GAFRB Questions and Answers

According to GASB Statement No. 96 (Subscription-Based Information Technology Arrangements or SBITAs), a subscription agreement is considered “short-term” if the maximum possible term (including renewal options) is 12 months or less.

Short-term SBITAs are not reported as subscription liabilities and are accounted for as outflows (expenses or expenditures) when incurred.

Relevant References:

GASB Statement No. 96 – SBITAs (Issued May 2020)

GASB Implementation Guide No. 2021-1 – Q&A on SBITAs

GFOA Advisory – Cloud Computing and Subscription Agreements

Answer: B. 12 months

Comprehensive Detailed Explanation:

According to FASAB's Objectives of Federal Financial Reporting (Statements of Federal Financial Accounting Concepts, particularly SFFAC No. 1), the four major objectives of federal financial reporting are:

Budgetary Integrity

Operating Performance

Stewardship

Systems and Control

Mission readiness is not one of the core federal financial reporting objectives under FASAB standards, although it may be a goal of some federal agencies operationally (e.g., DOD), it is not one of the defined financial reporting objectives.

Answer: C. mission readiness

Relevant References:

FASAB SFFAC No. 1 – Objectives of Federal Financial Reporting

FASAB Handbook of Accounting Standards and Other Pronouncements

State and local government budgets primarily serve to:

Set public policy priorities

Provide legislative control over taxing and spending

Serve as a financial planning tool

Debt policy is typically established outside the annual budget process and guided by a separate debt management policy that sets borrowing limits, credit rating objectives, and debt service goals.

Relevant References:

GFOA Best Practices – Role of the Budget

NASBO Budgeting Handbook

GASB Concept Statements – Financial Reporting Objectives

Answer: C. determine debt policy

GASB Statement No. 34 provides the criteria for determining major funds, primarily based on quantitative thresholds (e.g., 10% of total assets, liabilities, revenues, or expenditures/expenses).

However, GASB also allows management to designate any governmental or enterprise fund as a major fund if, in its judgment, it is particularly important to users of the financial statements—even if it doesn’t meet the quantitative criteria.

Other options are incorrect:

The general fund is always presented as a major fund regardless of criteria.

Internal service funds are never reported as major funds in the fund financial statements.

Relevant References:

GASB Statement No. 34 – Paragraph 76

GASB Codification Section 2200 – Fund Reporting Requirements

GFOA ACFR Preparation Guide

Answer: C. Management can elect to present any governmental or enterprise fund as a major fund

A Treasury warrant is the formal notification from the U.S. Department of the Treasury that funds have been made available to a federal agency. Agencies cannot legally obligate or expend appropriated funds until a warrant has been issued.

Apportionments and allotments come afterward in the budget execution process.

Relevant References:

Treasury Financial Manual (TFM), Volume I, Part 2

OMB Circular A-11 – Budget Execution

GAO Red Book – Appropriations Law

Answer: C. a warrant

Serial bonds mature in installments over the life of the bond (e.g., every year or every few years). This structure allows the cost of repaying the debt to align more closely with the periods in which the capital asset is used — achieving intergenerational equity by spreading the cost over the same span as the asset’s useful life.

Term bonds, zero-coupon bonds, and pay-as-you-go do not align costs with benefits across multiple years in the same way.

Relevant References:

GFOA Best Practices – Debt Management and Capital Planning

GASB Concepts Statement No. 1 – Interperiod Equity

MSRB Educational Materials on Bond Types

Answer: A. 30-year serial bonds

First, we calculate total eligible project costs:

Eligible categories (architectural, construction, project management):

Architectural (actual): $90,000

Construction (actual): $10,000,000

Project management (city employee at 50% time for 6 months):

 $10,000/month × 6 months × 50% = $30,000

Total eligible cost = $90,000 + $10,000,000 + $30,000 = $10,120,000

State reimburses 40% of eligible cost:

0.40 × $10,120,000 = $4,048,000

Relevant References:

OMB Uniform Guidance (2 CFR § 200) – Cost Principles

GFOA Best Practices – Grant Compliance

State grant agreements outlining cost-sharing requirements

Answer: A. $4,048,000

The $900,000 paid to the construction manager and $100,000 paid to the architect are capitalized as part of the building's total cost, totaling $1,000,000.

