Examination Two—Governmental Accounting, Financial Reporting and Budgeting

115 questions
Two hours and 15 minutes

I: Governmental Financial Accounting, Reporting and Budgeting: General Knowledge (40%) 


A. Demonstrate an understanding of the influences, objectives and role of standards, including:

  1. The unique financial aspects of the governmental environment that differ from the private sector (for example, profit versus service, importance of budget).

  2. The concept of interperiod equity.

  3. The objectives of governmental financial reporting (for example, financial accountability, budgetary accountability, program accountability).

  4. The major uses of governmental financial reporting (for example, budgetary compliance, compliance with laws and regulations, assessing financial position, assessing results of operations, assessing sustainability).

  5. The characteristics of information in governmental financial reporting (for example, understandability, reliability, relevance, timeliness, consistency, comparability).

  6. The roles of the Financial Accounting Standards Board (FASB), Governmental Accounting Standards Board (GASB) and Federal Accounting Standards Advisory Board (FASAB).  

  7. The role of the International Public Sector Accounting Standards Board (IPSASB).

  8. Due process in the setting of accounting standards (for example, discussion memorandum, invitation to comment, preliminary views, exposure draft, public hearing, task forces).  

  9. The purpose of the hierarchy of generally accepted accounting principles for state/local and federal accounting and financial reporting.

  10. The basic concepts and requirements of Open Government financial reporting.

B. Demonstrate an understanding of the concepts of managerial cost accounting and fee establishment, including:

  1. The purposes for accumulating and reporting cost information.

  2. The concept of full cost of outputs, incorporating inter-entity costs.

  3. The requirements of FASAB Statement of Federal Financial Accounting Standards (SFFAS) 4, as amended: Managerial Cost Accounting Concepts and Standards.

  4. Determining the costs under an intergovernmental cost-reimbursement contract or grant (as outlined in the Office of Management and Budget (OMB) Circular A-87*).

  5. Identification of the methods for assigning and allocating costs in a given situation (for example, direct, indirect). 

  6. Computation of the fee to be charged to a user.

  7. Various cost recovery objectives (for example, total direct costs, operating costs, full costs, replacement costs, incremental costs).

C. Demonstrate an understanding of the concepts of budgeting, including:

  1. The key elements of the budget process, from provision of initial guidance through preparation, review, adoption, execution and accounting.

  2. The structure of the budget (for example, organizational unit, program, function, category, character, fund, line item, object).

  3. The features of various budgetary approaches (for example, baseline, line item, program, zero-base, performance).

  4. The various means for financing capital projects.

  5. The methods of forecasting revenues and expenditures.

  6. The various means of budgetary control (for example, revenue monitoring, encumbrance/obligation control, vacancy controls, allotment, apportionment).

D. Demonstrate an understanding of the general principles of governmental financial accounting, including:

  1. The differences among the various measurement focuses and bases of accounting (for example, economic resources, current financial resources, cash, accrual, modified accrual).

  2. The effect of applying the various measurement focuses and bases of accounting to specific transactions.

  3. Exchange and exchange-like versus non-exchange transactions. 

  4. How to adjust the allowance for doubtful accounts under alternative methods (for example, percentage of sales or percentage of accounts receivable).  

  5. The differences among various methods of valuing inventory (for example, FIFO, LIFO, average cost). 

  6. Situations that require recording depreciation and calculation of the same.    

  7. Recording contingencies (for example, judgments, claims). 

II: Demonstrate an Understanding of State and Local Financial Accounting and Reporting, Including: (30%)


A. The application of the GASB standards for determining the reporting entity, including component units.

B. The purpose of each fund type within each fund category, and its related basis of accounting.

C. The form and content of the Comprehensive Annual Financial Report (CAFR).

D. The form and content of the basic financial statements, including:
  1. Government-wide financial statements. 

  2. Fund-level financial statements.

  3. Notes.

E. The reporting of fund balance in governmental funds.

F. The form and purpose of required supplementary information (RSI).

G. How to measure, record and report the purchase of capital assets, including assets acquired through a capital lease.

H. How to measure, record and report the incurrence and repayment of general long-term obligations in a governmental fund.

I. How to measure, record and report common, fundamental current assets and liabilities, revenue, expenditures, and other financing sources and uses when using the modified accrual basis of accounting (for example, property tax, grants, shared revenues, capital outlays, bond proceeds, debt service, payroll, accounts receivable).

J. How to measure, record and report common, fundamental assets, liabilities, revenue and expense transactions when using the accrual basis of accounting (for example, taxes, grants, shared revenues, capital assets, long-term debt, operating expenses, pensions, payroll, accounts receivable).

K. The recognition, measurement and required disclosures for various taxes and other revenues.

L. The types of interfund transactions, and how they are accounted for.

M. How to consolidate or eliminate transactions between the fund level and the government-wide level for governmental activities.

N. The required disclosures for cash deposits with financial institutions and investments, including repurchase agreements.

O. The option and criteria for using the modified approach for infrastructure.

P. The entries for recording the budget, modifying the budget and recording encumbrances and expenditures.

Q. How to reconcile the budgetary basis of accounting to the generally accepted accounting principles bases of accounting.

R. How to reconcile fund balances to net position for government activities at the government-wide reporting level.

S. Government combinations (for example, mergers and acquisitions, transfers of operations).


III: Demonstrate an Understanding of Federal Financial Accounting and Reporting, Including: (30%)


A. The role of FASAB and the relationships among the OMB, U.S. Department of the Treasury and the Government Accountability Office (GAO) in federal financial accounting and reporting.

B. Key budgetary terms (for example, appropriations, budget authority, budgetary resources, object class, outlays, receipts, offsetting collections, deficit).

C. The components of the budgetary equation.

D. The relationship and differences between budgetary and proprietary accounting.

E. Types of funds (for example, general, trust, revolving).

F. The components and use of the U.S. Standard General Ledger.

G. How to record common, fundamental budgetary transactions (for example, appropriation, apportionment, allotment, commitment, obligation, expenditure).

H. How to record common, fundamental proprietary transactions (for example, warrants, accounts payable, payroll, accounts receivable, pensions, investments, depreciation).

I. Determining the reporting entity.

J. The form and content of a performance and accountability report (PAR) and an agency financial report (AFR).

K. The purposes, form and content of the basic financial statements.

L. The concepts of consolidation and intragovernmental transactions.

M. The purposes and form of the notes to the financial statements.

N. The purposes and form of RSI, including required supplementary stewardship information (RSSI).

O. The concept of Fund Balance with Treasury.

P. The concepts of accounting for loans and loan guarantees (Credit Reform Act).

Q. The basic requirements for the U.S. Consolidated Financial Report.

NOTE: Effective July 15, 2016, the term “OMB Circular A-87” is no longer being used. This circular has been incorporated into the “Uniform Administrative Requirements, Cost Principles, and Audit Requirement for Federal Awards”, and the term “Uniform Guidance” is being used to describe the new law.