Essentials of Accounting for Governmental and Not for Profit Organizations (Irwin Accounting) 12th Edition by Paul Copley Test Bank

<< Essentials of Anatomy 6e Scanlon Sanders Test bank Essentials of Business Communication 8th EDITION by Mary Ellen Guffey test bank >>
Product Code: 222
Availability: In Stock
Price: $24.99
Qty:     - OR -   Add to Wish List
Add to Compare

Essentials of Accounting for Governmental and Not for Profit Organizations (Irwin Accounting) 12th Edition by Paul Copley Test Bank

Description

Chapter 13 Auditing, Tax-exempt Organizations, and Evaluating Performance

True/False Questions

Government Auditing

1. The Single Audit Act is intended to provide assurance to the federal government that federal funds have been expended in accordance with laws and regulations, but does not include a report on internal controls.

Answer: False

2. Entities that expend $500,000 or less of federal funds are generally required to have a single audit.

Answer: False

3. The Single Audit Act is intended to provide assurance to the federal government that federal funds are protected through a system of internal controls and sound financial management practices.

Answer: True

4. The Sarbanes Oxley Act is intended to improve corporate governance and limit the services accounting firms may provide to their audit clients.

Answer: True

5. Governmental Auditing Standards identifies four categories of professional engagements: financial audits, performance audits, attestation engagements, and non-audit services.

Answer: True

6. The use of opinion units allows an auditor to issue different opinions on different statements, instead of issuing a single opinion.

Answer: True

7. Governmental attestation engagements must comply with both the Government Auditing Standards and with the AICPAs attestation standards.

Answer: True

8. Governmental attestation engagements must comply with the Government Auditing Standards but are exempt from compliance with the AICPAs attestation standards.

Answer: False

9. The Government Accounting Standards Board has authority for issuing Governmental Auditing Standards, but not auditing standards for private companies and not-for-profits.

Answer: False

10. The Government Accountability Office has authority for issuing Generally Accepted Auditing Standards.

Answer: False

11. Governments and other nonprofits receiving federal funds follow Governmental Auditing Standards and do not have to comply with AICPA Statements of Auditing Standards.

Answer: False

12. If a government failed to report infrastructure assets, the auditor would have to express an adverse opinion on the fund level financial statements.

Answer: False

13. While the principal users of corporate audit reports are investors and creditors, the main user of Single Audit reports is the federal government.

Answer: True

14. The purpose of audits conducted under the Single Audit Act is to provide assurance that federal and state funds are expended in accordance with grant agreements, and with financial management and other standards promulgated by the federal government.

Answer: True

15. The single audit requirements apply only to state and local governments. Private not-for-profits do not have to comply with these requirements, even if they receive federal grants.

Answer: False

16. While the Sarbanes-Oxley Act applies to corporations filing with the Securities and Exchange Commission, several provisions of the Act already existed in governmental auditing standards and now are also mandated for not-for-profit organizations.

Answer: False

17. In a governmental audit the auditor is required to report directly to appropriate officials in addition to the board or audit committee.

Answer: True

18. In a governmental audit the auditor is only required to report to the board or audit committee.

Answer: False

19. Government financial audits are subject only to GAGAS.

Answer: False

20. Assuming an auditee is considered low-risk, the auditor is required to express an opinion on compliance on major programs, which must add up to 50 percent of federal funds expended by the auditee.

Answer: False

21. Assuming an auditee is considered low-risk, the auditor is required to express an opinion on compliance on major programs, which must add up to 25 percent of federal funds expended by the auditee.

Answer: True

22. Assuming an auditee is not considered low-risk, the auditor is required to express an opinion on compliance on major programs, which must add up to 50 percent of federal funds expended by the auditee.

Answer: True

23. Assuming an auditee is not considered low-risk, the auditor is required to express an opinion on compliance on major programs, which must add up to 90 percent of federal funds expended by the auditee.

Answer: False

24. Governmental Audit Reports are due five months after the end of the fiscal year.

Answer: False

25. A disclaimer of opinion is the appropriate audit opinion when the auditor is not independent.

Answer: True

26. In a disclaimer of opinion, the auditor states that no opinion is being expressed.

Answer: True

Tax-Exempt Organizations
27. The classification of Net Assets for tax-exempt organizations are consistent with FASB standards for not-for-profit organizations.

Answer: True

28. The Taxpayer Bill of Rights requires tax-exempt organizations to provide copies, upon request, of the three most recent annual form 990s.

Answer: True

29. Churches must file a Form 990.

Answer: False

30. Beginning in 2012, entities that are tax-exempt under IRS Section 501(c)(3) with gross receipts less than $75,000 may file Form 990-N (electronic postcard).

Answer: False

31. Entities that are tax-exempt under IRS Section 501(c)(3) with gross receipts less than $500,000 may file Form 990-N (electronic postcard).