Using straight-line depreciation over 50 years with the half-year convention:

Annual depreciation = $1,000,000 ÷ 50 = $20,000

Since the half-year convention is used in the year the asset is placed in service, only 50% of the full-year depreciation is recorded.

Depreciation for the current year = $20,000 × 0.5 = $10,000

However, note: since both amounts ($900,000 + $100,000) were paid during construction and the school was completed and placed into service this year, the full capitalized amount applies.

GASB and GAAP allow the half-year rule unless the asset was placed into service at the beginning of the year. In this case, since placed during the year, the half-year rule applies.

Correct depreciation for the first year = $10,000

So, the correct answer is:

Answer: B. $10,000

Correction Note: While option C ($20,000) may seem valid for full-year depreciation, the use of the "half-year depreciation method" dictates that only half of the full-year amount is expensed in the first year.

Relevant References:

GASB Statement No. 34 – Capital Assets and Depreciation

GFOA Best Practices on Capital Asset Accounting and Reporting

The primary purpose of accumulating and reporting cost information—especially in government and nonprofit environments—is to support internal decision-making. Cost data help managers assess program efficiency, evaluate resource use, and make policy or operational decisions.

While external financial statements may incorporate summarized cost information, and stockholders and regulatory agencies may have interests in private-sector settings, the most direct and core purpose is to support management.

Relevant References:

FASAB SFFAS No. 4 – Managerial Cost Accounting Concepts and Standards

GFOA – Cost Accounting for Decision-Making

OMB Circular A-136 and A-11 (federal reporting objectives)

Answer: B. provide a means for management to assess decision performance

The city issues $100,000 in general obligation bonds on April 1, 2024, and the first principal payment of $10,000 is due on March 31, 2025. The interest rate is 5% annually on the unpaid principal balance.

As of April 1, 2024, the full $100,000 is outstanding. For the full fiscal year (April 1, 2024 to March 31, 2025), interest accrues on the full amount until payment is made. The interest on $100,000 for one year at 5% =

Interest Expense = $100,000 × 5% = $5,000

Note: Interest is typically calculated on the beginning-of-period balance, and since the payment is made at the end of the year (March 31, 2025), the full $5,000 interest is recognized for that year.

Relevant Standards and References:

GASB Statement No. 34, Basic Financial Statements for State and Local Governments

GASB Codification Section 2200 (Government-Wide Financial Statements)

GFOA Guidance on Long-Term Debt Accounting

Non-exchange revenues are those in which a government gives or receives value without directly receiving or giving equal value in return. Sales taxes are a classic example of a non-exchange revenue because the payer (consumer) does not receive a direct, measurable benefit from the government in exchange for the tax paid.

Other examples of non-exchange revenues include property taxes, grants, and fines. In contrast, licensing fees and investment earnings are exchange or exchange-like revenues, since they involve a mutual benefit or earnings return.

Relevant Standards and References:

GASB Statement No. 33, Accounting and Financial Reporting for Nonexchange Transactions

GASB Codification Section N50

GFOA Revenue Classification Guidelines

Research and development (R&D) costs are generally expensed when incurred. However, capitalization may occur only if the asset has an "alternative future use." This means it can be used in other projects or for other purposes beyond the specific R&D effort.

This principle aligns with both federal and private-sector accounting under FASAB and FASB standards.

Relevant References:

FASAB SFFAS No. 10 – Accounting for Internal Use Software

FASB ASC 730 – Research and Development

GAO Red Book – Capitalization Guidelines

Answer: D. have alternative future use

When a federal entity pays off a payable:

Budgetary accounting moves the status of the obligation from unpaid to paid

Proprietary accounting reduces the payable and cash (Fund Balance with Treasury)

The correct journal entry is:

Budgetary:

 Debit Delivered Orders – Obligations, Unpaid

 Credit Delivered Orders – Obligations, Paid

Proprietary:

 Debit Accounts Payable

 Credit Fund Balance with Treasury

This reflects the transition from an unpaid liability to a disbursed payment, complying with federal financial reporting.

