GAFRB AGA Examination 2: Governmental Accounting, Financial Reporting and Budgeting (GAFRB) Free Practice Exam Questions (2025 Updated)

A well-structured budget document typically categorizes spending in three key ways:

Function: Broad purpose or mission, such as public safety, social services, or housing.

Program: Specific activities or initiatives under a function (e.g., housing vouchers under affordable housing).

Object Class: The type of goods or services purchased, such as personnel, supplies, or equipment.

When a budget is organized by items like social services (function), affordable housing (program), and supplies (object class), it indicates the budget is categorized by those three significant elements.

Relevant Standards and References:

OMB Circular A-11, Preparation, Submission, and Execution of the Budget

GAO Budget Glossary

Comprehensive Detailed Explanation:

Year-end wasteful spending (also known as “use-it-or-lose-it” spending) often occurs because agencies rush to obligate funds before they expire at fiscal year-end. Providing multi-year appropriations reduces this pressure by allowing agencies to obligate funds over a longer period, thus promoting better planning and reducing unnecessary or rushed spending.

Relevant References:

GAO Red Book – Appropriations Law

OMB Circular A-11 – Budget Execution

Congressional Budget Office (CBO) Reports on Year-End Spending

Answer: D. multi-year appropriation authority

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 References:

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

This is the point when a proprietary entry and a budgetary entry must both be recorded:

Proprietary entry: To record the asset (e.g., equipment) and recognize the payable

Budgetary entry: To move from unpaid obligation (Undelivered Orders) to paid obligation (Delivered Orders)

Receiving goods/services triggers both the accrual of the expense and the update of the obligation’s status in the budgetary accounts.

Relevant References:

FASAB SFFAS No. 1 – Accounting for Selected Assets and Liabilities

Treasury Financial Manual, Part 2, Ch. 4700 – Proprietary vs. Budgetary Accounting

GAO Red Book – Appropriations Law

Answer: B. A contracting officer's representative receives delivery of previously ordered printers.

A special-purpose government (e.g., a school district, utility authority) is considered a primary government when it meets at least one of the following conditions:

Has a separately elected governing body

Is legally separate

Is fiscally independent of other governments

The reliance on revenue projections from another entity does not preclude a government from being a primary government. What matters is legal and fiscal independence.

Relevant References:

GASB Statement No. 14 – The Financial Reporting Entity

GASB Statement No. 39 and No. 61 (Amendments to Statement 14)

GASB Codification Section 2100 – Defining the Financial Reporting Entity

Answer: A. relies on revenue projections from another government entity

For state and local governments, GASB (Governmental Accounting Standards Board) is the authoritative standard-setting body. If a GASB principle exists, it must be followed, even if a FASB (Financial Accounting Standards Board) principle suggests a different approach.

FASB guidance may only be used in the absence of applicable GASB guidance — and even then, only when it does not conflict with governmental accounting objectives.

Relevant References:

GASB Statement No. 76 – The Hierarchy of Generally Accepted Accounting Principles for State and Local Governments

GASB Concepts Statements

GAO and GFOA Reporting Manuals

Answer: A. the principle established by GASB

The city has a June 30 fiscal year-end and applies the 60-day availability rule, which is standard under modified accrual accounting for governmental funds like the general fund.

Total collections within:

Fiscal year: $12 million

60-day window (July + August): $1 million + $500,000 = $1.5 million

Revenue recognized = $12 million + $1.5 million = $13.5 million

However, under GASB Interpretation No. 5 and GASB Statement No. 33, only amounts expected to be collected within 60 days after year-end should be recognized as revenue in the general fund. The city uses the 60-day rule.

Thus, the correct amount to recognize is:

$12 million (collected during fiscal year)

$1 million (July)

$500,000 (August) = $13.5 million

Answer: C. $13.5 million

Relevant References:

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

GASB Interpretation No. 5 – Property Tax Revenue Recognition

GASB Codification Section 1600.115 (Modified Accrual Basis)

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 Why Does Management Need Real-Time Data Access?

Real-time access to data enables managers to make timely and informed decisions.

Complex data setspresented clearly and concisely (with minimal distractions) allow decision-makers to focus on the critical insights necessary for strategic and operational planning.

 Why Is Option D Correct?

On-demand access ensures managers can retrieve updated data whenever needed. Presenting the data in a focused and distraction-free format facilitates quick comprehension and decision-making.

 Why Other Options Are Incorrect:

A. Visual representation with indirect information:Including unrelated data can overwhelm users and detract from effective decision-making.

B. Dashboards updated quarterly:Quarterly updates do not meet the need for real-time access.

C. Prior year’s financial data:Decisions based solely on historical data are not responsive to real-time needs.

 References and Documents:

GAO Data Analytics and Visualization Framework:Stresses the importance of real-time, actionable, and distraction-free data for decision-making.

AICPA Dashboard Guidelines:Recommends presenting complex data sets in a clear and accessible format for management use.

The Governmental Accounting Standards Board (GASB) and the Federal Accounting Standards Advisory Board (FASAB) are both responsible for promulgating (i.e., formally establishing and issuing) accounting standards:

GASB: for state and local governments

FASAB: for federal entities

They do not establish auditing standards (that is the role of GAO and AICPA), nor do they issue joint standards or follow FASB unless no applicable guidance exists.

Relevant References:

GASB Statement No. 1 – Authoritative Status of GASB Pronouncements

FASAB Mission and Responsibilities

GAO Yellow Book (Government Auditing Standards)

Answer: C. promulgate accounting standards

Comprehensive Detailed Explanation:

Under 2 CFR § 200.446 of the OMB Uniform Guidance, idle facilities (or idle capacity) costs are generally unallowable. However, exceptions exist. One allowable condition is when the idleness results from fluctuations in workload that are considered normal for the type of operation.

Other allowable cases include those due to reorganization, restraint, or repair/maintenance needs — but only within reasonable limits and duration.

Relevant References:

2 CFR § 200.446 – Idle Facilities and Idle Capacity

OMB Uniform Guidance (2 CFR Part 200) – Cost Principles

GAO Red Book – Allowable Grant Expenditures

Answer: A. fluctuation in workload is reasonably expected

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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.

A permanent fund is a governmental fund used to report resources that are legally restricted so that only earnings (not principal) may be used to support government programs. These are typically endowments where the corpus is preserved in perpetuity.

According to GASB Statement No. 34, permanent funds are classified under governmental funds and must be used to benefit the government or its citizenry.

Relevant Standards and References:

GASB Statement No. 34, Basic Financial Statements—and Management’s Discussion and Analysis—for State and Local Governments

GASB Codification Section 1300, Fund Types

GFOA Budgeting & Fund Balance Guidance

Therefore, Option B is correct.

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