Answer: False

32. Entities that are tax-exempt under IRS Section 501(c)(3) with gross receipts less than $ 500,000 and total assets less than $ 2.5 million may file Form 990-EZ

Answer: True

33. Tax-exempt organizations are required to disclose the compensation of its officers, directors, trustees, highest paid employees and independent contractors in the Form 990.

Answer: True

34. Tax-exempt organizations are required to pay tax at the corporate or trust rate on the income generated from any trade or business activities unrelated to the entitys tax-exempt purposes.

Answer: True

35. Tax-exempt organizations are required to pay tax at the corporate or trust rate on the income generated from any trade or business activities unrelated to the entitys tax exempt purpose.

Answer: True

36. Entities that are tax-exempt under Section 501(c)(3) of the Internal Revenue Code do not have to pay income taxes, even if some of their activities compete with commercial enterprises.

Answer: False

37. The purpose of the Unrelated Business Income Tax is to eliminate advantages that tax-exempt organizations have over commercial enterprises providing goods or services for sale.

Answer: True

38. Unrelated Business Income Tax is an excise tax, applied to the gross receipts of a business activity. Therefore allocations of expenses incurred in generating the income are irrelevant.

Answer: False

39. If a tax-exempt organization is found by the IRS to have paid unreasonable benefits, the individual must pay a tax penalty of 25% of the excess benefit and the individuals who approved the benefits must pay a 10% penalty.

Answer: True

40. Entities that are tax-exempt under IRS Section 501(c)(3) are prohibited from having surpluses (revenues exceed expenses).

Answer: False

41. Entities that are tax-exempt under IRS Section 501(c)(3) are permitted to endorse political candidates or attempt to influence legislation.

Answer: False

42. When computing Unrelated Business Income Tax, charities are permitted to deduct ordinary and necessary business related expenses and the first $1,000 of income is not taxed.

Answer: True

43. Section 501(c)(3), exempt organizations are prohibited from supporting political candidates or campaigning to influence legislation.

Answer: True

44. To apply for tax-exempt status, an organization must complete an IRS Form 1023.

Answer: True

45. Tax-exempt entities are not allowed to make contributions to political campaigns or they may lose their tax-exempt status.

Answer: True

46. Tax-exempt organizations are required to file Form 990 by the 15th day of the 9th month following the organizations taxable year.

Answer: False

47. A tax-exempt organization must pay income taxes on income generated from trade or business activities unrelated to the entitys tax-exempt purposes.

Answer: True

Evaluating Performance

48. The three major user groups identified by the GASB are (1) citizen groups, (2) legislative and oversight officials, and (3) investors and creditors.

Answer: True

49. Bonds which carry the full faith and credit of a government are called revenue bonds.

Answer: False

50. Bonds which carry the full faith and credit of a government are called general obligation bonds.

Answer: True

51. Debt service coverage can only be directly measured from proprietary fund statements.

Answer: True

52. According to GASB, Service Efforts and Accomplishments Reporting is to provide more complete information about a governmental entitys performance.

Answer: True

53. Service Efforts and Accomplishments Reporting is best completed by using a variety of measures, which are reported consistently.

Answer: True

54. The program expense ratio for a not-for-profit organization will improve if the organization shifts costs from fund-raising to program expenses.

Answer: True

55. The program expense ratio for a not-for-profit organization will improve if the organization shifts costs from fund-raising to administrative expenses.

Answer: False

56. Fund-raising efficiency is a measure of performance that expresses how much an organization spends in raising a dollar of donations.

Answer: True

57. The program expense ratio is calculated as Program service expenses / Total expenses.

Answer: True

58. The program expense ratio is calculated as (Program service expenses + supporting service expenses) / Total expenses.

Answer: False

59. The program expense ratio is calculated as follows: Total expenses / (Program service expenses + supporting service expenses).

Answer: False

60. Supporting expenses are included in the numerator of the program expense ratio.

Answer: False

61. Supporting expenses are not included in the denominator of the program expense ratio.

Answer: False

62. Service Efforts and Accomplishments Reporting is intended to communicate information about the effectiveness of governmental services.

Answer: True

63. Service Efforts and Accomplishments Reporting includes measures of service inputs, outputs and outcomes.

Answer: True

64. Service Efforts and Accomplishments Reporting is limited to financial measures such as revenues and expenses.

Answer: False

65. Service Efforts and Accomplishments Reporting is voluntary for not-for-profit organizations.

Answer: True

66. Service Efforts and Accomplishments Reporting is mandatory for government organizations.

Answer: False

Multiple Choice Questions

Government Auditing

67. What organization oversees the promulgation of Government Auditing Standards?
A) Government Accountability Office.
B) Governmental Accounting Standards Board.
C) Public Companies Accounting Oversight Board.
D) Government Accounting Oversight Committee.

Answer: A

68. Government auditing standards are commonly known as:
A) The Green Book.
B) The Yellow book.
C) The Blue Book.
D) The Red book.

