image

The AICPA offers a free, daily, e-mailed newsletter covring the day’stop business and financial articles as well as video content, research and analysis concerning CPAs and those who work with the accounting profession. Visit the CPA Letter Daily news box on the www.aicpa.org home page to sign up. You can opt out at any time, and only the AICPA can use your e-mail address or personal information.

Have a technical accounting or auditing question? So did 23,000 other professionals who contacted the AICPA’s accounting and auditing Technical Hotline last year. The objectives of the hotline are to enhance members’ knowledge and application of professional judgment by providing free, prompt, high-quality technical assistance by phone concerning issues related to: accounting principles and financial reporting; auditing, attestation, compilation and review standards. The team extends this technical assistance to representatives of governmental units. The hotline can be reached at 1-877-242-7212.

SOLUTIONS

CHAPTER 1

Practice Question Solutions

  1. d.
  2. b.
  3. d.
  4. d.
  5. c.
  6. d.

Solutions to Knowledge Check Questions

1.    


  1. Correct. The state and local government environment is different in a number of ways from business and these differences influence financial reporting objectives.
  2. Incorrect. Many governments' resources come from taxes.
  3. Incorrect. The organizational purpose of a government is different from a business.
  4. Incorrect. The legal structure of a government is different from a business.

2.    


  1. Incorrect. Governments have the ability to tax and, therefore, rarely go out of business.
  2. Incorrect. A difference between government and business is how resources are provided.
  3. Correct. Governments are accountable to citizens and taxpayers and must provide them information on how financial resources are used.
  4. Incorrect. Governments are accountable to citizens.

3.    


  1. Correct. To meet one of the financial reporting objectives, governments must be able to compare actual financial results with the legally adopted budget.
  2. Incorrect. Budgets are often recorded in the accounting system.
  3. Incorrect. Budgets represent much more than a plan for a government.
  4. Incorrect. Budgets are legally binding.

4.    


  1. Correct. A grant or other restricted revenue source may require the use of a separate fund.
  2. Incorrect. A government may start a new activity that it wants to track separately.
  3. Incorrect. The governing board may create a new fund at any time during the year.
  4. Incorrect. A new accounting standard could cause the government to create a new fund.

5.    


  1. Correct. Investment trust funds are used to account for the external portion of investment pools reported by sponsoring governments.
  2. Incorrect. Private purpose trust funds are fiduciary funds.
  3. Incorrect. Agency funds are used to account for resources held by the government in a purely custodial capacity.
  4. Incorrect. An other employee benefit trust fund is one of the categories of fiduciary funds.

    CHAPTER 2

    Practice Question Solutions

    1. d.
    2. c.
    3. d.
    4. b.
    5. d.
    6. a.

    Solutions to Knowledge Check Questions

    1.    


    1. Correct. Governmental funds use a flow of current financial resources measurement focus and modified accrual accounting basis.
    2. Incorrect. Governments do use certain unique terminology to describe their activities and balances.
    3. Incorrect. Under the modified accrual basis of accounting, revenue is recognized when it meets two conditions: measurable and availability.
    4. Incorrect. Governmental funds and enterprise funds use a different measurement focus.

    2.    


    1. Incorrect. Both proprietary funds and governmental funds use a measurement focus.
    2. Incorrect. Proprietary funds would account for current and noncurrent assets and liabilities.
    3. Correct. The financial statements measure whether the economic resources have increased or decreased for the accounting period.
    4. Incorrect. Proprietary funds use a flow of economic resources measurement focus.

    3.    


    1. Incorrect. Governmental funds will recognize transactions using one basis of accounting, whereas proprietary funds will use another.
    2. Incorrect. The basis of accounting used by governments is linked directly with the measurement focus.
    3. Correct. Basis of accounting is concerned with when a transaction or event is recognized in the accounting system.
    4. Incorrect. Special purpose framework bases of accounting are only used by governments in certain circumstances.

    4.    


    1. Correct. Governmental funds use the modified accrual basis of accounting.
    2. Incorrect. For an item to be measured as revenue it must meet two conditions.
    3. Incorrect. Governmental funds do not use the cash basis of accounting.
    4. Incorrect. Revenue must be collected during the year or soon enough after the year-end to pay liabilities of the current period.

