Free Practice Questions for AGA GAFRB Exam

Question 1

Which federal agency activities would most likely use a trust fund to account for funds received and paid?

Ageneral government programs receiving annual appropriations

Bprovisions of benefits, goods or services financed by specific revenue sources

Cbusiness-type operations financed by exchange revenues

Dgrant programs distributing funds awarded in prior years
Comprehensive Detailed
Trust funds in the federal government are used to account for assets held in a fiduciary capacity for specific purposes. These funds typically involve revenue dedicated by law for particular programs and purposes, such as:
Social Security Trust Fund
Medicare Trust Fund
Unemployment Trust Fund
These involve collections from earmarked taxes or contributions and are used to provide specific benefits or services.
Relevant Reference:
FASAB SFFAS No. 27 -- Identifying and Reporting Earmarked Funds
Treasury Financial Manual -- Trust Fund Accounts
OMB Circular A-11, Section 20 -- Federal Fund and Trust Fund Definitions
Answer : B. provisions of benefits, goods or services financed by specific revenue
sources

Correct Answer: B. provisions of benefits, goods or services financed by specific revenue sources

Question 2

GAAP requires that the ACFR be accompanied by separate financial statements documenting

Astatistical data on the population.

Bfiduciary and proprietary funds.

Cprogram goals and objectives.

Dannual appropriations.
The Annual Comprehensive Financial Report (ACFR) includes three categories of fund financial statements:
Governmental funds
Proprietary funds (e.g., enterprise and internal service funds)
Fiduciary funds (e.g., pension trust, custodial funds)
GAAP (specifically GASB Statement No. 34) requires separate financial statements for proprietary and fiduciary funds because they use different accounting bases (full accrual) than governmental funds (modified accrual). These are included in the basic financial statements section of the ACFR.
Relevant Reference:
GASB Statement No. 34 -- Basic Financial Statements
GASB Codification Section 2200 -- Financial Reporting
GFOA Governmental Reporting Guidelines
Answer : B. fiduciary and proprietary funds

Correct Answer: B. fiduciary and proprietary funds.

Question 3

Separate fund financial statements should be presented for

Anet assets and activities.

Bgovernmental and proprietary funds.

Clong-term debt.

Dcapital assets.
Separate fund financial statements are required for:
Governmental Funds (e.g., general fund, special revenue)
Proprietary Funds (e.g., enterprise, internal service funds)
Fiduciary Funds (reported separately but not combined with government-wide statements)
Long-term debt and capital assets are components within the financial statements---not fund types.
Relevant Reference:
GASB Statement No. 34 -- Financial Reporting Model
GASB Codification Section 2200 -- Financial Reporting
GFOA Fund Reporting Framework
Answer : B. governmental and proprietary funds

Correct Answer: B. governmental and proprietary funds.

Question 4

A federal agency submits its budget request to which of the following?

Athe U.S. Department of the Treasury

BOMB

CGAO

DCongress
Federal agencies submit their budget requests to the Office of Management and Budget (OMB), which reviews, analyzes, and makes recommendations to the President. After OMB review, the final version of the President's Budget is submitted to Congress.
Other roles:
Treasury: Manages federal finances, not budget formulation.
GAO: Audits and provides oversight to Congress.
Congress: Receives and authorizes the budget but does not initially review agency requests.
Relevant Reference:
OMB Circular A-11 -- Preparation and Submission of Budget Estimates
GAO Budget Glossary

US. Code Title 31 -- Role of OMB
Answer : B. OMB

Correct Answer: B. OMB

Question 5

The measurement focus of the governmental fund level financial statements is

Amodified accrual basis.

Beconomic resources.

Ccurrent financial resources.

Daccrual basis.
Governmental fund financial statements (such as the General Fund, Special Revenue Funds, Capital Projects Funds) use the current financial resources measurement focus and the modified accrual basis of accounting. This focus reports inflows and outflows of current financial resources and excludes long-term assets and liabilities.
This differs from the government-wide financial statements, which use the economic resources measurement focus and full accrual basis.
Relevant Reference:
GASB Statement No. 34 -- Basic Financial Statements
GASB Codification Section 1600 -- Fund Accounting
GFOA Fund Accounting Guidance
Answer : C. current financial resources

Correct Answer: C. current financial resources.

Question 6

What must a federal agency receive from the U.S. Department of the Treasury before it can begin spending an appropriation?

Aan apportionment

Ban allotment

Ca warrant

Dan encumbrance
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 Reference:
Treasury Financial Manual (TFM), Volume I, Part 2
OMB Circular A-11 -- Budget Execution
GAO Red Book -- Appropriations Law
Answer : C. a warrant

Correct Answer: C. a warrant

Question 7

The four general government auditing standards are

Acompliance, timeliness, qualifications and due professional care.