Answer: B

69. Government financial audits must comply with the following:
A) Generally Accepted Auditing Standards.
B) Government Auditing Standards.
C) Both A and B.
D) Generally Accepted Accounting Principles.

Answer: C

70. Public sector audits differ from those of commercial businesses in which of the following ways?
A) The auditor is not required to be independent.
B) The auditor reports to outside agencies as well as management of the organization.
C) The auditor does not use sampling
D) All of the above.

Answer: B

71. The Single Audit Act intends that auditors conducting regular financial audits of state and local governments and not-for-profits organizations provide assurance to the federal government that:
A) Federal funds have been expended in accordance with laws and regulations.
B) Federal funds are protected through a system of internal controls and sound financial management practices.
C) Both A and B above.
D) Neither A nor B above.

Answer: C

72. Which of the following is not a difference between private sector auditing and governmental auditing?
A) The public availability of audit reports.
B) Testing of compliance with laws and regulations.
C) Governmental audits require auditor knowledge of government accounting and auditing.
D) None of the above; these are all differences between private sector auditing and governmental auditing.

Answer: D

73. Which of the following is not a type of governmental audit?
A) Attestation engagements.
B) Consulting engagements.
C) Financial audits.
D) Performance audits.

Answer: B

74. The use of opinion units allows the auditor to
A) Provide different opinions on different components of the reporting entity.
B) Only allow one opinion for entire entity not its components.
C) Plan the audit better and increase the effectiveness of substantive procedures.
D) Eliminate the need for Test of Controls.

Answer: A

75. Which of the following is a governmental audit that is concerned with examining, reviewing, or performing agreed upon procedures on a subject matter of an assertion and reporting on the results?
A) Financial Audit.
B) Attestation Engagement.
C) Performance Audits.
D) Nonaudit Services.

Answer: B

76. Government Auditing Standards identify which of the following categories of professional engagements:
A) Financial audits.
B) Financial audits and performance audits.
C) Financial audits, agreed-upon procedures and performance audits.
D) Financial audits, attestation engagements, performance audits, and nonaudit services.

Answer: D

77. Which of the following is a governmental audit type that has a primary concern with providing reasonable assurance about whether financial statements are presented fairly?
A) Attestation Engagement.
B) Performance Audit.
C) Nonaudit services.
D) Financial Audit.

Answer: D

78. Government Auditing Standards, published in a document called the Yellow Book, incorporate the AICPA standards and provide extensions that are necessary due to the unique nature of public entities. Which of the following is not one of the extensions?
A) Higher materiality thresholds than in the private sector.
B) Public availability of audit reports.
C) Written evaluation of internal controls.
D) Requirement that auditors have knowledge of government accounting and auditing.

Answer: A

79. Which organization promulgates the Government Auditing Standards?
A) The American Institute of Certified Public Accountants.
B) The U.S. Office of Management and Budget.
C) The U.S. Government Accountability Office.
D) The U.S. Congressional Budget Office.

Answer: C

80. Which of the following would be a financial audit (or a part of a financial audit) under the Government Auditing Standards?
A) An audit expressing an opinion on the basic financial statements of a state or local government audit.
B) An examination to determine whether purchasing procedures are appropriately designed to assure program supplies meet standards.
C) Both A and B above.
D) Neither A nor B above.

Answer: A

81. Which of the following would be considered a performance audit under the Government Auditing Standards?
A) An investigation into whether a purchasing department of a government was operated efficiently.
B) An investigation into whether a social service agency of a state government improved the lives of its clients.
C) Both A and B above.
D) Neither A nor B above.

Answer: C

82. Which of the following is not true regarding the Single Audit Act and its amendments?
A) Governments and not-for-profit organizations that exceed $50 million in federal awards are normally assigned a cognizant agency to provide guidance.
B) Smaller governments report to oversight agencies, typically the agency providing more funding than any other agency.
C) The auditor is not required to test internal controls to gain an understanding of internal controls for use in selecting programs for audit.
D) All of the above are true.

Answer: C

83. Which of the following is true regarding the Single Audit Act and its amendments?
A) An auditor is expected to express an opinion on major programs, which are chosen based on size.
B) An auditor is required to select all Type A programs as major programs.
C) Both A and B above.
D) Neither A nor B above.

Answer: D

84. Which of the following is true regarding the Single Audit Act and its amendments?
A) Major programs selected for audit must equal 50 percent or more of federal expenditures, unless the organization is deemed to be low risk.
B) Separate reports are filed with every federal agency from which the audited organization receives funds.
C) Both A and B above.
D) Neither A nor B above.

Answer: A

85. Which of the following is true regarding the Single Audit Act and its amendments?
A) A risk-based approach is used.
B) An opinion is required on compliance of all programs.
C) Both A and B above.
D) Neither A nor B above.