      CHAPTER 3

      Practice Question Solutions

      1. a.
      2. b.
      3. d.
      4. a.
      5. c.
      6. c.
      7. c.
      8. d.

      Solutions to Knowledge Check Questions

      1.    


      1. Correct. Governmental funds receive revenues from a variety of sources.
      2. Incorrect. Normally, two of the largest revenue sources for governmental funds are taxes and intergovernmental revenue.
      3. Incorrect. Governments report revenues by major source.
      4. Incorrect. Revenues can be exchange, exchange-like or nonexchange transactions.

      2.    


      1. Correct. GASB Statement 33 provides guidance on recognizing both receivables and revenues for nonexchange transactions.
      2. Incorrect. Sales taxes are a type of derived tax revenue.
      3. Incorrect. Nonexchange transactions are transactions that do not involve an exchange of value.
      4. Incorrect. Property taxes are a type of imposed nonexchange revenue.

      3.    


      1. Incorrect. The purchase of capital assets and payment of debt principal are recorded as expenditures.
      2. Correct. Expenditures are recognized in the period the fund liability is incurred.
      3. Incorrect. Governments should report expenditures by major function and major character.
      4. Incorrect. The net pension liability is not reported in governmental funds, but in the government-wide statements.

      CHAPTER 4

      Practice Question Solutions

      1. d.
      2. b.
      3. d.
      4. a.
      5. d.
      6. d.
      7. b.
      8. d.

      Solutions to Knowledge Check Questions

      1.    


      1. Correct. It is based on currently known facts, decisions, and conditions and must discuss both positive and negative aspects of the current-year activity.
      2. Incorrect. Any information presented for a component unit should be clearly distinguished from that of the primary government.
      3. Incorrect. MD&A should be presented before the basic financial statements.
      4. Incorrect. Auditors do not express an opinion or provide any assurance on the information.

      2.    


      1. Correct. When a government uses the modified approach for certain networks or subsystems of infrastructure, certain information must be disclosed as part of RSI.
      2. Incorrect. RSI requirements exist related to pensions and OPEB.
      3. Incorrect. The MD&A is presented before the basic financial statements. Other RSI is presented after the basic financial statements.
      4. Incorrect. Governments have the option to present budget to actual comparisons as a basic financial statement or present the information as part of RSI.

      3.    


      1. Correct. Reporting by major funds only applies to governmental funds and enterprise funds.
      2. Incorrect. The general fund is always a major fund.
      3. Incorrect. The major fund approach allows the user to focus on the most important funds of a government.
      4. Incorrect. A government can make any governmental or enterprise fund major if it believes the fund is important to financial statement users.

      4.    


      1. Incorrect. There are two different methods, blending and discrete presentation.
      2. Incorrect. In essence, a blended component unit appears just as another fund in the financial statements of the primary government.
      3. Correct. Once an entity has been determined to be a component unit of the primary government, the next decision is how it should be reported in the financial statements.
      4. Incorrect. Component units can be aggregated into one column and details shown in the notes to the financial statements.

        CHAPTER 5

        Solutions to Knowledge Check Questions

        1.    


        1. Incorrect. The fund financial statements are used to address fiscal accountability.
        2. Incorrect. Government-wide statements were created with the advent of GASB Statement No. 34.
        3. Correct. The purpose of the government-wide financial statements is to demonstrate operational accountability—to provide information on the results of operations and the financial condition of the overall government.
        4. Incorrect. The government-wide financial statements start with the funds statements and converts them to the economic resource measurement focus or accrual basis of accounting.

        2.    


        1. Correct. To meet the goal of providing operational accountability, the government-wide statements use the flow of economic resources measurement focus and accrual accounting to report all activities.
        2. Incorrect. These statements are more than just a summary of the information in the fund financial statements.
        3. Incorrect. Fiduciary funds and fiduciary component units are excluded from the government-wide statements because these resources are not available to support the government's programs.
        4. Incorrect. Deferred inflows of resources and deferred outflows of resources are a component of the government-wide financial statements.

        3.    