Bsupervision, planning, management controls and evidence.

Cplanning, internal controls, independence and irregularities.

Dqualifications, independence, due professional care and quality control.
What Are the Four General Government Auditing Standards?
These standards, as defined in the GAO Yellow Book (Government Auditing Standards):
Qualifications: Auditors must have the necessary professional skills and competence to perform their work.
Independence: Auditors must remain free from personal, external, and organizational impairments to maintain objectivity.
Due Professional Care: Auditors must exercise care and diligence, adhering to professional standards and ethical requirements.
Quality Control: Auditors must establish and maintain a system of quality control to ensure audit work meets professional standards.
Why Is Option D Correct?
These four elements are explicitly outlined in the GAO Yellow Book as the core principles of government auditing standards.
Why Other Options Are Incorrect:
A . Compliance, timeliness, qualifications, and due professional care: Timeliness and compliance are not part of the four general standards; they are components of audit objectives.
B . Supervision, planning, management controls, and evidence: These are aspects of audit performance, not general standards.
C . Planning, internal controls, independence, and irregularities: Planning and internal controls are part of the audit process, not general standards.
Reference and Documents:
GAO Yellow Book (Generally Accepted Government Auditing Standards - GAGAS): Lists qualifications, independence, due professional care, and quality control as the four general standards.
AICPA Audit Standards: Aligns with GAGAS in emphasizing these four principles.

Correct Answer: D. qualifications, independence, due professional care and quality control. What Are the Four General Government Auditing Standards? These standards, as defined in the GAO Yellow Book (Government Auditing Standards): Qualifications: Auditors must have the necessary professional skills and competence to perform their work. Independence: Auditors must remain free from personal, external, and organizational impairments to maintain objectivity. Due Professional Care: Auditors must exercise care and diligence, adhering to professional standards and ethical requirements. Quality Control: Auditors must establish and maintain a system of quality control to ensure audit work meets professional standards. Why Is Option D Correct? These four elements are explicitly outlined in the GAO Yellow Book as the core principles of government auditing standards. Why Other Options Are Incorrect: A . Compliance, timeliness, qualifications, and due professional care: Timeliness and compliance are not part of the four general standards; they are components of audit objectives. B . Supervision, planning, management controls, and evidence: These are aspects of audit performance, not general standards. C . Planning, internal controls, independence, and irregularities: Planning and internal controls are part of the audit process, not general standards. Reference and Documents: GAO Yellow Book (Generally Accepted Government Auditing Standards - GAGAS): Lists qualifications, independence, due professional care, and quality control as the four general standards. AICPA Audit Standards: Aligns with GAGAS in emphasizing these four principles.

Question 8

Depreciation is measured on the statewide financial statements using the

Atax basis.

Bcash basis.

Cmodified accrual basis.

Daccrual basis.
In the statewide financial statements, which represent the government-wide financial reporting model, depreciation is reported using the full accrual basis of accounting. This means long-term assets and liabilities are recognized, and depreciation is recorded systematically over the useful lives of capital assets.
The modified accrual basis (used in governmental funds) does not report depreciation because capital assets are not reported in those funds.
Relevant Reference:
GASB Statement No. 34 -- Depreciation Reporting
GASB Concept Statement No. 1 -- Measurement Focus and Basis of Accounting
GFOA -- Capital Asset and Depreciation Policies
Answer : D. accrual basis

Correct Answer: D. accrual basis. In the statewide financial statements, which represent the government-wide financial reporting model, depreciation is reported using the full accrual basis of accounting. This means long-term assets and liabilities are recognized, and depreciation is recorded systematically over the useful lives of capital assets. The modified accrual basis (used in governmental funds) does not report depreciation because capital assets are not reported in those funds. Relevant Reference: GASB Statement No. 34 -- Depreciation Reporting GASB Concept Statement No. 1 -- Measurement Focus and Basis of Accounting GFOA -- Capital Asset and Depreciation Policies Answer : D. accrual basis

Question 9

If a capital project has an estimated life of 30 years, which financing method is designed to impose the cost of the project on the generation who benefits from it?

A30-year serial bonds

B30-year term bonds, without a sinking fund

C30-year zero-coupon bonds, without a sinking fund

Dpay-as-you-go financing
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 Reference:
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

Correct Answer: A. 30-year serial bonds

Question 10

The primary purpose of accumulating and reporting cost information is to O

Ainform stockholders of detailed operational data.

Bprovide a means for management to assess decision performance.

Cinclude specific details in external financial statements.

Dmeet a SEC reporting requirement.
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 Reference:
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

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