose, mission related, and benefit to the public
- B.
Purpose, audience, and content
- C.
Purpose, expand donor base, and content
- D.
Reasonable, improve financial condition, and benefit to the public
Correct Answer
B. Purpose, audience, and contentExplanation
The correct answer is "purpose, audience, and content." In order for fund raising expenses to be reported as program expenses, they must meet these three criteria. The purpose of the activity must align with the organization's mission, the audience must be targeted towards the organization's intended beneficiaries, and the content of the activity must be educational or informative. This ensures that the fund raising expenses are directly contributing to the organization's program services and benefiting the public.Rate this question:
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- 18.
Which of the following would not be considered a support expense by the NFP organization Save Our Lakes?
- A.
The cost of printing the annual report
- B.
The cost of mailing to past contributors requesting donations for lakeshore cleanup
- C.
The cost of the annual lakeshore cleanup activities
- D.
Neither a or c
Correct Answer
C. The cost of the annual lakeshore cleanup activitiesExplanation
The cost of the annual lakeshore cleanup activities would not be considered a support expense by the NFP organization Save Our Lakes because it is a program expense directly related to their mission of lakeshore cleanup. Support expenses typically include administrative and fundraising costs, such as printing and mailing. However, the cost of the lakeshore cleanup activities is directly tied to the organization's core purpose and would be classified as a program expense instead.Rate this question:
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- 19.
A particular organization functions as an intermediary between donors and other beneficiary organizations. The intermediary organization must report contribution revenue from donors if:
- A.
The organization has variance power
- B.
The organization elects to consistently report such donor gifts as contribution revenue
- C.
The beneficiary organization requests a delay in receiving the contribution
- D.
All of the above
Correct Answer
A. The organization has variance powerExplanation
The correct answer is "the organization has variance power". Variance power refers to the authority of the intermediary organization to redirect the donor's contribution to a different beneficiary organization. If the organization has this power, it must report the contribution revenue from donors. The other options mentioned, such as electing to consistently report donor gifts as contribution revenue and the beneficiary organization requesting a delay in receiving the contribution, are not relevant in determining whether the organization should report the contribution revenue.Rate this question:
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- 20.
State regulation of non for profit organizations derives from the states power to
- A.
Grant exemption from income taxes
- B.
Give legal life to a not for profit
- C.
Grant exemption from sales taxes
- D.
Grant licenses for charitable solicitation
Correct Answer
B. Give legal life to a not for profitExplanation
The state regulation of non-profit organizations is derived from the state's power to give legal life to a not-for-profit entity. This means that the state has the authority to establish and recognize these organizations as legal entities with specific purposes and functions. By granting legal life to a not-for-profit, the state can then impose regulations and requirements on these organizations to ensure transparency, accountability, and compliance with the law. This includes rules regarding governance, financial reporting, and tax-exempt status.Rate this question:
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- 21.
To be legally recognized as a not for profit organization, the save the local trees association should:
- A.
Apply or register with the state government where it operates
- B.
Register with the IRS
- C.
Apply or register with the local governments where it operates
- D.
All of the above
Correct Answer
A. Apply or register with the state government where it operatesExplanation
To be legally recognized as a not-for-profit organization, the save the local trees association should apply or register with the state government where it operates. This is because each state has its own regulations and requirements for not-for-profit organizations to be recognized and operate legally. By applying or registering with the state government, the association can ensure that it meets all the necessary criteria and can enjoy the benefits and protections that come with being a legally recognized not-for-profit organization.Rate this question:
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- 22.
The ongoing compliance stage of the life cycle of a tax exempt organization that interacts with the IRS includes:
- A.
Notify the IRS of a merger
- B.
Application for exempt status with form 1023
- C.
Meeting public disclosure requirements
- D.
Filing unrelated business income tax returns
Correct Answer
C. Meeting public disclosure requirementsExplanation
In the ongoing compliance stage of a tax exempt organization's life cycle, meeting public disclosure requirements is an important task. This involves providing the necessary information and documents to the IRS and making them available to the public. By meeting these requirements, the organization ensures transparency and accountability in its operations, allowing stakeholders and the public to access relevant information about its finances, activities, and governance. This helps maintain the organization's tax-exempt status and builds trust with donors, supporters, and the community.Rate this question:
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- 23.