        1. Correct. The statement of net position is similar to a balance sheet in that it reports assets, deferred outflows of resources, liabilities, deferred inflows of resources, and net position for the government.
        2. Incorrect. The difference between (assets + deferred outflow of resources) and (liabilities + deferred inflows of resources) should be reported as net position.
        3. Incorrect. Net position is divided into three components.
        4. Incorrect. Net position is comprised of net investment in capital assets, restricted and unrestricted.

        4.    


        1. Incorrect. The Government Finance Officers Association (GFOA) provides guidance on what information should be included in the CAFR.
        2. Incorrect. The statistical section of the CAFR provides information that is useful in evaluating the economic condition of a government.
        3. Correct. The CAFR provides a variety of additional information outside the audited financial statements that is useful in assessing a government's performance and financial condition.
        4. Incorrect. The certificate of achievement for excellence in financial reporting program is administered by the GFOA (Government Finance Officers Association).

        CHAPTER 6

        Practice Question Solutions

        1. d.
        2. b.
        3. Special-purpose governments engaged in only governmental activities that have more than one program are required to produce both fund financial statements and government-wide statements. However, if they only have one program, they can combine the fund financial statements and government-wide statements using a columnar format or they can present separate fund financial statements and government-wide statements. When they present separate statements, they can use a different format to report the statement of activities. Requirements also would include MD&A, notes, and RSI.
        4. For a special-purpose government engaged in only business-type activities, the reporting requirements would include an MD&A, the fund financial statements required for an enterprise fund, notes to the financial statements, and RSI if applicable.

        Solutions to Knowledge Check Questions

        1.    


        1. Correct. Special-purpose governments that are engaged in more than one program or that have both governmental and business-type activities should produce both fund financial statements and government-wide financial statements.
        2. Incorrect. Some special-purpose governments do not report government-wide statements.
        3. Incorrect. For special purpose governments only engaged in a single program or only in a business-type or fiduciary activity, different financial statements are appropriate.
        4. Incorrect. A special-purpose government can engage in other types of activity.

        2.    


        1. Incorrect. Some special-purpose governments are engaged in only business-type activities.
        2. Incorrect. Special-purpose governments engaged in only business-type activities report the fund financial statements required for enterprise funds.
        3. Correct. Some special-purpose governments are only engaged in fiduciary activities, for example, pension plans.
        4. Incorrect. A special-purpose government can engage in any type of activity.

        3.    


        1. Incorrect. The cash basis of accounting is a special purpose framework used to record cash receipts and disbursements (commonly referred to as pure cash basis), and modifications of the cash basis having substantial support, such as recording depreciation on capital assets (referred to as modified cash basis).
        2. Incorrect. The contractual basis is a special purpose framework used to comply with an agreement between the entity and one or more third parties other than the auditor.
        3. Correct. GAAP basis, by definition, is not a special purpose framework.
        4. Incorrect. The budgetary basis is a special purpose framework used to comply with specifics of regulatory agencies.

        4.    


        1. Incorrect. AU-C section 700 addresses the auditor's responsibility to form an opinion on the financial statements.
        2. Incorrect. AU-C section 725 addresses the auditor's responsibility when engaged to report on whether supplementary information is fairly stated, in all material respects, in relation to the financial statements as a whole.
        3. Correct. AU-C section 800 is applicable for adequacy of presentation and disclosure for special purpose financial statements.
        4. Incorrect. AU-C section 925 is applicable for filings with the U.S. Securities and Exchange Commission under the Securities Act of 1933.

        5.    


        1. Correct. AU-C section 700 requires reference to management's responsibility for determining the applicable financial reporting framework is acceptable in the circumstances where there is a choice of financial reporting frameworks.
        2. Incorrect. A description of the purpose for which the financial statements are prepared either in the report or a note referenced in the report is only required for regulatory or contractual basis financial statements.
        3. Incorrect. An other matter paragraph that restricts the use of the report to the specified intended users is required only for regulatory or contractual basis financial statements that are intended solely for a specific use.
        4. Incorrect. There is not a scope limitation or departure from the specified standards.

          CHAPTER 7

          Solutions to Knowledge Check Questions

          1.    


