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Free PDF Reliable GAFRB - Test Examination 2: Governmental Accounting, Financial Reporting and Budgeting (GAFRB) Guide

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AGA GAFRB Exam Syllabus Topics:

Topic
Details

Topic 1

Federal Financial Accounting and Reporting: This section of the exam measures skills of government financial analysts and covers the roles of FASAB, OMB, Treasury, and GAO in federal accounting. It includes an understanding of federal budgetary terminology and the federal budgetary equation. The section differentiates between budgetary and proprietary accounting and outlines the structure and use of various federal fund types. It explains how to record key budgetary transactions like appropriations and obligations and proprietary transactions such as payroll and depreciation.

Topic 2

Governmental Financial Accounting, Reporting and Budgeting: General Knowledge:This section of the exam measures skills of government financial analysts and covers the unique aspects of governmental accounting that distinguish it from private sector practices, such as service over profit and the critical role of the budget. It emphasizes the objectives of financial reporting in the public sector, the role of standard-setting bodies like GASB, FASB, FASAB, and IPSASB, and the due process for setting accounting standards. It also includes knowledge of interperiod equity, budgetary compliance, sustainability, and the characteristics of quality financial information.

Topic 3

State and Local Financial Accounting and Reporting: This section of the exam measures skills of public sector accountants and focuses on applying GASB standards to define reporting entities and component units. It explores the structure and purpose of various fund types and the basis of accounting for each. Candidates must understand the format and content of the Annual Comprehensive Financial Report and the purpose of popular reports for public transparency.

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AGA Examination 2: Governmental Accounting, Financial Reporting and Budgeting (GAFRB) Sample Questions (Q88-Q93):

NEW QUESTION # 88
An example of a federal principal financial statement is the

A. Statement of Cash Flows.
B. Statement of Operations.
C. Statement of Net Income.
D. Statement of Budgetary Resources.

Answer: D

Explanation:
Federal principal financial statements are required under OMB Circular A-136 and FASAB standards. They include:
Statement of Budgetary Resources (SBR)
Balance Sheet
Statement of Net Cost
Statement of Changes in Net Position
Statement of Custodial Activity (if applicable)
There is no "Statement of Cash Flows" or "Statement of Net Income" in federal accounting - those are private-sector financial statements.
Relevant References:
OMB Circular A-136
FASAB SFFAS No. 53 - Principal Financial Statements
Treasury Financial Manual (TFM) Volume I
B). Statement of Budgetary Resources

NEW QUESTION # 89
Governmental funds reported $80 million current expenditures and $2 million capital outlays. The reconciliation of the Statement of Revenues. Expenditures, and Change in Fund Balance to the Statement of Activities starts with the total net change in fund balances in the governmental fund and

A. $S2 million in capital outlays is subtracted.
B. $2 million in capital outlays is added.
C. $80 million in current expenditures is added.
D. $80 million in current expenditures is subtracted.

Answer: B

Explanation:
In the reconciliation from the governmental fund financial statements to the government-wide Statement of Activities, capital outlays that were treated as expenditures in the governmental funds are added back. This is because the government-wide financial statements use full accrual accounting, where capital outlays are capitalized as assets and not expensed.
Thus, the $2 million in capital outlays would be added back to adjust net change in fund balances to arrive at the change in net position for governmental activities.
Relevant References:
GASB Statement No. 34 - Reporting Capital Assets and Reconciliation
GASB Codification Section 2200 - Government-wide Financial Reporting
GFOA Annual Comprehensive Financial Report Guidance
C). $2 million in capital outlays is added

NEW QUESTION # 90
In state and local financial audits, material weaknesses must be reported to the

A. legislature.
B. governing body.
C. local media.
D. taxpayers.

Answer: B

Explanation:
What Are Material Weaknesses?
* Amaterial weaknessin internal control is a deficiency or combination of deficiencies that creates a reasonable possibility of a material misstatement in the financial statements that would not be prevented or detected in a timely manner.
* In the context of state and local financial audits, material weaknesses must be reported to those charged with governance, as they are responsible for oversight and corrective actions.
Why Is the Governing Body the Correct Answer?
* Thegoverning body(e.g., city council, county board, or state commission) is directly responsible for overseeing the entity's financial operations and ensuring accountability. Reporting material weaknesses to them ensures that corrective actions can be implemented to strengthen internal controls.
* Auditors communicate such findings through anaudit reportor amanagement letteraddressed to the governing body.
Why Other Options Are Incorrect:
* A. Legislature:The legislature may have oversight of state budgets and appropriations but is not the direct governing body for financial audits.
* C. Taxpayers:While transparency is important, material weaknesses are not directly reported to taxpayers. They may be disclosed in public audit reports, but taxpayers are not the primary audience.
* D. Local media:Material weaknesses are not formally reported to the media; their disclosure depends on the entity's public reporting processes.
References and Documents:
* GAO Yellow Book (GAGAS):Requires auditors to report material weaknesses to those charged with governance.
* GASB (Governmental Accounting Standards Board):Emphasizes the importance of communicating significant audit findings to governing bodies.
* AICPA Audit Standards (AU-C 265):Requires auditors to communicate material weaknesses to management and those charged with governance.

NEW QUESTION # 91
Purchase orders are issued in the amount of $427,000. The general ledger entry to record the encumbrance should be

A. Debit Encumbrances $427,000 Credit Budgetary Fund Balance $427,000
B. Debit Fund Balance $427,000 Credit Encumbrances $427,000
C. Debit Encumbrances $427,000 Credit Expenditures $427,000
D. Debit Appropriations $427,000 Credit Encumbrances $427,000

Answer: A

Explanation:
When a government issues purchase orders, it records encumbrances to reflect commitments against appropriations. This helps track budgetary commitments and avoid overspending.
The entry is recorded in the budgetary accounts (not proprietary accounts) as follows:
Debit Encumbrances: Recognizes the commitment
Credit Budgetary Fund Balance (or Reserve for Encumbrances): Reflects that part of the fund balance is committed This is consistent with modified accrual accounting and standard governmental fund practice.
Relevant References:
GASB Codification Section 1300 - Budgetary Accounting
GFOA Best Practices - Encumbrance Accounting
GAO Principles of Appropriation Law - Encumbrance Controls
D). Debit Encumbrances $427,000; Credit Budgetary Fund Balance $427,000

NEW QUESTION # 92
A governmental financial reporting entity is comprised of all of the following EXCEPT

A. organizations for which the primary government is financially accountable.
B. other organizations for which the nature and significance of their relationship with the primary government are such that exclusion would cause the reporting entity's financial statements to be misleading or incomplete.
C. any organization for which records are kept by the primary government.
D. the primary government.

Answer: C

Explanation:
A governmental financial reporting entity includes:
The primary government
Legally separate organizations for which the primary government is financially accountable Other organizations whose exclusion would render the financial statements misleading or incomplete (per GASB Statement No. 14 and No. 61) Merely keeping records for an organization does not make it part of the financial reporting entity unless there is financial accountability or a significant relationship.
Relevant References:
GASB Statement No. 14 - The Financial Reporting Entity
GASB Statement No. 61 - Omnibus Amendments to GASB No. 14
GASB Codification Section 2100 - Reporting Entity
B). any organization for which records are kept by the primary government
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NEW QUESTION # 93
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