Relevant References:

Treasury Financial Manual (TFM) Vol. I, Part 2, Chapter 4700

FASAB SFFAS No. 1 and No. 7 – Accounting for Liabilities and Budgetary Resources

USSGL (U.S. Standard General Ledger) – Posting Logic for Obligation Transactions

Answer: D. Debit Delivered Orders – Obligations, Unpaid; Credit Delivered Orders – Obligations, Paid; Debit Accounts Payable; Credit Fund Balance with Treasury

A custodial fund is a type of fiduciary fund used by state and local governments to report assets held temporarily in a purely custodial capacity—for example, taxes collected by one government on behalf of another. These funds do not involve administrative or financial control over the assets; the government is merely acting as an intermediary.

As per GASB Statement No. 84, custodial funds replace agency funds and are used to report fiduciary activities that are not held in a trust agreement and where the government does not have discretion over how the resources are spent.

Relevant Standards and References:

GASB Statement No. 84, Fiduciary Activities

GASB Codification Section 1300: Fiduciary Funds

GFOA Best Practices – Accounting and Financial Reporting for Fiduciary Activities

Therefore, Option A is correct.

The OMB assists the President in preparing the President’s Budget, which is submitted annually to Congress. OMB coordinates budget instructions, evaluates agency requests, and ensures alignment with presidential policies.

Other roles:

GAO: Supports Congress and performs audits

CBO: Provides nonpartisan budget analysis to Congress

U.S. Treasury: Manages federal finances but does not oversee budget preparation

Relevant References:

OMB Circular A-11 – Role in Budget Formulation

U.S. Code Title 31 – Role of OMB

GAO Budget Glossary

Answer: C. OMB

When a federal agency participates in a pension plan administered by another government entity (such as the Office of Personnel Management, OPM), and OPM bills the agency for a portion of the cost while covering the remainder itself, the portion not billed is considered an "imputed cost" to the agency. This imputed cost represents the agency's share of employee pension benefits that are financed on its behalf by another entity.

Accounting guidance requires that the employing agency recognize both the amount billed and the amount covered by OPM as a pension expense, recordingthe imputed cost as an expense and as an imputed financing source in its own financial statements.This treatment ensures full recognition of the economic cost of employing personnel, even if part of that cost is not directly paid by the agency.

Key references and standards:

Federal Accounting Standards Advisory Board (FASAB) SFFAS No. 5, “Accounting for Liabilities of the Federal Government”:

“Employing entities should recognize the cost of pensions and other postemployment benefits during their employees' active years of service. The cost recognized includes the amount contributed by the employing entity and the portion contributed by other entities on the entity’s behalf, which is called an imputed cost.”

FASAB SFFAS No. 4, “Managerial Cost Accounting Standards and Concepts”:

“Costs that are incurred by one entity but paid by another entity, and that benefit the reporting entity, should be recognized by the reporting entity as imputed costs and imputed financing.”

OMB Circular A-136, Section II.2.7.3:

“Imputed costs are to be recognized for the costs of goods and services received from other federal entities at no or reduced cost, such as pension and postretirement health benefits...”

Therefore, answer choice C is correct: the agency recognizes the imputed cost.

Disclaimer: This custom GPT is continuously improving, but it may not always provide accurate information and can make mistakes. Validate important information for relevancy, completeness and accuracy with your subject matter experts (SMEs).

The federal budget baseline is a projection of federal spending, revenues, deficits, and debt assuming no changes to current laws and policies. It serves as a neutral benchmark to compare the fiscal impact of proposed legislation or budget changes.

It is typically prepared by the Congressional Budget Office (CBO) and assumes continuation of current tax and spending laws without new legislation.