Answer: A

86. Which of the following is true regarding the Single Audit Act and its amendments?
A) All governmental entities with expenditures of federal funds in excess of $500,000 must have a single audit, if more than one program exists.
B) An audit must be designed to cover 25 percent of federal funds expended, unless the organization is deemed to be low risk.
C) Both A and B above.
D) Neither A nor B above.

Answer: A

87. Which of the following would be an example of an attestation engagement?
A) Report on cost under contract
B) Report on prospective financial information
C) Report on internal controls
D) All of the above

Answer: D

88. Under the terms of the Single Audit Act and its amendments, what percentage of federal awards expenditures must be selected for audit?
A) 50%; or 0% if organization is deemed to be Low Risk Auditee.
B) 50%; or 25% if organization is deemed to be Low Risk Auditee.
C) 100%; or 25% if organization is deemed to be Low Risk Auditee.
D) 100%; or 50% if organization is deemed to be Low Risk Auditee.

Answer: B

89. Which of the following is not part of a financial audit?
A) Forming judgments about internal controls
B) Testing compliance with laws and regulations
C) Providing an opinion on compliance with GAAP
D) Assessing the degree to which program objectives have been met

Answer: D

90. The term opinion unit refers to which of the following:
A) A division of a CPA firm
B) A state or local government together with its component units
C) A level of reporting of a government that requires a separate materiality level
D) One of the four statements required in the second paragraph of an unqualified audit opinion

Answer: C

91. Which of the following audit opinions is issued when a government fails to comply with generally accepted accounting principles?
A) Qualified
B) Adverse
C) Either of the above, depending on the severity of the noncompliance
D) Neither (a) or (b) above

Answer: C

92. Which of the following provisions of the Sarbanes-Oxley Act already existed in governmental auditing standards?
A) Auditors are required to report deficiencies in the design or operation of internal controls.
B) Not-for-profit organizations are required to establish audit committees composed of non-management board members.
C) All nonaudit services performed by the auditors must be approved by the audit committee.
D) All of the above.

Answer: A

93. Which type of audit opinion is appropriate if an auditor is not deemed to be independent?
A) Adverse.
B) Disclaimer of opinion.
C) Qualified.
D) Unqualified.

Answer: B

94. If an auditee is not considered low-risk, what percent of federal funds expended are auditors required to express an opinion on?
A) 25%.
B) 50%.
C) 70%.
D) 100%.

Answer: B

95. Currently, a single audit is required for organizations receiving what amount of federal funds?
A) > $100,000.
B) > $300,000.
C) > $500,000.
D) > $700,000.

Answer: C

96. In a governmental audit the auditor:
A) Is required to report directly to appropriate officials in addition to the board or audit committee
B) Is only required to report to the board or audit committee
C) Is only required to report directly to the appropriate officials
D) None of the above

Answer: A.

97. Which of the following would not be an opinion unit of a general purpose government?
A) Governmental activities
B) Business-type activities
C) Each Major Fund
D) All of the above are opinion units

Answer: D

Tax-exempt Organizations

98. To qualify for tax-exempt status, an organization must do all of the following except:
A) Have an Employers Identification Number.
B) Be organized as a corporation, trust, or association.
C) Complete IRS form 1023.
D) Receive most of its income from contributions rather than by providing goods or services.

Answer: D

99. What is the principal advantage of having 501(c) (3) status to an organization that receives substantial support from outside contributors?
A) The organization does not have to pay federal income tax.
B) Donors to the organization may deduct their contributions as charitable donations.
C) The organization does not have to pay state sales taxes on purchases.
D) All of the above.

Answer: B

100. Which of the following is not true of Tax-exempt Entities having 501(c) (3) status?
A) Donors to the organization may deduct their contributions as charitable donations.
B) Churches and public charities with tax-exempt status must file an information return (Form 990, 990EZ or 990-N) with the IRS annually.
C) Tax-exempt entities are prohibited from certain activities such as supporting political candidates.
D) None of the above, these are all true of tax-exempt entities.

Answer: B

101. Form 990, Return of Organization Exempt From Income Tax, requires all of the following except:
A) Statement of Program Accomplishments
B) Governance, Management and Disclosures
C) Statement of Cash Flows
D) Compensation Schedules

Answer: C

102. Which of the following is not prohibited of organizations receiving tax-exempt status under IRS Section 501(c)(3)?
A) Earning a profit (increase in net assets).
B) Distributing earnings to the benefit of members or officers.
C) Endorsing political candidates or attempting to influence legislation.
D) None of the above. All of these are prohibited of Tax-exempt organizations.

Answer: A

103. What is not an advantage of obtaining section 501(c)(3) status?
A) The charitable organization is permitted to engage in a trade or business unrelated to its mission without having to pay income taxes.
B) Donors to the charitable organization are permitted to deduct contributions to the organization in computing their income taxes.
C) The charitable organization does not have to pay state sales tax.
D) Neither (A) nor (C) is an advantage.