Federal regulation of not for profit organizations derives from the federal governments power to:
- A.
Grant licenses for charitable solicitation
- B.
Grant exemption from federal income taxes
- C.
Grant exemption from sales taxes
- D.
Give legal life to a not for profit corportion
Correct Answer
B. Grant exemption from federal income taxesExplanation
The federal regulation of not-for-profit organizations is derived from the federal government's power to grant exemption from federal income taxes. This means that these organizations are not required to pay income taxes on their earnings, allowing them to allocate more resources towards their charitable activities. This exemption is an incentive for organizations to operate in a not-for-profit manner and provide public benefits without the burden of tax obligations.Rate this question:
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- 24.
Under the IRC, public charities are allowed to conduct direct lobbying activity. What if any limit is placed on such lobbying?
- A.
There is no limit provided no propaganda is distributed by the charity
- B.
There is no limit provided no individual or group contributes more than 500 to lobbying acitivity in one year
- C.
There is no limit provided the lobbying activity directly affects the NFPs charitable purpose
- D.
There is a limit of up to 1,000,000 a year based on the size of the NFPs exempt program costs
Correct Answer
D. There is a limit of up to 1,000,000 a year based on the size of the NFPs exempt program costsExplanation
The correct answer is that there is a limit of up to $1,000,000 a year based on the size of the NFPs exempt program costs. This means that public charities are allowed to conduct direct lobbying activity, but there is a cap on the amount of money they can spend on lobbying. The limit is determined by the size of the charity's exempt program costs, meaning the amount of money they spend on their charitable activities.Rate this question:
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- 25.
A not for profit organization that is exempt from federal taxes and receives it support from a small number of individuals instead of from the public at large is called a:
- A.
Private foundation
- B.
Public charity
- C.
Nongovernmental organization
- D.
Public foundation
Correct Answer
A. Private foundationExplanation
A private foundation is a correct answer because it is a not-for-profit organization that is exempt from federal taxes and relies on support from a small number of individuals rather than the general public. Unlike public charities, which typically receive funding from a wide range of sources, private foundations usually have a specific source of funding, such as an individual, family, or corporation. This distinction allows private foundations to have more control over their activities and grants. A nongovernmental organization (NGO) is a broader term that encompasses both private foundations and public charities, while a public foundation is not a commonly used term in this context.Rate this question:
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- 26.
A measure of performance of a not for profit organzation that captures the efficiency of raising contributions is:
- A.
Unrestricted net assets divided by operating expenses
- B.
Revenues divided by expenses
- C.
Fund raising expense divided by public support
- D.
Program expenses divided by total expenses
Correct Answer
C. Fund raising expense divided by public supportExplanation
The correct answer is "fund raising expense divided by public support". This measure calculates the efficiency of raising contributions by comparing the amount spent on fundraising activities to the amount of public support received. A lower ratio indicates a more efficient organization, as it implies that less money is being spent on fundraising relative to the amount of support generated.Rate this question:
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- 27.
An example of unrelated business income for which a tax-exempt entity may have to pay taxes at corporate rates is:
- A.
An environemental organization that offers advertising to nonmembers in its annual catalog
- B.
A university that offers computer services to students and faculty for a fee
- C.
A credit union that offers members safety deposit boxes for a nominal fee
- D.
All of the above
Correct Answer
A. An environemental organization that offers advertising to nonmembers in its annual catalogExplanation
An environmental organization that offers advertising to nonmembers in its annual catalog may have to pay taxes at corporate rates because this activity is considered unrelated business income. Tax-exempt organizations are generally exempt from paying taxes on income that is directly related to their exempt purpose. However, if they engage in activities that are not substantially related to their exempt purpose, such as advertising services to nonmembers, that income may be subject to taxation.Rate this question:
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- 28.
The tool the IRS most likely will use when key officers in a tax exempt entity receive excess economic benefit from transactions with the not for profit organization is:
- A.
Fines and forfeits
- B.
Revocation of the organizations tax exempt status
- C.
Intermediate sanctions
- D.
Public display of offenders on the IRS's web site
Correct Answer
C. Intermediate sanctionsExplanation
The IRS is likely to use intermediate sanctions when key officers in a tax-exempt entity receive excess economic benefit from transactions with the not-for-profit organization. Intermediate sanctions refer to penalties imposed on individuals who engage in excess benefit transactions, which are transactions that provide excessive economic benefit to insiders of the organization. These sanctions can include financial penalties and other corrective actions, but they do not involve fines and forfeits, revocation of tax-exempt status, or public display of offenders on the IRS's website.Rate this question:
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- 29.