Relevant References:

Congressional Budget Act of 1974

Congressional Budget Office (CBO) – Baseline Concepts

OMB Circular A-11 – Section 80: Baseline Budget Estimates

Answer: C. receipts, outlays, and deficit or surplus that would result from continuing current law or policies

When a private bank issues a student loan that is insured by the government in case of default, the federal government is acting as a guarantor—not issuing the loan directly, but promising repayment to the lender if the borrower defaults. This is a classic example of a federal loan guarantee program.

Loan guarantees are off-budget unless called, and the government only incurs a liability if the student defaults.

Relevant References:

FASAB SFFAS No. 2 – Accounting for Direct Loans and Loan Guarantees

Credit Reform Act of 1990

OMB Circular A-11, Section 185 – Federal Credit Programs

Answer: B. a loan guarantee

Comprehensive Detailed Explanation:

According to FASAB Statement of Federal Financial Accounting Standards (SFFAS) No. 1, an accounts receivable should be recognized when a legal claim to cash exists — that is, when the federal agency has provided goods or services or an enforceable claim to payment has arisen.

This typically occurs after performance has occurred, not merely when an agreement or order is received.

Relevant References:

FASAB SFFAS No. 1 – Accounting for Selected Assets and Liabilities

Treasury Financial Manual (TFM) – Receivables Accounting

OMB Circular A-136 – Financial Reporting Requirements

Answer: A. claims to cash against other entities are established

The Governmental Accounting Standards Board (GASB) and the Federal Accounting Standards Advisory Board (FASAB) are both responsible for promulgating (i.e., formally establishing and issuing) accounting standards:

GASB: for state and local governments

FASAB: for federal entities

They do not establish auditing standards (that is the role of GAO and AICPA), nor do they issue joint standards or follow FASB unless no applicable guidance exists.

Relevant References:

GASB Statement No. 1 – Authoritative Status of GASB Pronouncements

FASAB Mission and Responsibilities

GAO Yellow Book (Government Auditing Standards)

Answer: C. promulgate accounting standards

An internal service fund is used to account for goods or services provided by one department or agency to other departments or agencies of the governmental unit, typically on a cost-reimbursement basis.

To establish accurate billing rates (e.g., hourly rates), the fund must use actual costs of providing services. This includes materials consumed, labor, depreciation, and overhead. Materials purchased but not used should not be included in the rate calculation for the current period.

Relevant Standards and References:

FASAB SFFAS No. 4, Managerial Cost Accounting

GASB Codification Section 1800, Internal Service Funds

GFOA Best Practices – Internal Service Fund Rate Setting

Therefore, Option A is correct.

The Summary of Significant Accounting Policies (SSAP), included in the notes to the financial statements, typically includes:

Description of the reporting entity

Basis of presentation and accounting principles

Methods used to apply those principles

Policy changes from prior years

However, disclosures regarding receipt or use of budget authority are not included in the SSAP. Budget authority and execution are typically addressed in the Required Supplementary Information (RSI) or other budgetary sections of federal financial reports.

Relevant References:

FASAB SFFAS No. 34 – Notes to the Financial Statements

OMB Circular A-136 – Section II.4.4: Summary of Significant Accounting Policies

GAO Federal Accounting Handbook

Answer: C. disclosure of receipt of budget authority from the entity

A component unit is a legally separate entity for which the elected officials of the primary government are financially accountable. This accountability may arise if the primary government:

Appoints a majority of the governing board, and

Is able to impose its will or has the potential to receive financial benefits or bear financial burdens.

Component units are reported in the financial statements of the primary government, either as blended or discretely presented entities.

Relevant Standards and References:

GASB Statement No. 14, The Financial Reporting Entity

GASB Statement No. 61, The Financial Reporting Entity: Omnibus

GASB Codification Section 2100: Defining the Financial Reporting Entity

Therefore, Option B is correct.

Comprehensive Detailed Explanation:

In governmental funds (using the modified accrual basis), expenditures are recorded when financial resources are used — typically when cash is disbursed. However, in government-wide statements (accrual basis), only the portion of the asset’s cost consumed in the period is recorded as an expense (i.e., depreciation).