          1. Incorrect. According to AU-C section 320, planning materiality is applicable to audits of state and local governmental audits.
          2. Correct. Auditors express an audit opinion on opinion units and therefore need to calculate materiality for each applicable opinion unit.
          3. Incorrect. Considering quantitative and qualitative factors is not unique to state and local government materiality determination.
          4. Incorrect. Government-wide financial statements are just one materiality calculation.

          2.    


          1. Correct. These are always required as they are material and others may be required depending on the structure of the government.
          2. Incorrect. Internal service funds are included with aggregate remaining fund information.
          3. Incorrect. Fiduciary funds are included with aggregate remaining fund information.
          4. Incorrect. Materiality calculations are required only for the aggregate discretely-presented component units.

          3.    


          1. Incorrect. The reconciliations do not relate directly to the fund financial statements and should not be considered in conjunction with those statements.
          2. Correct. The reconciliations relate to the government-wide statements and should be considered in conjunction with those statements.
          3. Incorrect. The reconciliations do not relate to the aggregate remaining funds and these funds should not be considered for materiality.
          4. Incorrect. Each major component should not be used.

          4.    


          1. Incorrect. Going concern looks to the future.
          2. Incorrect. The report date is not applicable when evaluating going concern.
          3. Correct. Going concern is considered for at least 12 months beyond the financial statement date but may extend beyond 12 months if information is known to the government that may raise substantial doubt shortly after this 12-month period (for example, an additional three months).
          4. Incorrect. The measurement date of investments is not applicable when evaluating going concern.

          5.    


          1. Incorrect. Disclosure in the basic financial statements of a governmental entity related to the entities ability to continue as a going concern does not belong to the auditor.
          2. Correct. Disclosure in the basic financial statements of a governmental entity related to the entities ability to continue as a going concern belongs to management.
          3. Incorrect. Disclosure in the basic financial statements of a governmental entity related to the entity's ability to continue as a going concern is not the responsibility of the employees of a government.
          4. Incorrect. Disclosure in the basic financial statements of a governmental entity related to the entities ability to continue as a going concern does not belong to the citizenry.

          6.    


          1. Incorrect. Default on bonds is only one of many indicators.
          2. Incorrect. Recurring losses is only one of many indicators.
          3. Incorrect. Loss of largest employer in the city is only one of many indicators.
          4. Correct. A decrease in net position for the year does not necessarily cause substantial doubt about an entity's ability to continue as a going concern.

          CHAPTER 8

          Solutions to Knowledge Check Questions

          1.    


          1. Incorrect. AU-C section 600 is applicable when a government entity has an equity method investment.
          2. Incorrect. The auditor of a governmental entity should consider whether AU-C section 600 is applicable to any audit performed. By definition, a group audit requires the primary government reporting unit and at least one component. If a group audit situation exists, the group auditor should determine whether other auditors (component auditor(s)) exist and whether to use or reference the work of a component auditor (where applicable).
          3. Correct. The decision tree within the chapter walks through when AU-C section 600 is and is not applicable.
          4. Incorrect. AU-C section 600 would be applicable if the group auditor assumed responsibility for the component financial statements.

          2.    


          1. Correct. The group auditor may make reference to a component auditor only if explicit permission is obtained from that auditor.
          2. Incorrect. The group auditor may make reference only to a component auditor if the group auditor's understanding is that the component auditor is professionally competent and independent.
          3. Incorrect. Reference to the component auditor should not be made if the component auditor's report is restricted as to use.
          4. Incorrect. Since the component auditor is not subject to peer review the group auditor normally would take responsibility.

          3.    


          1. Incorrect. Management can request the component to evaluate subsequent events for the component.
          2. Incorrect. The group auditor is not responsible for evaluating subsequent events.
          3. Correct. Management of the group is responsible for evaluating subsequent events.
          4. Incorrect. The audit committee would be not responsible to evaluate subsequent events.

          CHAPTER 9

          Solutions to Knowledge Check Questions

          1.    


          1. Incorrect. AU-C section 730 addresses the auditor's responsibility with respect to required supplementary information.
          2. Correct. AU-C section 725 applies when the required conditions have been met, and the auditor has been engaged to provide an “in relation to” opinion on the supplementary information.
          3. Incorrect. If the auditor is not engaged to issue an “in relation to” opinion under AU-C section 725 on the “GASB defined” SI, then AU-C section 720 applies.
          4. Incorrect. AU-C section 900 relates to Special Consideration in the United States.