When a tax exempt organization dissolves, the managers must ensure that:
- A.
All assets are appropriately transferred to another tax exempt organization
- B.
All creditors get paid
- C.
All federal, state, and local taxes get paid
- D.
All of the above
Correct Answer
D. All of the aboveExplanation
When a tax exempt organization dissolves, the managers must ensure that all assets are appropriately transferred to another tax exempt organization, all creditors get paid, and all federal, state, and local taxes get paid. This means that all aspects of the organization's financial obligations and responsibilities need to be taken care of before the dissolution is complete.Rate this question:
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- 30.
Audits of state and local governments may be performed by all of the following except:
- A.
Independent CPAs.
- B.
State audit agencies.
- C.
Federal grantor agencies.
- D.
The Office of Management and Budget (OMB).
Correct Answer
D. The Office of Management and Budget (OMB).Explanation
The Office of Management and Budget (OMB) is not responsible for performing audits of state and local governments. The OMB is a federal agency that assists the President in overseeing the implementation of federal policies and the preparation of the federal budget. It does not have the authority or jurisdiction to conduct audits of state and local governments. On the other hand, independent CPAs, state audit agencies, and federal grantor agencies may perform audits of state and local governments to ensure compliance with financial regulations and accountability.Rate this question:
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- 31.
In the auditor's report the financial statement on which the opinion is being expressed are specified in the:
- A.
Introductory paragraph.
- B.
Opinion paragraph.
- C.
Scope paragraph.
- D.
Explanatory paragraph.
Correct Answer
A. Introductory paragraph.Explanation
In the auditor's report, the introductory paragraph specifies the financial statement on which the opinion is being expressed. This paragraph typically provides an overview of the audit, including the responsibilities of the auditor and management, as well as the nature and scope of the audit. It sets the context for the rest of the report and identifies the specific financial statement that is the subject of the opinion.Rate this question:
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- 32.
In audits of state and local government units which of the following paragraphs may not be required in the auditor's report for every audit?
- A.
Introductory paragraph.
- B.
Opinion paragraph.
- C.
Scope paragraph.
- D.
Explanatory paragraph.
Correct Answer
D. Explanatory paragraph.Explanation
The explanatory paragraph may not be required in the auditor's report for every audit of state and local government units. This paragraph is typically included when the auditor needs to provide additional information or explanations about specific aspects of the audit, such as significant accounting policies or procedures. However, if there are no such explanations needed, the auditor may omit this paragraph from the report.Rate this question:
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- 33.
The scope paragraph of an independent auditor's report on a financial audit of a local government:
- A.
Identifies the statutes the auditor determined to be relevant to the financial activities of the government.
- B.
Identifies the financial statements that the auditor has examined.
- C.
Identifies all applicable accounting records that were located and examined.
- D.
Identifies the standards used in performing the audit.
Correct Answer
D. Identifies the standards used in performing the audit.Explanation
The scope paragraph of an independent auditor's report on a financial audit of a local government identifies the standards used in performing the audit. This means that the paragraph specifies the specific guidelines, principles, or criteria that the auditor followed while conducting the audit. These standards ensure that the audit was conducted in accordance with established rules and regulations, providing credibility and reliability to the financial statements. By identifying the standards used, the auditor provides transparency and allows the readers of the report to understand the basis on which the audit was performed.Rate this question:
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- 34.
The single audit requirement applies to:
- A.
All audits of state and local government reporting entities.
- B.
Audits to determine efficiency and economy.
- C.
Audits following the Single Audit Act of 1984 (with 1996 Amendments) and the revised OMB Circular A-133.
- D.
Financial and performance audits, and attestation engagements.
Correct Answer
C. Audits following the Single Audit Act of 1984 (with 1996 Amendments) and the revised OMB Circular A-133.Explanation
The single audit requirement applies to audits following the Single Audit Act of 1984 (with 1996 Amendments) and the revised OMB Circular A-133. This means that any audit conducted in accordance with these specific regulations and guidelines must comply with the single audit requirement. This requirement does not apply to all audits of state and local government reporting entities, audits to determine efficiency and economy, or financial and performance audits and attestation engagements.Rate this question:
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- 35.
