AGA GFMC Exam Questions Instant Access - No Installation Required

Question 1

To support optimal cash management vendor payment procedures, invoices with discount terms should be paid

Aafter the due date to increase cash flow.

Bprior to the due date to improve credit rating.

Con the due date, unless a charge is assessed for late payment.

Don the discount date.

Answer : D

Why Pay on the Discount Date?

Discount terms are offered by vendors to encourage early payment, such as '2/10, net 30' (2% discount if paid within 10 days). Paying on the discount date ensures the organization takes advantage of cost savings while still making timely payments.

This approach optimizes cash management by reducing payment obligations while maintaining good vendor relationships.

Why Other Options Are Incorrect:

A . After the due date: Late payments can damage vendor relationships and incur penalties.

B . Prior to the due date: Paying too early does not provide additional benefits and can unnecessarily deplete cash reserves.

C . On the due date: If a discount is offered, waiting until the due date means missing the opportunity to save money.

Reference and Documents:

GAO Financial Management Guide: Recommends paying invoices with discounts on the discount date to maximize cost savings.

Best Practices in Governmental Cash Management (AGA): Highlights the importance of managing vendor payments to take advantage of discounts.

Question 2

The value, in current dollars, of a sum of money to be received in the future describes

A payback value.

Bpresent value.

Cannuity value.

Dfuture value.

Answer : B

Question 3

When considering materiality during the planning phase for the field work for a financial audit, the dollar threshold for materiality is determined by the

Aauditor.

Bauditee.

Cauditor in consultation with the auditee.

Daudit committee.

Answer : A

Materiality in Auditing:

Materiality refers to the significance of misstatements or omissions in financial statements that could influence the decisions of users relying on those statements.

During the planning phase of a financial audit, the auditor determines the dollar threshold for materiality based on professional judgment, considering the size and nature of the auditee's operations and the needs of financial statement users.

Why the Auditor Determines Materiality:

The auditor has the responsibility to form an independent opinion on the financial statements and must determine materiality thresholds to design audit procedures effectively.

Materiality thresholds guide the extent of testing and ensure the audit focuses on areas most likely to impact decision-making.

Why Other Options Are Incorrect:

B . Auditee: The auditee provides the information, but it does not decide the materiality threshold.

C . Auditor in consultation with the auditee: The auditor may consult with the auditee for context, but the final determination is solely the auditor's responsibility.

D . Audit committee: While the audit committee oversees the audit, it does not set materiality thresholds.

Reference and Documents:

GAAS (Generally Accepted Auditing Standards): States that materiality is determined by the auditor's judgment.

AICPA AU-C Section 320: Provides guidance on materiality in planning and performing audits.

Question 4

In state and local financial audits, material weaknesses must be reported to the

Alegislature.

Bgoverning body.

Ctaxpayers.

Dlocal media.

Answer : B

What Are Material Weaknesses?

A material weakness in internal control is a deficiency or combination of deficiencies that creates a reasonable possibility of a material misstatement in the financial statements that would not be prevented or detected in a timely manner.

In the context of state and local financial audits, material weaknesses must be reported to those charged with governance, as they are responsible for oversight and corrective actions.

Why Is the Governing Body the Correct Answer?

The governing body (e.g., city council, county board, or state commission) is directly responsible for overseeing the entity's financial operations and ensuring accountability. Reporting material weaknesses to them ensures that corrective actions can be implemented to strengthen internal controls.

Auditors communicate such findings through an audit report or a management letter addressed to the governing body.

Why Other Options Are Incorrect:

A . Legislature: The legislature may have oversight of state budgets and appropriations but is not the direct governing body for financial audits.

C . Taxpayers: While transparency is important, material weaknesses are not directly reported to taxpayers. They may be disclosed in public audit reports, but taxpayers are not the primary audience.

D . Local media: Material weaknesses are not formally reported to the media; their disclosure depends on the entity's public reporting processes.

Reference and Documents:

GAO Yellow Book (GAGAS): Requires auditors to report material weaknesses to those charged with governance.

GASB (Governmental Accounting Standards Board): Emphasizes the importance of communicating significant audit findings to governing bodies.

AICPA Audit Standards (AU-C 265): Requires auditors to communicate material weaknesses to management and those charged with governance.

Question 5

Federal entities primarily assess internal controls to A. confirm that all management objectives will be met. B. identify program areas where efficiencies may be gained. C. ensure there is no fraud, waste or abuse within the entity. D. determine what legislation is not applicable to the entity.

AConfirm that all management objectives will be met: Internal controls reduce risk but do not guarantee all objectives will be achieved.

BIdentify program areas where efficiencies may be gained: Correct. Internal controls are assessed to optimize operations and identify improvements.

CEnsure there is no fraud, waste, or abuse within the entity: While controls mitigate risks of fraud, waste, or abuse, assessments aim to identify opportunities for efficiency.

DDetermine what legislation is not applicable to the entity: This is unrelated to internal control assessments.

Answer : B

Federal Entities and Internal Controls:

Federal entities assess internal controls to ensure efficient, effective, and economical use of resources while achieving program objectives.

Internal control assessments often identify areas for improvement, such as reducing waste or increasing operational efficiency.

Explanation of Answer Choices:

GAO, Standards for Internal Control in the Federal Government (Green Book).

Office of Management and Budget (OMB), Circular A-123, Internal Control Systems.

Question 6

The legislation that expanded the requirements of audits to virtually all federal agencies is the

ACFO Act of 1990.

BAccountability for Tax Dollars Act of 2002.

CFederal Financial Management Improvement Act of 1996.

DGovernment Management Reform Act of 1994.

Answer : B

What Did the Accountability for Tax Dollars Act Do?

This act expanded the audit requirements to virtually all federal agencies, not just those covered under the CFO Act of 1990.

It mandated that agencies prepare audited financial statements to improve transparency, accountability, and the management of federal funds.

Why Other Options Are Incorrect:

A . CFO Act of 1990: This act required audited financial statements but only applied to the 24 largest federal agencies (those covered under the Chief Financial Officers Act).

C . Federal Financial Management Improvement Act of 1996: Focused on financial system compliance with federal accounting standards, not expanding audit requirements.

D . Government Management Reform Act of 1994: Extended the CFO Act requirements to consolidated government-wide financial statements, not all federal agencies.

Reference and Documents:

Accountability for Tax Dollars Act of 2002: Specifies the expanded audit requirements for federal agencies.

GAO Guide on Federal Financial Management Laws: Provides a comprehensive overview of key legislation.

Question 7

What is the first step on performing a risk assessment under the COSO Internal Control Framework?

Aidentification of risks

Bdefining internal control objectives

Creview of prior audit findings

Dsetting risk tolerance levels

Answer : B

Risk Assessment Under COSO Framework:

The first step in a COSO-based risk assessment is defining internal control objectives. This establishes what the organization aims to achieve, providing a framework for identifying risks and ensuring controls align with objectives.

Risk assessment focuses on evaluating the likelihood and impact of risks that could hinder these objectives.

Explanation of Answer Choices:

A . Identification of risks: Identifying risks follows the definition of internal control objectives.

B . Defining internal control objectives: Correct. Objectives must be defined first to provide a basis for identifying and assessing risks.

C . Review of prior audit findings: Important, but it's not the starting point for a risk assessment under COSO.

D . Setting risk tolerance levels: This occurs later, after risks have been identified and evaluated.

COSO, Internal Control - Integrated Framework.

GAO, Standards for Internal Control in the Federal Government (Green Book).

AGA Examination 3: Governmental Financial Management and Control (GFMC) GFMC Exam Questions