Answer: D

104. What is the maximum threshold for a tax-exempt organization to file a form 990-N (electronic postcard) for tax years after 2011?
A) A charity with gross receipts of < $25,000. B) A charity with gross receipts of < $50,000. C) A charity with gross receipts of < $500,000. D) A charity with gross receipts of < $500,000 and total assets of < 2.5 $million. Answer: B 105. What is the maximum threshold for a tax-exempt organization to file a form 990-EZ? A) A charity with gross receipts of < $25,000. B) A charity with gross receipts of < $50,000. C) A charity with gross receipts of < $500,000. D) A charity with gross receipts of < $500,000 and total assets of < 2.5 $million. Answer: D 106. Which of the following is true regarding the Internal Revenue Services concern regarding tax-exempt organizations? A) Organizations are charging many of their program expenses to fund-raising. B) Executives of tax-exempt organizations are receiving excessive salaries and benefits. C) Both (a) and (b). D) Neither (a) nor (b). Answer: B 107. Which of the following are not required disclosures in a Form 990? A) A Statement of Functional Expense. B) A discussion of program effectiveness. C) A Statement of Revenues, Expenses and Changes in Net Assets. D) None of the above. They are all required disclosures. Answer: D 108. A tax-exempt organization is required to pay income taxes on A) Profit that is earned. B) Investment gains or losses. C) Unrelated business income. D) Contributions received. Answer: C 109. Which of the following activities give rise to Unrelated Business Income Tax? A) Investment income arising from investment of unrestricted funds. B) Business operated for the convenience of employees and patients. C) Sale of donated merchandise. D) None of the above. Answer: D 110. Which of the following may be deducted in computing income from unrelated business activities? A) Ordinary and necessary business expenses. B) $1,000 exemption. C) Charitable contributions. D) All of the above. Answer: D 111. To apply for tax-exempt status, a non-profit organization must file: A) IRS Form 501(c)(3). B) IRS Form 990. C) IRS Form 1023. D) None of the above. Answer: C 112. Which of the following is a prohibited activity for a Tax-exempt Organization? A) Make a Profit. B) File a tax return. C) Give money away. D) Make financial contributions to a political candidate. Answer: D 113. A public charity is: A) An organization founded and operated exclusively for public safety. B) An organization that receives more than one-third of its support from a combination of contributions, membership fees, and gross receipts from exempt activities. C) An organization operated exclusively for the benefit of a church. D) All of the above are considered to be public charities. Answer: D 114. Which of the following is an area of concern by the IRS with respect to tax-exempt organizations? A) Cost allocations. B) Excess executive compensation. C) Organizations operating out of their tax-exempt purpose. D) All the above. Answer: D. 115. Which of the following conditions would exempt income-producing activities from the Unrelated Business Income Tax (UBIT)? A) Majority of labor is performed by paid employees. B) The business sells donated merchandise. C) The business is carried on regularly but is unrelated to the organizations tax-exempt purpose. D) The business is operated for a profit. Answer: B 116. Which of the following is true concerning tax-exempt organizations with unrelated business income? A) They may deduct the first $1,000 of unrelated business income. B) They must include income from donated merchandise. C) They must include investment income in computing their tax liability. D) None of the above. Answer: D Evaluating Performance 117. Which of the following is not considered to be a major user group by the GASB? A) Citizen groups. B) Investors and creditors. C) Government executive branch officials. D) Legislative and oversight officials. Answer: C 118. The highest bond rating assigned by Moody's is: A) A+ B) A C) AAA D) AAA+ Answer: C 119. Which of the following items, helpful for analysis, could be found in the statistical section of the CAFR? A) Assessed and actual (market) value of property. B) Population trends. C) Debt limit and margin. D) All of the above. Answer: D 120. The document often relied on for financial analysis by investors and creditors for bonds in the secondary market is: A) The official statement issued by the government issuing the bonds. B) The comprehensive annual financial report. C) An analysis prepared by the government's auditor. D) None of the above. Answer: B 121. To compute the Financial Position-General Fund ratio, one would need to look in the CAFR for the: A) Governmental funds Balance Sheet. B) Governmental funds Statement of Revenues, Expenditures, and Changes in Fund Balances. C) Both A and B above. D) Neither A nor B above. Answer: C 122. To compute the debt service to total expenditures, one would need to look in the CAFR for the: A) Government-wide Statement of Net Position. B) Proprietary funds Statement of Revenues, Expenses, and Changes in Fund Net Position. C) Governmental fund-basis statements. D) Enterprise fund Statement of Cash Flows. Answer: C 123. To compute the net debt per capita, a user of financial statements would need to look at (in the CAFR): A) The government-wide Statement of Net Position and the population from the statistical section. B) The debt and the amount available to pay that debt in the governmental funds Balance Sheet, and the population from the statistical section. C) The debt in the governmental funds Balance Sheet, the amount available in the government-wide Statement of Net Position, and the population from the statistical section. D) The debt in the government-wide Statement of Net Position, the amount available to pay that debt in the governmental funds Balance Sheet, and the population from the statistical section. Answer: D 124. In order to compute the operating ratio-enterprise