Guide (New 2026) Actual AGA GAFRB Exam Questions
GAFRB Exam Dumps Pass with Updated 2026 Certified Exam Questions
NEW QUESTION # 10
When determining the full costs of a specific product or service, if the costs cannot be directly traced to the product or service, the costs should be assigned based upon
- A. an opportunity cost approach.
- B. an incremental or marginal relationship.
- C. a cause-and-effect relationship between resource costs and outputs.
- D. a direct labor relationship.
Answer: C
Explanation:
When full costs cannot be directly traced to a product or service, indirect costs must be allocated using a rational and systematic basis. The preferred method is to use a cause-and-effect relationship between the resource consumed and the output generated. This aligns with cost accounting principles under FASAB SFFAS No. 4 and managerial accounting frameworks.
Other options, such as direct labor or opportunity cost approaches, may be helpful in specific settings but do not meet the standard requirement for full cost allocation.
Relevant References:
FASAB SFFAS No. 4 - Managerial Cost Accounting Standards
OMB Circular A-136 - Full Cost Accounting
GAO Cost Estimating and Assessment Guide
D). a cause-and-effect relationship between resource costs and outputs
NEW QUESTION # 11
State and local budgets serve all of the following purposes EXCEPT to
- A. set public policy.
- B. act as legislative control on taxing and spending.
- C. determine debt policy.
- D. serve as a financial planning tool.
Answer: C
Explanation:
State and local government budgets primarily serve to:
Set public policy priorities
Provide legislative control over taxing and spending
Serve as a financial planning tool
Debt policy is typically established outside the annual budget process and guided by a separate debt management policy that sets borrowing limits, credit rating objectives, and debt service goals.
Relevant References:
GFOA Best Practices - Role of the Budget
NASBO Budgeting Handbook
GASB Concept Statements - Financial Reporting Objectives
C). determine debt policy
NEW QUESTION # 12
Entity receivables are described as amounts that
- A. a federal entity claims from other federal or non-federal entities that the federal entity is authorized to spend.
- B. the entity collects on behalf of the U.S. government or other entities that the entity is not authorized to spend.
- C. the entity anticipates receiving via appropriate warrant from the U.S. Department of the Treasury.
- D. the entity collects on behalf of other federal entities and deposits directly with the U.S. Department of the Treasury.
Answer: A
Explanation:
Entity receivables refer to amounts due to a federal agency that it has legal claim over and is authorized to spend or retain. These include:
Claims to cash from other agencies or external entities (e.g., reimbursements, fees for services) Amounts expected to be collected and available for the agency's own operations This contrasts with non-entity receivables, which are collected on behalf of other federal agencies or the general fund and are not available for the collecting agency's use.
Relevant References:
FASAB SFFAS No. 1 - Accounting for Selected Assets and Liabilities
Treasury Financial Manual (TFM), Vol. I, Part 2 - Definitions of Entity vs. Non-Entity Assets OMB Circular A-136 - Reporting of Receivables C). a federal entity claims from other federal or non-federal entities that the federal entity is authorized to spend
NEW QUESTION # 13
An agency's Fund Balance with Treasury is increased by which of the following events?
- A. a recovery of prior year obligations
- B. receipt of a Treasury warrant
- C. rescission of an appropriation
- D. collection of custodial revenue
Answer: B
Explanation:
Fund Balance with Treasury (FBWT) increases when an agency receives a Treasury warrant. A warrant is the official document issued by the U.S. Treasury that provides budgetary authority to the agency and establishes funds available for obligation and disbursement.
Other options:
Rescission of appropriation # decreases FBWT
Recovery of prior-year obligations # may restore budgetary authority, but not necessarily FBWT Custodial revenue # collected on behalf of others; not retained by the collecting agency Relevant References:
Treasury Financial Manual (TFM), Volume I, Part 2, Chapter 5100
FASAB SFFAS No. 1 - Fund Balance with Treasury
USSGL Guidance on Fund Balance Transactions
A). receipt of a Treasury warrant
NEW QUESTION # 14
The Government Management Reform Act of 1994 amended the CFO Act of 1990 to require
- A. OMB approval of executive department financial statements.
- B. quarterly financial statements of executive departments.
- C. unmodified audit opinions of the executive department financial statements.
- D. audited financial statements of the executive departments.
Answer: D
Explanation:
The Government Management Reform Act (GMRA) of 1994 amended the Chief Financial Officers (CFO) Act of 1990 to require each executive agency to prepare and submit audited financial statements covering all accounts and associated activities.
This extended the audit requirement beyond the pilot CFO agencies and laid the groundwork for the Financial Report of the U.S. Government.
Relevant References:
Government Management Reform Act of 1994 (Public Law 103-356)
CFO Act of 1990
OMB Circular A-136 - Financial Reporting Requirements
B). audited financial statements of the executive departments
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NEW QUESTION # 15
What is the maximum period of subscription-based information technology agreement (SBITA), including any options to extend, that is classified as short term?
