Chapter 2 & 3 Flashcards
The principle that a local government possesses only those powers that are expressly granted to it by the state, or that are otherwise indispensable to its continued existence and functioning, is known as:
A. Home rule
B. Dillon’s Rule
C. Comity of powers
D. Federalism
The term Dillon’s Rule is used to describe the legal notion that local governments possess only those powers that are expressly granted to them by the state, or that are otherwise indispensable to their continued existence and functioning. The notion of home rule implies additional powers. [Correct response = B]
There are two basic categories of local government. On that basis, which of the following does not belong with the others?
A. Township
B. Utility
C. Municipality
D. County
It is common to distinguish general purpose governments from special purpose governments. Townships, municipalities, and counties are all examples of the former, whereas a utility is an example of the latter. [Correct response = B]
The key differences between accounting and financial reporting for businesses and accounting and financial reporting for state and local governments are primarily attributable to:
A. Differences in environment
B. Differences in standard-setting
C. Differences in law
D. Differences in accounting theory
Environmental differences (the absence of a profit motive, a heightened focus on stewardship, the unique role played by the budget in the public sector) explain the most prominent features that distinguish state and local government accounting and financial reporting from accounting and financial reporting for private-sector business enterprises. [Correct response = A]
Which of the following statements is true concerning the relationship between revenues earned and related costs?
A. It is of most interest to a business.
B. It is of most interest to a government.
C. It is of equal interest to both.
Businesses focus primarily on whether revenues earned in a given period were sufficient to cover related costs, whereas state and local governments, in the absence of a profit motive, tend to concentrate instead on near-term liquidity. [Correct response = A]
Which of the following statements is true concerning the relationship between revenue generation and the provision of goods and services?
A. The relationship is more direct for a business.
B. The relationship is more direct for a government.
C. The relationship is essentially the same for both
In a business setting, there typically is a discernible relationship between what an individual pays and what that same individual receives. The relationship between what a given citizen pays in taxes and the specific services that same citizen receives from the government is much less direct. For example, individuals without children are still expected to pay taxes to support public schools. [Correct response = A]
Which of the following is a tool used by state and local governments to help assess stewardship and compliance?
A. Consolidation
B. Aggregation
C. Fund accounting
D. Cost accounting
A “big picture” approach normally is insufficient for assessing stewardship and compliance. Rather, a tool is needed for organizing and presenting data about financial resources in a manner that highlights the fact that certain resources have been “segregated for the purpose of carrying on specific activities or attaining certain objectives in accordance with special regulations, restrictions, or limitations.” For state and local governments, that tool is fund accounting. [Correct response = C]
Which of the following statements is true concerning the presentation of budgetary comparisons in connection with financial statements?
A. It is required for state and local governments.
B. It is required for businesses.
C. Both A and B
D. Neither A nor B
The budget of a private-sector business is essentially a managerial tool of no direct concern to users of external financial reports. In contrast, the budget of a state or local government typically has the force of law and, therefore, is of concern to those interested in compliance with finance-related legal provisions. Accordingly, budgetary comparisons are required in connection with most state or local government financial statements, whereas no budgetary comparison is presented in connection with the basic financial statements of a private-sector business. [Correct response = A]
Which of the following statements is true regarding measurement focus?
A. Government financial statements always use the same measurement focus as private-sector businesses.
B. Government financial statements sometimes use the same measurement focus as private-sector businesses.
C. Government financial statements never use the same measurement focus as private-sector businesses
Government financial statements use multiple measurement focuses, based on the activities being reported. For government operations that function like a private enterprise, governments use the same measurement focus as a private business. For other activities, governments use a different measurement focus. [Correct response = B]
Which class of governments offer a wide range of services?
General purpose governments.
True or false, governments focus on whether revenues earned were sufficient to cover related costs, whereas businesses focus on whether inflows were sufficient to cover outflows.
False - governments are concerned about near-term liquidity and the whether their inflows are sufficient to cover their outflows.
Why do governments use fund accounting?
To assess stewardship and compliance.
GAAP provide authoritative guidance for which of the following?
A. Internal financial reporting
B. Special purpose external financial reporting
C. General purpose external financial reporting
D. All of the above
Managers typically determine the format and contents of internal financial reports. Similarly, the format and contents of special purpose external financial reports normally are set by their intended recipients. GAAP are designed to provide authoritative guidance on the format and contents of general purpose external financial reports. [Correct response = C
Which of the following is not properly considered to be a primary user of state and local government financial statements?
A. Investors and creditors
B. Managers
C. Legislative and oversight bodies
D. None of the above
The term primary user is employed in the context of accounting standards to describe someone who has to rely on general purpose external financial reports. Thus management, which has direct access to financial information, is not a primary user. [Correct response = B]
Which of the following is always issued as part of the GASB’s due process?
A. Invitation to comment (ITC)
B. Discussion memorandum (DM)
C. Preliminary views (PV)
D. None of the above
The GASB is required to issue an ED of a proposed standard. The issuance of other types of due-process documents remains at the discretion of the GASB. [Correct response = D
Which of the following has the highest status on the GAAP hierarchy for state and local governments?
A. NCGA statement
B. GASB implementation guide
C. AICPA statement of position specific to government and cleared by the GASB
D. AICPA issues paper
The highest status on the GAAP hierarchy is reserved for statements and interpretations of the GASB and of its predecessor, the NCGA. [Correct response = A]