          2.    


          1. Incorrect. Reading OI of which the auditor is aware for material inconsistencies is required. When the auditor identifies a material inconsistency in OI that requires revision of the audited basic financial statements, the auditor requirements depend upon when the material inconsistency was identified and management's actions.
          2. Incorrect. The auditor is also required to communicate procedures performed relating to the OI and the results.
          3. Correct. Opining on OI in the auditor's report is not required unless the auditor is specifically engaged to do so.
          4. Incorrect. The auditor is required to compare the OI information to the financial statement and investigate any inconsistencies.

          CHAPTER 10

          Solutions to Knowledge Check Questions

          1.    


          1. Incorrect. GASB Statement No. 67 relates to defined contribution plans too.
          2. Incorrect. GASB Statement No. 67 relates to defined benefit plans too.
          3. Correct. GASB Statement No. 67 relates to both defined benefit and defined contribution plans but only those administered through trusts or equivalent arrangements that meet certain criteria.
          4. Incorrect. GASB Statement No. 67 relates to defined benefit and defined contribution plans administered through trusts or equivalent arrangements, not all government pension plans.

          2.    


          1. Incorrect. GASB Statement No. 68 also affects local governments.
          2. Incorrect. GASB Statement No. 68 also affects state governments.
          3. Correct. GASB Statement No. 68 affects both state and local governments.
          4. Incorrect. GASB Statement No. 67 affects reporting by state and local government pension plans.

          3.    


          1. Correct. GASB 67 specifies that governmental pension plans can record a receivable only when the amount is due pursuant to legal requirements.
          2. Incorrect. The plan cannot record a receivable just because the government intends to make the payment.
          3. Incorrect. The receivable cannot be recorded based only on past practice.
          4. Incorrect. The receivable cannot be recorded based only on federal guidelines.

          4.    


          1. Incorrect. GASB Statement No.74 also affects local governments.
          2. Incorrect. GASB Statement No. 74 also affects state governments.
          3. Correct. GASB Statement No. 74 affects reporting by both state and local governments.
          4. Incorrect. GASB Statement No. 74 affects reporting by state and local governments related to OPEB plans.

          CHAPTER 11

          Exercise 11-1

          Solution

          What Cost Principles Apply to this Award?
          Federal Award Funding Period Cost Principles Applicable to Award
          Circulars Uniform Guidance
          07/01/17 - 06/30/18 ✓
          Funding increment action dated 09/01/17 based on award with original award date of 09/01/14 (award terms and conditions modified) ✓
          Funding increment action dated 10/01/17 based on award with original award date of 10/01/14 (no change to award terms and conditions) ✓

          Solutions to Knowledge Check Questions

          1.    


          1. Incorrect. The Uniform Guidance contains Subpart B, General Provisions.
          2. Incorrect. The Uniform Guidance contains Subpart D, Post Federal Award Requirements.
          3. Correct. The Uniform Guidance does not contain a Subpart G, Hospital Cost Principles. (Hospital cost principles have not yet been revised.)
          4. Incorrect. The Uniform Guidance contains Subpart E, Cost Principles.

          2.    


          1. Incorrect. A nonfederal entity that expends $750,000 or more during the entity's fiscal year is required to have a single audit. $500,000 was the threshold under Circular A-133.
          2. Incorrect. A nonfederal entity that expends $750,000 or more during the entity's fiscal year is required to have a single audit.
          3. Correct. A nonfederal entity that expends $750,000 or more during the entity's fiscal year is required to have a single audit.
          4. Incorrect. A nonfederal entity that expends $750,000 or more during the entity's fiscal year is required to have a single audit.

          3.    


          1. Incorrect. A nonfederal entity should be in compliance with either the Green Book or COSO.
          2. Correct. A nonfederal entity should be in compliance with either the Green Book or COSO.
          3. Incorrect. A nonfederal entity should be in compliance with either the Green Book or COSO.
          4. Incorrect. A nonfederal entity should be in compliance with either the Green Book or COSO.
          ..................Content has been hidden....................

          You can't read the all page of ebook, please click here login for view all page.
          Reset