- A. 6 months
- B. 12 months
- C. 18 months
- D. 24 months
Answer: B
Explanation:
According to GASB Statement No. 96 (Subscription-Based Information Technology Arrangements or SBITAs), a subscription agreement is considered "short-term" if the maximum possible term (including renewal options) is 12 months or less.
Short-term SBITAs are not reported as subscription liabilities and are accounted for as outflows (expenses or expenditures) when incurred.
Relevant References:
GASB Statement No. 96 - SBITAs (Issued May 2020)
GASB Implementation Guide No. 2021-1 - Q&A on SBITAs
GFOA Advisory - Cloud Computing and Subscription Agreements
B). 12 months
NEW QUESTION # 16
In state and local financial audits, material weaknesses must be reported to the
- A. legislature.
- B. taxpayers.
- C. governing body.
- D. local media.
Answer: C
Explanation:
What Are Material Weaknesses?
* Amaterial weaknessin 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?
* Thegoverning 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 anaudit reportor amanagement letteraddressed 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.
References 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.
NEW QUESTION # 17
A local government is evaluating different financing options for an upcoming capital project. Which of the following debt instruments will typically offer the lowest interest rate?
- A. certificate of deposit
- B. commercial paper
- C. revenue bonds
- D. general obligation bonds
Answer: D
Explanation:
General obligation (GO) bonds are backed by the full faith and credit of the issuing government, meaning they are secured by the government's taxing power. Because of this strong security, GO bonds typically carry lower interest rates compared to other financing options like revenue bonds or commercial paper.
Revenue bonds, by contrast, are supported only by the revenues from a specific project or source (e.g., tolls or utility fees), which generally results in higher perceived risk and thus higher interest rates. Certificates of deposit are not debt instruments used for financing projects but rather for investment.
Relevant Standards and References:
GFOA Best Practices - Debt Management
Government Finance Officers Association (GFOA) Debt 101
MSRB (Municipal Securities Rulemaking Board): GO vs. Revenue Bonds
GASB Concepts Statement No. 1, Objective of Financial Reporting
Therefore, Option B is correct.
NEW QUESTION # 18
What fund category traditionally accounts for the general services to the public such as public safety, health, transportation, social services and the administration of the government?
- A. fiduciary
- B. governmental
- C. general
- D. proprietary
Answer: B
Explanation:
The governmental fund category is used to account for the core services of a government that are primarily supported by taxes and other non-exchange revenues. These services include public safety, education, health, transportation, and social services. It includes the general fund, special revenue funds, capital projects funds, debt service funds, and permanent funds.
While option D (general fund) is technically a fund within the governmental category, the broader and more accurate classification is "governmental." Relevant References:
GASB Statement No. 34 - Basic Financial Statements for State and Local Governments GASB Codification Section 1300 - Fund Types GFOA Fund Structure Guidance B). governmental
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NEW QUESTION # 19
If an internal service fund needs to develop an hourly billing rate, the calculation should include
- A. the replacement cost of equipment purchased during the year.
- B. all materials purchased during the year, even if the materials were not consumed.
- C. all materials consumed during the year.
- D. the acquisition cost of equipment purchased during the year.
Answer: C
Explanation:
An internal service fund is used to account for goods or services provided by one department or agency to other departments or agencies of the governmental unit, typically on a cost-reimbursement basis.
To establish accurate billing rates (e.g., hourly rates), the fund must use actual costs of providing services.
This includes materials consumed, labor, depreciation, and overhead. Materials purchased but not used should not be included in the rate calculation for the current period.
Relevant Standards and References:
FASAB SFFAS No. 4, Managerial Cost Accounting
GASB Codification Section 1800, Internal Service Funds
GFOA Best Practices - Internal Service Fund Rate Setting
Therefore, Option A is correct.
NEW QUESTION # 20
The Prompt Payment Act requires federal agencies to
- A. take discounts when economically justified.
- B. pay invoices by the invoice due date.
- C. pay invoices when received.
- D. pay invoices no later than sixty days from receiving the invoice.
Answer: B
Explanation:
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. ยง 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.
NEW QUESTION # 21
A state had problems with its cash reconciliation resulting in a difference between the total cash per books versus cash balance with banks. The possible loss could only be estimated within a range of $100 million to
$300 million with no amount within the range considered a better estimate than any other. The state should recognize a minimum liability of
- A. $100 million and disclose in the notes the exposure to an additional $200 million loss.
- B. an amount to be determined by external auditors.
- C. $200 million and disclose in the notes the exposure to an additional $100 million loss.
- D. $300 million with no additional disclosure required.
Answer: A
Explanation:
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
A). $100 million and disclose in the notes the exposure to an additional $200 million loss
NEW QUESTION # 22
All the following are required financial statement reporting on governmental funds EXCEPT
- A. statement of cash flows.