Threats to independence include all of the following except:
- A.
Bias threat.
- B.
Familiarity threat.
- C.
Undue influence threat.
- D.
Management representation threat.
Correct Answer
D. Management representation threat.Explanation
Threats to independence refer to factors that can compromise the objectivity and impartiality of auditors. Bias threat, familiarity threat, and undue influence threat are all examples of threats to independence as they can influence auditors' judgment and decision-making. However, the management representation threat is not a threat to independence. It refers to the risk that auditors may rely solely on management's representations without obtaining sufficient evidence to support their assertions. While this can affect the quality of the audit, it does not directly compromise the independence of auditors.Rate this question:
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- 36.
A condition whereby the design or operation of a control does not allow management or employees, in the normal course of performing their assigned functions, to prevent, or detect and correct misstatements on a timely basis is called a(an):
- A.
Deficiency.
- B.
System design weakness.
- C.
Unacceptable reportable condition.
- D.
Audit alert item.
Correct Answer
A. Deficiency.Explanation
A deficiency refers to a condition where the design or operation of a control does not enable management or employees to prevent, detect, or correct misstatements in a timely manner while performing their assigned tasks. It indicates a weakness in the control system, which could potentially lead to errors or fraud going undetected or unaddressed. It is important to identify and address deficiencies to ensure the effectiveness and reliability of the control environment.Rate this question:
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- 37.
Typical objectives of a performance audit include:
- A.
Determining whether financial statements fairly present the entity's operational results.
- B.
Judging the appropriateness of an entity's program goals.
- C.
Determining whether financial statements fairly present in conformity with GAAP.
- D.
Assessing effectiveness and results, economy and efficiency, and internal controls and compliance with laws and regulations.
Correct Answer
D. Assessing effectiveness and results, economy and efficiency, and internal controls and compliance with laws and regulations.Explanation
A performance audit typically aims to assess the effectiveness and results of an entity's operations, as well as its economy and efficiency. It also evaluates the entity's internal controls and compliance with laws and regulations. This involves evaluating whether the entity is achieving its program goals and objectives, and if its financial statements accurately represent its operational results. Additionally, the audit ensures that the entity is following generally accepted accounting principles (GAAP) in preparing its financial statements.Rate this question:
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- 38.
An auditor would not render an opinion on a(an):
- A.
Financial audit of financial statements.
- B.
Performance audit.
- C.
Audit to determine whether the entity has adhered to specific compliance requirements applicable to a major program.
- D.
Audit to determine whether a governmental department's financial information complies with specific state regulatory requirements.
Correct Answer
B. Performance audit.Explanation
An auditor would not render an opinion on a performance audit because a performance audit focuses on evaluating the efficiency and effectiveness of an organization's operations, rather than the accuracy and fairness of its financial statements. Performance audits are typically conducted to assess whether an organization is achieving its objectives and utilizing its resources efficiently, but they do not involve the examination of financial records or the expression of an opinion on financial statements. Therefore, an auditor would not provide an opinion on a performance audit.Rate this question:
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- 39.
All of the following reports are included in the reporting package resulting from the single audit except:
- A.
Financial statements and schedule of expenditures of federal awards.
- B.
Summary schedule of prior audit findings.
- C.
Report on efficiency and effectiveness.
- D.
Corrective action plan.
Correct Answer
C. Report on efficiency and effectiveness.Explanation
The reporting package resulting from the single audit includes the financial statements and schedule of expenditures of federal awards, the summary schedule of prior audit findings, and the corrective action plan. However, it does not include a report on efficiency and effectiveness. This report focuses on evaluating the efficiency and effectiveness of an organization's operations and is not specifically required as part of the single audit reporting package.Rate this question:
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- 40.
Which of the following characteristics of not-for-profit organizations (NFPs) can be used to distinguish a nongovernmental from a governmental NFP?
- A.
Contributions by resource providers who do not expect a return on investment.
- B.
Ability to impose taxes on citizens.
- C.
Absence of ownership interests.
- D.
All of the above characteristics are generally different for nongovernmental versus governmental NFPs.
