Acct: Financial Reporting Of State And Local Governments. Trivia Quiz!

When a tax-exempt organization dissolves and ceases operations, it is required to distribute its remaining assets to another tax-exempt organization or a governmental entity. This ensures that the organization's assets are used for charitable or public purposes even after its closure. By transferring the assets to another tax-exempt organization or a governmental entity, the dissolved organization fulfills its legal obligations and ensures that its assets continue to serve the intended beneficiaries.

Not-for-profit corporations can engage in lobbying activities and attempt to influence legislation or politicians, as long as it is within the limits set by the law. Non-profit organizations are allowed to advocate for their causes and promote their interests, but they must adhere to specific rules and regulations governing lobbying activities. Therefore, the statement that not-for-profit corporations cannot lobby or attempt to influence legislation or politicians is false.

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.

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.

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.

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.

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.

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.

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.

A 501(c)(3) organization is not required to provide donors with a written disclosure of the amount of the donation if the donation is $1,000 or more.

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.

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.

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.

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.

The Internal Revenue Service may impose intermediate sanctions on transactions between a not-for-profit organization and its executive officer if they involve excessive compensation, more than the fair rental value for property owned by the officer, or a bargain on the sale of assets. However, fringe benefits comparable to those given to all employees are generally not subject to intermediate sanctions.

Joint costs are costs associated with an activity that includes a fundraising component and can be allocated to two or more functional expense categories if specific criteria are met. This means that the costs can be divided and assigned to different expense categories based on certain guidelines or rules. It is important to note that joint costs are not limited to fundraising events or campaigns, but can be applicable to any activity that involves multiple functional expenses.

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.

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.

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.

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.

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.

The explanation for the given answer is that a state does not have the obligation to monitor and regulate a not-for-profit (NFP) organization solely because it granted the NFP tax-exempt status through the not-for-profit corporation laws. While tax-exempt status may be granted based on compliance with certain regulations, it does not automatically imply ongoing monitoring and regulation by the state. Monitoring and regulation of NFP organizations may be carried out by other entities, such as regulatory bodies or oversight agencies, but it is not solely the responsibility of the state.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.

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.