- B. the operating statement.
- C. the balance sheet.
- D. expenditures and changes in fund balance.
Answer: A
Explanation:
The governmental funds (e.g., general fund, special revenue fund, capital projects fund) are reported using the modified accrual basis and current financial resources measurement focus. Required financial statements for governmental funds include:
Balance Sheet
Statement of Revenues, Expenditures, and Changes in Fund Balances
There is no requirement for a statement of cash flows for governmental funds. The statement of cash flows is only required for proprietary funds (e.g., enterprise and internal service funds) and is prepared using the direct method.
Relevant References:
GASB Statement No. 34 - Basic Financial Statements
GASB Codification Section 2200
GFOA Governmental Fund Reporting Guidelines
D). statement of cash flows
NEW QUESTION # 23
An example of a non-exchange revenue is
- A. licensing fees.
- B. bond proceeds.
- C. investment earnings.
- D. sales taxes.
Answer: D
Explanation:
Non-exchange revenues are those in which a government gives or receives value without directly receiving or giving equal value in return. Sales taxes are a classic example of a non-exchange revenue because the payer (consumer) does not receive a direct, measurable benefit from the government in exchange for the tax paid.
Other examples of non-exchange revenues include property taxes, grants, and fines. In contrast, licensing fees and investment earnings are exchange or exchange-like revenues, since they involve a mutual benefit or earnings return.
Relevant Standards and References:
GASB Statement No. 33, Accounting and Financial Reporting for Nonexchange Transactions GASB Codification Section N50 GFOA Revenue Classification Guidelines
NEW QUESTION # 24
When a rural community creates a fire district to serve an area previously served by the county government, and the fire district receives no money or equipment from the county, this is an example of
- A. a transfer of operations.
- B. intergovernmental operations.
- C. a government merger.
- D. a government acquisition.
Answer: A
Explanation:
According to GASB Statement No. 69 (Government Combinations and Disposals of Government Operations), a transfer of operations occurs when one government relinquishes or ceases operations and another government assumes those operations, but no significant consideration (money, assets, or liabilities) is exchanged.
In this case, the fire district is assuming responsibility for fire protection without receiving funds or assets from the county. That aligns with the definition of a transfer of operations - not a merger or acquisition.
Relevant References:
GASB Statement No. 69 - Government Combinations and Disposals of Government Operations GASB Codification Section G60 - Combinations and Transfers GFOA Guidance on Intergovernmental Restructuring C). a transfer of operations
NEW QUESTION # 25
Which entity assists the president in overseeing the preparation of the President's Budget?
- A. OMB
- B. GAO
- C. Congressional Budget Office
- D. the U.S. Department of the Treasury
Answer: A
Explanation:
The OMB assists the President in preparing the President's Budget, which is submitted annually to Congress.
OMB coordinates budget instructions, evaluates agency requests, and ensures alignment with presidential policies.
Other roles:
GAO: Supports Congress and performs audits
CBO: Provides nonpartisan budget analysis to Congress
U).S. Treasury: Manages federal finances but does not oversee budget preparation Relevant References:
OMB Circular A-11 - Role in Budget Formulation
U).S. Code Title 31 - Role of OMB
GAO Budget Glossary
C). OMB
NEW QUESTION # 26
Purchase orders are issued in the amount of $427,000. The general ledger entry to record the encumbrance should be
- A. Debit Encumbrances $427,000 Credit Budgetary Fund Balance $427,000
- B. Debit Appropriations $427,000 Credit Encumbrances $427,000
- C. Debit Encumbrances $427,000 Credit Expenditures $427,000
- D. Debit Fund Balance $427,000 Credit Encumbrances $427,000
Answer: A
Explanation:
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
D). Debit Encumbrances $427,000; Credit Budgetary Fund Balance $427,000
NEW QUESTION # 27
The quarterly inventory record below has been provided for use in preparing the organization's financial statements. Based upon the information provided, what method of inventory valuation is used by the organization?
- A. net weight scale
- B. average cost
- C. FIFO
- D. LIFO
Answer: B
Explanation:
The organization's inventory records show that the beginning and ending amounts and values change each month, and the relationship between units and dollar values suggests that the cost per unit is averaged, not fixed (as with FIFO or LIFO). Let's evaluate January:
Beginning: 1,200 units / $2,400 # $2.00 per unit
Purchased: 800 units / $2,000 # $2.50 per unit
Ending: 600 units / $1,500 # $2.50 per unit
The ending value of $1,500 for 600 units gives a per-unit cost of $2.50, matching the purchase cost in January. This suggests the system uses a weighted average cost method rather than tracking the specific cost layers (as FIFO or LIFO would).
Relevant References:
FASAB SFFAS No. 3 - Accounting for Inventory and Related Property
GAAP and GASB guidelines on inventory valuation
GFOA Best Practices - Inventory and Supply Chain Management
B). average cost
NEW QUESTION # 28
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