Pass the AGA Government Financial Manager GAFRB Questions and answers with ExamsMirror

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 References:

OMB Circular A-11 – Preparation and Submission of Budget Estimates

GAO Budget Glossary

U.S. Code Title 31 – Role of OMB

Answer: B. OMB

The Statement of Net Cost is the principal financial statement used by federal agencies to report the total cost of their programs and activities. It aligns the agency's programs, outputs, and strategic objectives with the cost incurred to produce those outputs.

The Department of Health and Human Services, like all federal agencies, uses this statement to display costs by major program or responsibility segment.

Relevant References:

FASAB SFFAS No. 4 – Managerial Cost Accounting Standards

FASAB SFFAS No. 55 – Amending the Statement of Net Cost

OMB Circular A-136 – Section on Federal Financial Statements

Answer: A. Statement of Net Cost

OMB Circular A-136 specifies the required components of the Agency Financial Report (AFR), which include:

A Message from the Head of the Agency

Management’s Discussion and Analysis (MD&A)

Financial Section (including statements and notes)

Other Information (e.g., improper payments, internal controls)

The Performance Section is not included in the AFR but is instead part of the alternative Performance and Accountability Report (PAR) or included separately in an Annual Performance Report (APR).

Relevant References:

OMB Circular A-136 – Financial Reporting Requirements (Section II)

GPRA Modernization Act of 2010

CFO Act of 1990

Answer: D. the performance section

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

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

GASB Statement No. 62 (based on FASB ASC 450-20) provides guidance on recognizing loss contingencies. If a loss is probable and the amount can only be estimated as a range, and no single amount within the range is better, the minimum amount in the range should be accrued.

The remainder of the range should be disclosed in the notes to the financial statements.

Thus:

Accrue: $100 million

Disclose: Additional exposure up to $200 million

Relevant References:

GASB Statement No. 62 – Paragraph 96

GAAP Implementation Guide – Loss Contingencies

AICPA Audit Guide – Government Auditing Standards

Answer: A. $100 million and disclose in the notes the exposure to an additional $200 million loss

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.

Comprehensive Detailed Explanation:

A contingent liability is a potential obligation that may arise depending on the outcome of a future event. A building containing asbestos represents a situation where a liability may be incurred if the asbestos must be removed due to safety regulations, public health concerns, or legal requirements.

Unlike realized losses (e.g., from asset sales or impairments), contingent liabilities depend on future events and uncertainty.

Relevant References:

FASAB SFFAS No. 5 – Accounting for Liabilities of the Federal Government

GASB Statement No. 62 – Codification of Accounting and Financial Reporting Guidance

GAO Red Book – Contingent Liabilities Examples

Answer: B. building with asbestos

The Prompt Payment Act (31 U.S.C. Chapter 39) mandates that federal agencies pay vendors on time. Specifically, if a contract specifies a due date for payment, agencies are required to pay by that date. If no specific due date is mentioned, payment must be made within 30 days after the later of either:

Receipt of a proper invoice, or

Acceptance of goods/services.

If agencies fail to pay by the due date, they must automatically calculate and pay interest penalties to the vendor.

Relevant Standards and References:

31 U.S.C. § 3903 (Prompt Payment Act): “A payment is timely if it is made by the due date prescribed by the contract or within 30 days after receipt of a proper invoice or acceptance of goods or services.”

OMB Circular A-125, “Prompt Payment,” Section 7(a)

Treasury Financial Manual (TFM), Volume I, Part 6, Chapter 8040

Therefore, Option D is correct.

Comprehensive Detailed Explanation:

In governmental accounting, an exchange transaction occurs when each party receives and gives up essentially equal value. Exchange-like transactions are similar but may lack one or more of the characteristics of a pure exchange (e.g., pricing may not be market-based).

Examples:

A city charges fees for utilities: the user pays for services and the city provides equivalent value.

Grants and taxes are nonexchange transactions because the payer does not receive a direct, equivalent benefit in return.

Relevant References:

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

GASB Concepts Statement No. 4 – Elements of Financial Statements

Answer: B. receives value and gives up essentially the same value.