funds, one would look in the CAFR in which of the following sections? A) In the government-wide Statement of Net Position. B) In the proprietary funds Statement of Net Position. C) In the proprietary funds Statement of Revenues, Expenses, and Changes in Fund Net Position. D) In the proprietary funds Statement of Cash Flows. Answer: C 125. Which of the following is true regarding Service Efforts and Accomplishments Reporting? A) SEA reporting utilizes both financial and non-financial performance measures. B) GASB standards require the reporting of service efforts and accomplishments for public school systems. C) Service efforts and accomplishments reporting is commonly covered by the auditors opinion. D) All of the above. Answer: A 126. Service Efforts and Accomplishments reporting is relevant because: A) SEA reporting provides more complete information about a government entity's performance than can be provided by the basic financial statements. B) The GASB requires supplemental reporting of service efforts and accomplishments. C) Enterprise fund statements do not do a good job of measuring efficiency or effectiveness. D) All of the above. Answer: A 127. Service Efforts and Accomplishments Reporting is best completed by using A) A standard single measure to evaluate or present information. B) A variety of measures which vary from year to year in order to evaluate and present information. C) Only the information that is favorable to the organization. D) A variety of measures which are consistent from year to year. Answer: D 128. All of the following are examples of service outputs, except: A) Enrollment increases. B) The number of gifted or alternative programs. C) Dropout rates. D) Degrees conferred. Answer: C 129. A government publishes information about its fire department. What type of service efforts and accomplishments measure would Fire Loss per Capita represent? A) Input B) Output C) Outcome D) Efficiency Answer: C 130. A ratio that measures a not-for-profit organizations solvency is: A) Net assets/expenses. B) Working capital ratio. C) Program expense ratio. D) Fund-raising efficiency. Answer: B 131. The program expense ratio is calculated as follows: A) Total expenses / Program service expenses B) Program service expenses + supporting service expenses / Total expenses C) Program service expenses / Total expenses D) Total expenses / (Program service expenses + supporting service expenses) Answer: C 132. A measure of performance that expresses how much an organization expends in raising a dollar of donations is: A) Fund-raising efficiency. B) Program expense ratio. C) Working capital ratio. D) None of the above. Answer: A 133. The Museum of Creative Arts had the following expenses: $5,000 of membership development expense, $3,000 of Fund-raising expense, $3,000 of Instructional Classes expense, and $1,500 of general and administrative expense. What is the program expense ratio (rounded)? A) 24%. B) 39%. C) 43%. D) 70%. Answer: A Short Answer Questions Governmental Auditing 134. Describe the types of audit opinions that may be issued on a governmental or not-for-profit financial report. Answer: (a) Unqualified indicates that the financial statements present fairly, in all material respects, the financial position, results of operations and cash flows in conformity with generally accepted accounting principles. (b) Qualified states that except for the effects of matters to which the qualification relates, the financial statements are fairly presented. (c) Adverse states that the financial statements are not fairly presented. (d) Disclaimer states that the auditor does not express an opinion on the financial statements. 135. What is an opinion unit and what are the five opinion units for state and local governments? Answer: In any audit engagement, the auditor must determine a level of materiality. This determination is then used to plan, perform, and evaluate the results of audit procedures. Because of the various levels of reporting by governments (government-wide, fund-type and individual fund), separate materiality evaluations are needed for the different levels of reporting. The five opinion units are: Governmental activities. Business-type activities. Each major fund (both governmental and enterprise). The aggregate of all discretely presented component units. The aggregate of all remaining fund information. 136. List and explain the five ethical concepts outlined by the Yellow Book. Answer: 1. Public interest which focuses auditors attention on serving the citizenry and honoring the public trust 2. Integrity requires auditors to conduct their work with an attitude that is objective, fact-based and nonpartisan 3. Objectivity includes independence in fact and appearance and being free of conflicts of interest 4. Proper use of government information, resources and position precludes auditors from using sensitive or classified information or resources for personal gain 5. Professional behavior includes auditors conducting their services in accordance with technical and professional standards 137. Describe the different types of governmental audit and attestation engagements. Answer: (a) Financial audits primarily concern providing reasonable assurance about whether financial statements are presented fairly in all material respects in conformity with generally accepted accounting principles or with a comprehensive basis of accounting other than GAAP. (b) Attestation engagements concern examining, reviewing, or performing agreed upon procedures on a subject matter or an assertion about a subject matter and reporting on the results. Attestation engagements can cover a broad range of financial or nonfinancial objectives and can be part of a financial audit or other type of engagement. (c) Performance audits are an objective and systematic examination of evidence to provide an independent assessment of the performance and management of a program against objective criteria or an assessment of best practices and other information. Performance audits provide information to improve program operations and facilitate decision making by parties with responsibility to oversee or initiate corrective action, and improve public accountability. (d) Nonaudit services consist of gathering, providing, or explaining information requested by decision makers or providing advice or assistance to management officials. 