Correct Answer
B. Ability to impose taxes on citizens.Explanation
The ability to impose taxes on citizens is a characteristic that can be used to distinguish a governmental NFP from a nongovernmental NFP. Nongovernmental NFPs rely on contributions from resource providers who do not expect a return on investment, and they do not have the ability to impose taxes. Governmental NFPs, on the other hand, have the authority to levy taxes on citizens to generate revenue. Therefore, this characteristic sets governmental NFPs apart from nongovernmental NFPs.Rate this question:
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- 41.
Under FASB standards how would a not-for-profit organization recognize a conditional pledge?
- A.
It would debit Pledges Receivable and credit Contributions—Temporarily Restricted.
- B.
It would debit Pledges Receivable and credit Deferred Contributions.
- C.
It would disclose the amount of the conditional pledge in the notes to the financial statements.
- D.
It would not recognize the conditional pledge until pledge conditions are substantially met.
Correct Answer
D. It would not recognize the conditional pledge until pledge conditions are substantially met.Explanation
According to FASB standards, a not-for-profit organization should not recognize a conditional pledge until the pledge conditions are substantially met. This means that the organization should not record the pledge as revenue or an asset until there is reasonable assurance that the conditions will be fulfilled. This approach ensures that the organization only recognizes contributions that are reasonably certain, promoting transparency and accuracy in financial reporting.Rate this question:
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- 42.
The FASB Codification requires the following financial statements for all nongovernmental, not-for-profit organizations:
- A.
Statement of financial position, statement of activities, statement of cash flows, and statement of functional expenses.
- B.
Statement of financial position, statement of operations, statement of cash flows, and statement of functional expenses
- C.
Statement of financial position, statement of activities, and statement of cash flows.
- D.
Statement of financial position, statement of revenues and expenses, statement of cash flows, and statement of functional expenses.
Correct Answer
C. Statement of financial position, statement of activities, and statement of cash flows.Explanation
The FASB Codification requires the statement of financial position, statement of activities, and statement of cash flows for all nongovernmental, not-for-profit organizations. These three financial statements provide a comprehensive view of the organization's financial position, its activities, and the cash flows generated during a specific period. The statement of financial position shows the organization's assets, liabilities, and net assets at a specific point in time. The statement of activities reports the organization's revenues, expenses, gains, and losses, providing information on how resources are used to carry out its mission. The statement of cash flows presents the organization's cash inflows and outflows, providing insights into its liquidity and ability to meet financial obligations.Rate this question:
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- 43.
Which of the following is a condition that must be met for contributed services to a not-for-profit organization (NFP) to be recorded as both a contribution and as an expense?
- A.
The service creates or enhances nonfinancial assets, such as a carpenter renovating a building.
- B.
The service requires a specialized skill and is provided by someone who possesses the specialized skill, such as a lawyer preparing contracts.
- C.
The service supplements the management function, such as an auditor preparing a program audit, which is not normally done
- D.
All of the above must be met for contributed services to be recognized as a contribution and an expense.
Correct Answer
B. The service requires a specialized skill and is provided by someone who possesses the specialized skill, such as a lawyer preparing contracts.Explanation
Contributed services to a not-for-profit organization can be recorded as both a contribution and an expense if the service requires a specialized skill and is provided by someone who possesses that specialized skill, such as a lawyer preparing contracts. This means that the service is valuable and necessary for the organization's operations, and it is provided by a qualified individual. The other conditions mentioned, such as creating or enhancing nonfinancial assets and supplementing the management function, may also be important but are not necessary for the service to be recognized as both a contribution and an expense.Rate this question:
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- 44.
Investments in equity securities that have a readily determinable market value and all debt securities of a not-for-profit the organization is reported at:
- A.
Lower of cost or market.
- B.
Amortized cost.
- C.
Fair value.
- D.
Cost.
Correct Answer
C. Fair value.Explanation
The investments in equity securities and debt securities of a not-for-profit organization are reported at fair value. Fair value is the estimated price that an asset or liability would fetch in an open and competitive market. It represents the current market value of the securities and provides a more accurate reflection of their worth. By reporting investments at fair value, the organization can provide stakeholders with a more transparent and reliable financial statement.Rate this question:
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- 45.
An example of an increase in net assets for a not-for-profit organization that would be labeled revenue rather than support is:
- A.
An unconditional promise to give.
- B.
Investment income.
- C.
A restricted gift.
- D.
An allocation of funds from the local United Way organization.
