Free Practice Questions for AGA GAFRB Exam

To calculate the full cost of the vehicle fleet program, we must include:

✔Direct costs

✔Indirect costs (pro-rated)

Given:

Fleet personnel costs: $80,000 (direct)

Fuel: $10,000 (direct)

Fleet depreciation: $50,000 (direct)

Fleet garage rent: $40,000 (direct)

Subtotal direct costs: $180,000

Now calculate 20% of indirect personnel costs:

Procurement personnel: 20% of $200,000 = $40,000

Accounting personnel: 20% of $100,000 = $20,000

Subtotal indirect support: $60,000

Total full cost: $180,000 (direct) + $60,000 (indirect) = $240,000

Correction: This contradicts the initial selection of “C. $430,000.” Let’s recheck:

Ah! The earlier subtotal missed summing all elements:

Corrected breakdown:

Fleet personnel: $80,000

Fuel: $10,000

Fleet depreciation: $50,000

Fleet garage rent: $40,000

20% of procurement ($200,000): $40,000

20% of accounting ($100,000): $20,000

= Total: $80,000 + $10,000 + $50,000 + $40,000 + $40,000 + $20,000 = $240,000

✅Correct Answer: B. $240,000

Relevant References:

FASAB SFFAS 4 – Managerial Cost Accounting

OMB Circular A-136 – Full Cost Definition

GAO Cost Estimating Guide

Answer: B. $240,000

A basic financial statement that includes a budgetary comparison (typically the Statement of Revenues, Expenditures, and Changes in Fund Balances – Budget and Actual) is used to demonstrate whether the government complied with its legally adopted budget.

This is a core element of accountability in governmental financial reporting and is required under GASB Statement No. 34.

Relevant References:

GASB Statement No. 34 – Budgetary Comparison Statements

GASB Codification Section 2400 – Budgetary Accounting and Reporting

GFOA Best Practices – Budget Monitoring and Reporting

Answer: B. demonstrate compliance with the legally adopted budget

The first and most appropriate action for the state Medicaid director is to inform the governor. This ensures that executive leadership is aware of the fiscal shortfall early and can weigh in on how to proceed. The governor plays a central role in budget planning and proposing supplemental appropriations.

While informing legislators or freezing spending may be necessary later, those steps should occur after executive leadership has been notified and involved in decision-making.

Relevant References:

GFOA Best Practices – Budget Monitoring and Adjustment

State Budget Procedures Manuals (varies by state, but consistent in escalation path)

National Association of State Budget Officers (NASBO) Guidance

Answer: A. Inform the governor of the situation and options for addressing the shortfall

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

In an Annual Comprehensive Financial Report (ACFR), the Independent Auditor’s Report is part of the Financial Section. It is placed immediately before the basic financial statements and after the Management’s Discussion and Analysis (MD&A), not before it.

The proper sequence within the Financial Section of the ACFR is:

Independent Auditor’s Report

Management’s Discussion and Analysis (MD&A)

Basic Financial Statements

Required Supplementary Information (RSI)

Other Supplementary Information (as applicable)

Relevant References:

GASB Statement No. 34 – Basic Financial Statements and MD&A

GFOA’s Governmental Accounting, Auditing, and Financial Reporting (GAAFR)

GFOA Checklist for ACFR Preparation

Answer: B. financial section before the basic financial statements

Comprehensive Detailed Explanation:

Budget authority is the legal authorization provided by Congress that allows federal agencies to enter into obligations that will result in outlays, either immediately or in the future. It is a prerequisite for agencies to spend federal funds.

Commitment authority is not an official federal term; transfer authority allows movement of funds between accounts and is more restrictive; expenditure authority is an informal term and not defined in U.S. Code.

Relevant References:

U.S. Code Title 31 – § 1341 and § 1102

GAO Red Book – Budget Concepts

OMB Circular A-11, Section 20 – Budget Authority Definition

Answer: B. a budget authority

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 References:

GASB Statement No. 34 – Basic Financial Statements

GASB Codification Section 1600 – Fund Accounting

GFOA Fund Accounting Guidance

Answer: C. current financial resources

When a government issues purchase orders, it records encumbrances to reflect commitments against appropriations. This helps track budgetary commitments and avoid overspending.

The entry is recorded in the budgetary accounts (not proprietary accounts) as follows:

Debit Encumbrances: Recognizes the commitment

Credit Budgetary Fund Balance (or Reserve for Encumbrances): Reflects that part of the fund balance is committed

This is consistent with modified accrual accounting and standard governmental fund practice.

Relevant References:

GASB Codification Section 1300 – Budgetary Accounting

GFOA Best Practices – Encumbrance Accounting

GAO Principles of Appropriation Law – Encumbrance Controls

Answer: D. Debit Encumbrances $427,000; Credit Budgetary Fund Balance $427,000

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

An Agency Financial Report (AFR), required by OMB Circular A-136, must include the following core components:

✔Management’s Discussion and Analysis (MD&A)

✔Financial Section (includes basic financial statements and accompanying notes)

✔Required Supplementary Information (RSI)

✔Auditor’s Opinion (if audited)

However, the Standard General Ledger (SGL) trial balance is not included in the AFR itself. While agencies must use the SGL for financial reporting consistency and submit trial balances to Treasury (e.g., via GTAS), the trial balance is not published in the AFR.

Relevant References:

OMB Circular A-136

Treasury Financial Manual (TFM)

FASAB SFFAS No. 53 – Financial Reporting

Answer: C. a standard general ledger trial balance