Paying for capital assets such as vehicles is an expenditure in the governmental funds, but not an expense in the accrual-based government-wide financials. Instead, the cost is capitalized and depreciated over time.

Relevant References:

GASB Statement No. 34 – Government-wide vs. Fund Financial Reporting

GASB Codification Section 1300 – Modified Accrual Accounting

GFOA Best Practices – Capital Asset Reporting

Answer: C. At the end of the fiscal year, the government pays for ten vehicles which will be depreciated over five years.

In the governmental fund (such as the debt service fund), modified accrual accounting is used. Under this basis:

Payment of principal and interest is recorded as expenditures, not reductions of liabilities or interest expense.

No long-term liabilities (e.g., bonds payable) are recorded in governmental funds.

So, the correct journal entry is:

 Debit: Expenditures – Principal

 Debit: Expenditures – Interest

 Credit: Cash

Relevant References:

GASB Codification Section 1300 – Fund Accounting and Modified Accrual Basis

GASB Statement No. 34 – Fund-Level Reporting

GFOA Accounting and Reporting for Debt Service Funds

Answer: A. expenditures – principal and expenditures – interest

The Federal Accounting Standards Advisory Board (FASAB) was established in 1990 by the U.S. Department of the Treasury, the Office of Management and Budget (OMB), and the Government Accountability Office (GAO). These three entities are collectively known as the “sponsors” of FASAB. Each has a representative who serves as a voting member of the board.

FASAB is responsible for establishing GAAP for federal entities. The sponsor organizations appoint board members and have authority over standard-setting governance, but do not individually veto standards. Final standards are issued only after due process, including public comment and sponsor approval.

Relevant Standards and References:

FASAB Memorandum of Understanding (MOU) Among Treasury, OMB, and GAO (as amended): “These three agencies are the sponsors of FASAB and each appoints one voting member to the Board.”

FASAB Governance Manual (2023 Edition), Section 2: Identifies Treasury, OMB, and GAO as sponsors and voting members.

AGA’s “CGFM Study Guide 2,” Chapter 2: Highlights the role of sponsors in the standard-setting process.

Therefore, Option D is correct.

A revolving fund is a fund established to finance a continuing cycle of operations where the receipts (e.g., fees or reimbursements) are used to finance future operations. These funds are usually self-sustaining and are designed to recover full costs of providing goods or services.

The described situation — an agency providing procurement services to other agencies and using collected fees to continue operations — is a classic example of an intragovernmental revolving fund (also called a working capital fund).

Relevant References:

OMB Circular A-11, Section 20 – Fund Classifications

GAO Glossary of Terms – Revolving Fund

FASAB SFFAS No. 7 – Revenue and Other Financing Sources

Answer: A. revolving fund

The "pass back" is a step in the federal budget process during which the Office of Management and Budget (OMB) communicates to federal agencies what parts of their budget requests it has approved or rejected. It precedes the preparation of the President’s Budget and gives agencies a chance to appeal decisions before final submission.

Other options:

Allotment: An internal division of an appropriation.

Rescission: A cancellation of budget authority.

Apportionment: OMB’s formal distribution of funds over time, typically quarterly.

Relevant References:

OMB Circular A-11 – Preparation, Submission, and Execution of the Budget

GAO Glossary of Budgetary Terms

Congressional Budget Office (CBO) – Federal Budget Process

Answer: A. pass back

Despite differences in sector goals, all entities—public, private, nonprofit, or government—use financial reporting to provide information that assists stakeholders in making informed decisions.

While private-sector entities focus on profitability and governmental entities focus on accountability and stewardship, both require decision-useful financial data.

Relevant References:

FASAB SFFAC No. 1 – Objectives of Federal Financial Reporting

GASB Concepts Statement No. 1 – Objectives of Financial Reporting

FASB Statement of Financial Accounting Concepts No. 1

Answer: A. provide users with decision support