138. What is the objective of the single audit process? Answer: Single audits are intended to provide assurance to the federal government that federal and state funds are expended in accordance with grant agreements and with financial management and other standards issued by the federal government. The single audit process is viewed as a more efficient means than requiring grant-by-grant audits from a host of federal government offices and agencies. 139. What are major programs with respect to the Single Audit Act of 1984 and amendment of 1996? Distinguish between Type A and Type B programs. Answer: A major program is one that is selected for audit for compliance under the provisions of OMB Circular A-133. The auditor is required to express an opinion on compliance with major programs, which must add up to 50% of the federal funds expended by the audited entity, or 25% if the entity is determined to be low risk. Type A programs are the larger programs and would be audited as major programs unless the auditor determines they are low risk. Low risk programs must have been audited within the past two years and had no major audit findings. Type B programs are the smaller programs and would be audited only if the auditor determines they are high risk. Tax-exempt Organizations 140. What factors would cause income that would otherwise qualify as unrelated business income to not be taxed? Answer: The existence of one or more of the following conditions will exempt income-producing activities from UBIT: (1) the business is not regularly carried on; (2) volunteers perform most of the labor; (3) the not-for-profit sells donated merchandise; and (4) it is operated for the convenience of employees, patients or students. 141. The IRS announced that it considers tax-exempt organizations to be one of its four highest enforcement priorities. What are the three areas of concern for the IRS? Answer: 1. Cost allocations 2. Excess executive compensation 3. Organizations operating outside their tax-exempt purpose 142. What is required for an organization to qualify for tax-exempt status? Answer: 1. Have an Employers Identification Number (EIN) 2. Be organized as a corporation, trust or association 3. Complete IRS form 1023, Application for Recognition of Exemption 4. Receive notice from the IRS that the organization has been determined to be tax-exempt 143. What is the purpose of the Unrelated Business Income Tax? Answer: Not-for-profits performing business activities, such as the sale of goods and services, compete with commercial enterprises providing similar goods and services. If the income on these activities were not taxed, not-for-profit entities would have an unfair advantage over tax-paying commercial enterprises. To provide for equity between these two groups and to encourage not-for-profits to focus on their tax-exempt mission, Congress passed the Unrelated Business Income Tax. 144. How is the Unrelated Business Income Tax computed? Answer: When computing unrelated business income tax, not-for-profits are allowed to deduct ordinary and necessary expenses directly connected with the trade or business under consideration. In addition, the first $1,000 of unrelated business income is not taxed. The tax is computed at the corporate or trust rate. 145. List four sources of income that are not subject to the unrelated business income tax. Answer: Any four of the following: (a) The business is not regularly carried on. (b) Volunteers perform most of the labor. (c) The not-for-profit sells donated merchandise (d) It is operated for the convenience of employees, patients or students (e) Royalties, dividends and interest. (f) Income of a college, university or hospital from research performed. (g) Income from qualified public entertainment activities in connection with a fair or exchange. (h) Income from labor, agricultural, and horticultural organizations and business trade associations from convention or trade show activities. (i) Income related to rental or exchange of rental lists. Performance Evaluation 146. The Comprehensive Annual Financial Report of a local governmental unit includes several statements and sections. When a financial analyst is computing ratios and extracting other information, he or she needs to know where in the CAFR to look. Use the following classification to indicate where an analyst would look in the CAFR to compute the ratios and gather information by placing the appropriate letter(s) in the space next to each item. When possible, choose the location in the basic financial statements or notes that would be subject to examination: a. Letter of transmittal-introductory section b. Managements Discussion and Analysis c. Auditors opinion d. Government-wide Statement of Net Position e. Government-wide Statement of Activities f. Governmental funds Balance Sheet g. Governmental Funds Statement of Revenues, Expenditures, and Changes in Fund Balances h. Proprietary funds Statement of Net Position i. Proprietary funds Statement of Revenues, Expenses, and Changes in Fund Net Position j. Proprietary funds Statement of Cash Flows k. Fiduciary funds Statement of Fiduciary Net Position l. Fiduciary funds Statement of Changes in Fiduciary Net Position m. Notes to the Basic Financial Statements n. Required Supplementary Information other than MD&A o. Combining and individual fund statements (Other Supplementary Information) p. Statistical Section Ratios and Other Items: ______ 1. Net debt per capita ______ 2. Net debt to fair value of property ______ 3. Interest coverage-revenue bonds ______ 4. Operating ratio-enterprise funds ______ 5. Governmental revenues per capita ______ 6. Debt service/total governmental revenues ______ 7. Unreserved fund balance/revenues-General Fund ______ 8. Actual expenditures/budgeted expenditures-General Fund ______ 9. Unrestricted Net Position-governmental activities/general government expenses-governmental activities ______ 10. Cash expended on capital assets- enterprise activities ______ 11. Summary information regarding overall government financial performance for the year ______ 12. City management organizational chart ______ 13. Unfunded pension liability for the government as a whole ______ 14. Information regarding actual and planned maintenance of infrastructure, when the modified approach is used ______ 15. Debt limit and debt margin ______ 16. Total expenses for interest for a major enterprise fund ______ 17. Assessed value of property ______ 18. Information regarding balances for a nonmajor enterprise fund ______ 19. Schedule of direct and overlapping debt ______ 20. Cash balances in a pension trust fund Answer: 1-d; 2-d,p; 3-i; 4-i; 5-g,p; 6-g; 7-f,g; 8-n; 9-d,e; 10-j; 11-b; 12-a; 13-n; 14-n; 15-p; 16-i; 17-p; 18-o; 19-p; 20-k 147. Assume the mission statement for the Area Homeless Shelter is as follows: To provide temporary shelter and meals to area homeless and to assist them in obtaining self-sufficiency. The Shelter has approached you about contributing a substantial amount of money to support their operations. Before contributing your money, you would like to evaluate the Shelter's service efforts and accomplishments. Give an example of Input, Output, Outcome, and Efficiency measures that you might find useful in assessing the Service Efforts and Accomplishments of the Area Homeless Shelter. Answer: (a) Input measures Dollars expended for program services and supporting services, # volunteer hours, donated supplies and materials. (b) Output measures - # meals served, # clients spending the night, # of clients entering drug rehabilitation, # of clients entering job training programs. (c) Outcome measures # of clients obtaining permanent self-sufficiency. (d) Efficiency average cost of a client in obtaining permanent self-sufficiency. 148. Assume the mission statement for the City Fire Department is as follows: To minimize the combined cost of fire prevention and fire loss. Give an example of Input, Output, Outcome, and Efficiency measures that might be used in Service Efforts and Accomplishments Reporting. Answer: (a) Input measures Dollars expended for fire protection, # man-hours, # fire stations, # fire engines. (b) Output measures - # fires extinguished, # inspections performed, average response time. (c) Outcome measures # fires reported, $ fire loss, # fire fatalities. (d) Efficiency average decrease in fire loss per input measure added (e.g. fire stations, fire engines, fire inspectors). 149. Why is Service Efforts and Accomplishments reporting especially important for governmental and not-for-profit entities? Answer: Service Efforts and Accomplishments reporting is especially important for governmental and not-for-profit entities because of the difficulty in communicating information about organizational performance in a non-business environment. In business reporting, Sale Revenues are a market-based assessment that you have a desired good or service and are offering it at a competitive price. Expenses are matched with revenues and the resulting net income tells the reader of financial statements whether the organization was able to produce the good or service at a cost less than the revenue generated. As a result, net income is a useful measure of performance and is easily compared across organizations. In a non-business organization the financial reporting system is effective at measuring the costs of providing goods or services. However, because many of the revenues are from non-exchange transactions (taxes or contributions), revenue is not based on a market perception of the value of the good or service. Rather, resource providers are motivated by other concerns. Therefore the difference between revenues and expenses is not a useful measure of organizational performance. Additionally, the mission of non-business organizations is generally more complicated than simply generating earnings. As a result, non-financial outcome measures are a more useful means of assessing performance. These measures are typically not captured by the financial reporting system and are more difficult to compare across organizations with differing activities. Exercises 150. A local government has four federal grants. Expenditures during the year ended June 30, 2015, are below: Type A HHS grant, new this year and never audited $ 880,000 HHS grant, audited last year, no major findings 770,000 Type B Department of Transportation 65,000 Department of Agriculture 485,000 Total all funds $2,200,000 A. Which grants would the auditor be required to audit, assuming the government is not found to be low risk? B. Which grants would the auditor be required to audit, assuming the government is found to be low risk? Answer: A. If the government is not found to be low risk, the audit must include 50% ($1,100,000) of the federal funds expended. In this case, the auditor would be required to select the new HHS grant in the amount of $880,000 because it has never been audited. The other HHS grant could be audited, or the auditor could select the Department of Agriculture grant, based on a risk assessment. The Department of Transportation grant does not have to be evaluated since it is below the $100,000 threshold. B. If the government is found to be low risk, only 25% of the funds must be audited. The auditor could choose to audit only the new HHS grant ($880,000) as a major program.

Write a review

Your Name:


Your Review: Note: HTML is not translated!

Rating: Bad           Good

Enter the code in the box below:



 

Once the order is placed, the order will be delivered to your email less than 24 hours, mostly within 4 hours. 

If you have questions, you can contact us here