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AGA Examination 3: Governmental Financial Management and Control (GFMC) Sample Questions (Q21-Q26):

NEW QUESTION # 21
The Parking Fund for a government entity has the following information in its Statement of Net Position.
Calculate the current ratio.
Total current assets$1,320
Total non-current assets$8,100
Total assets$9,420
Total current liabilities$ 810
Total non-current liabilities$ 360
Total liabilities$1,170
Total net position$8,250

A. 0.98
B. 1.63
C. 1.14
D. 0.61

Answer: B

Explanation:
What Is the Current Ratio?
* Thecurrent ratiomeasures an entity's ability to cover its short-term liabilities with its short-term assets.
The formula is: Current Ratio=Total Current AssetsTotal Current Liabilities ext{Current Ratio} = rac
{ ext{Total Current Assets}}{ ext{Total Current Liabilities}}
Current Ratio=Total Current LiabilitiesTotal Current Assets
Calculation:
* Total Current Assets = $1,320
* Total Current Liabilities = $810
Current Ratio=1,320810 ext{Current Ratio} = rac{1,320}{810}Current Ratio=8101,320 Current Ratio#1.
63 ext{Current Ratio} # 1.63Current Ratio#1.63
Why the Current Ratio Matters:
* A current ratio above 1 indicates that the entity has more current assets than current liabilities, suggesting good short-term liquidity.
Why Other Options Are Incorrect:
* A. 0.61, B. 0.98, C. 1.14:These values result from incorrect calculations or misinterpretations of the formula.
References and Documents:
* GAO Financial Analysis Guide:Provides guidance on using the current ratio to assess liquidity.
* GASB Financial Reporting Requirements:Highlights the importance of liquidity measures in government financial statements.

NEW QUESTION # 22
What is the basis for determining materiality for financial audits?

A. The entity's main provider of resources typically sets materiality levels for financial reporting.
B. The auditor establishes materiality based on whether a misstatement would influence the judgement made by a reasonable user of the financial statements.
C. The auditee determines what is material based on their understanding of how the financial statements may be used by third parties.
D. The auditor sets a standard percentage for all entities by transaction class.

Answer: B

Explanation:
* Definition of Materiality:
* In financial audits, materiality is the threshold above which a misstatement or omission could influence the economic decisions of users of financial statements.
* Auditors consider theneeds of reasonable userswhen determining materiality, focusing on what would influence their decision-making.
* Explanation of Answer Choices:
* A. The auditee determines what is material: Incorrect. The auditor, not the auditee, is responsible for determining materiality.
* B. The auditor establishes materiality based on whether a misstatement would influence the judgment made by a reasonable user of the financial statements: Correct. This aligns with auditing standards, such as those in the Yellow Book and AICPA guidance.
* C. The entity's main provider of resources typically sets materiality levels: Incorrect.
Materiality is not determined by resource providers but by the auditor based on the needs of users.
* D. The auditor sets a standard percentage for all entities by transaction class: Incorrect.
Materiality varies depending on the entity and its financial circumstances.
:
GAO,Government Auditing Standards (Yellow Book).
AICPA,Auditing Standards - Materiality in Planning and Performing an Audit.

NEW QUESTION # 23
In addition to the Yellow Book, which group's external audit standards can the GAO reference?

A. Public Company Accounting Oversight Board
B. AICPA
C. International Auditing and Assurance Standards Board.
D. International Organization of Supreme Audit Institutions

Answer: D

Explanation:
* GAO and External Audit Standards:The Government Accountability Office (GAO) uses the Yellow Book as its primary standard. However, it may also reference external standards from recognized international and professional auditing organizations. INTOSAI is specifically mentioned in the Yellow Book as a source of additional standards for governmental audits.
* Explanation of Answer Choices:
* A. Public Company Accounting Oversight Board (PCAOB): This regulates audits of publicly traded companies, not government entities.
* B. International Auditing and Assurance Standards Board (IAASB): This focuses on global private-sector audits, not specifically government-related.
* C. International Organization of Supreme Audit Institutions (INTOSAI): Correct. INTOSAI sets audit standards for public-sector auditors worldwide and is relevant for the GAO.
* D. AICPA: While the AICPA sets standards for U.S. auditors, INTOSAI is more relevant for international public-sector audits.
:
GAO,Government Auditing Standards (Yellow Book).
INTOSAI,Framework of Professional Standards for Supreme Audit Institutions.

NEW QUESTION # 24
If a state treasurer wants to evaluate a variety of alternative long-term investments, which financial analysis should be used?

A. regression analysis
B. ratio analysis
C. horizontal analysis
D. net present value analysis

Answer: D

Explanation:
What Is Net Present Value (NPV)?
* NPV analysisevaluates the profitability of long-term investments by calculating the present value of expected cash inflows and outflows over time, discounted at a specified rate (e.g., the opportunity cost of capital).
* It helps decision-makers compare investment options by quantifying their value in today's dollars.
Why NPV Is Appropriate for Long-Term Investments:
* It considers thetime value of money(a dollar today is worth more than a dollar in the future).
* NPV helps the treasurer evaluate and prioritize investments based on their overall profitability and financial impact over the long term.
Why Other Options Are Incorrect:
* B. Regression Analysis:This statistical method analyzes relationships between variables but is not commonly used for evaluating long-term investments.
* C. Horizontal Analysis:Focuses on financial data changes over time (e.g., year-to-year comparisons), not investment decisions.
* D. Ratio Analysis:Measures financial performance but does not evaluate the profitability of long-term investment alternatives.
References and Documents:
* GAO Guide on Investment Decision-Making:Recommends using NPV for evaluating long-term projects and investments.
* OMB Circular A-94:Provides guidelines for using NPV in benefit-cost analysis of federal investments.

NEW QUESTION # 25
A governmental attestation engagement may include a requirement to

A. establish a policy concerning fraud prevention.
B. monitor purchasing card charges for compliance with travel policies.
C. review the revenue coverage requirements on outstanding bonds.
D. monitor a subgrantee for compliance to the grant restrictions.

Answer: C

Explanation:
* Governmental Attestation Engagements:
* These engagements involve providing assurance on specific elements of financial or non- financial information, such as compliance with laws, contracts, or bond covenants.
* Reviewing revenue coverage requirements for outstanding bonds fits the scope of attestation engagements, which focus on confirming adherence to specific requirements.
* Explanation of Answer Choices:
* A. Monitor a subgrantee for compliance to the grant restrictions: Monitoring is a management responsibility, not typically part of an attestation engagement.
* B. Establish a policy concerning fraud prevention: Establishing policies is a management duty, not a task for auditors.
* C. Monitor purchasing card charges for compliance with travel policies: Monitoring is operational, not attestation-related.
* D. Review the revenue coverage requirements on outstanding bonds: Correct. This falls within the scope of attestation engagements.
:
GAO,Government Auditing Standards (Yellow Book).
AICPA,Attestation Standards for Government Engagements.

NEW QUESTION # 26
......

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Christopher Evans Christopher Evans

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