Correct Answer
B. Investment income.Explanation
Investment income is considered an increase in net assets for a not-for-profit organization that is labeled as revenue rather than support because it is generated from the organization's investments. Unlike support, which typically comes from external sources such as donations or grants, investment income is earned through the organization's own investments and is therefore classified as revenue. This income can include dividends, interest, or capital gains from investments made by the organization.Rate this question:
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- 46.
A donor provides a large cash contribution that is to be used for the acquisition of a new building. Under FASB standards, how would this contribution be reported by a not-for-profit organization on its statement of cash flows?
- A.
Operating activity.
- B.
Investing activity.
- C.
Financing activity.
- D.
Capital and related financing activity.
Correct Answer
C. Financing activity.Explanation
The large cash contribution provided by the donor for the acquisition of a new building would be reported as a financing activity on the statement of cash flows. This is because the acquisition of a new building is considered a capital expenditure, which falls under financing activities. Financing activities involve transactions that affect the long-term liabilities and equity of an organization, such as borrowing money, repaying debt, or receiving contributions for capital projects.Rate this question:
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- 47.
A not-for-profit organization that follows FASB standards must display the changes in all classes of net assets on the:
- A.
Statement of activities.
- B.
Statement of financial position.
- C.
Statement of cash flows.
- D.
Statement of functional expenses.
Correct Answer
A. Statement of activities.Explanation
A not-for-profit organization that follows FASB standards must display the changes in all classes of net assets on the Statement of activities. This statement provides a summary of the organization's revenues, expenses, gains, and losses for a specific period, and it shows how these transactions have affected the organization's net assets. By including the changes in all classes of net assets, the statement provides a comprehensive view of the organization's financial activities and their impact on its overall financial position.Rate this question:
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- 48.
Unrealized gains on the investment portfolio of a nongovernmental not-for-profit organization are:
- A.
Not recognized.
- B.
Reported in the net asset section of the balance sheet.
- C.
Reported according to whether the gains relate to trading, available-for-sale, or held-to-maturity assets
- D.
Reported on the statement of activities.
Correct Answer
D. Reported on the statement of activities.Explanation
Unrealized gains on the investment portfolio of a nongovernmental not-for-profit organization are reported on the statement of activities. This statement provides information about the organization's revenues, expenses, gains, and losses. Unrealized gains on investments are considered as a type of gain and are included in this statement to reflect the organization's financial performance. The gains are not recognized or reported on the balance sheet because they have not been realized through a sale or other transaction. The specific classification of the gains (trading, available-for-sale, or held-to-maturity) is not mentioned in the given information.Rate this question:
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- 49.
Which of the following statements is correct regarding reporting of special events and related direct costs under current FASB standards?
- A.
Special events and related direct costs must be reported separately at their gross amounts if they relate to the ongoing major operations of a nonprofit organization.
- B.
Special events revenues are to be reported at goss amounts, even if direct costs are of a peripheral or incidental nature.
- C.
With few exceptions, special events revenues are reported net of related direct costs.
- D.
Expenses of promoting and conducting special events should be netted directly against special events revenue.
Correct Answer
A. Special events and related direct costs must be reported separately at their gross amounts if they relate to the ongoing major operations of a nonprofit organization.Explanation
According to current FASB standards, special events and their related direct costs must be reported separately at their gross amounts if they are connected to the ongoing major operations of a nonprofit organization. This means that both the revenue and the direct costs of the special events should be reported individually without any netting or offsetting.Rate this question:
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- 50.
Tax-exempt organizations must complete a Form 990 and send it to the Internal Revenue Service:
- A.
Only if they have unrelated business income.
- B.
If they are nongovernmental and not a church.
- C.
Whether they are governmental or nongovernmental.
- D.
Only if they are a private foundation, not a public charity.
Correct Answer
B. If they are nongovernmental and not a church.Explanation
Tax-exempt organizations must complete a Form 990 and send it to the Internal Revenue Service if they are nongovernmental and not a church. This means that any organization that is not a government entity and is not classified as a church must file a Form 990. This form is used to report the organization's financial information, activities, and compliance with tax regulations. It is an important requirement for maintaining tax-exempt status and ensuring transparency and accountability for these organizations.Rate this question:
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Mar 17, 2023Quiz Edited by
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May 05, 2013Quiz Created by
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