CGFM Exam Dumps - AGA Government Financial Manager Questions and Answers

Management's Role in Resolving Audit Recommendations:

By appointing a senior official to oversee the resolution of audit recommendations, management demonstrates itscommitment and supportfor the audit process.

This action indicates a proactive approach to addressing findings and improving operations.

Explanation of Answer Choices:

A. Agreement with the audit findings: While this may indicate agreement, appointing a senior official is more about ensuring action is taken rather than expressing agreement.

B. Disagreement with the audit findings: Incorrect. Appointing a senior official is a constructive step, not an indication of disagreement.

C. Delegation of authority: Incorrect. Delegation is involved, but the key point is the demonstration of management’s support for addressing audit findings.

D. Support for the audit process: Correct. This action underscores management's commitment to resolving audit findings and improving accountability.

References:

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

OMB Circular A-50,Audit Follow-Up.

Performance Audit Overview:

A performance audit focuses on evaluating the economy, efficiency, and effectiveness of government programs or activities.

Due professional care is a requirement inGovernment Auditing Standards (Yellow Book), ensuring auditors perform their duties responsibly and with professional judgment.

Key Requirement: Sufficient and Competent Evidence:

Auditors must collect sufficient and reliable evidence to support their findings, conclusions, and recommendations. This is the cornerstone of "due professional care."

Explanation of Answer Choices:

A. Obtain sufficient and competent evidence: Correct. This ensures audit findings are supported by reliable, documented evidence.

B. Determine scope: While part of audit planning, it is not directly related to due professional care.

C. Set materiality of financial statements: This applies to financial audits, not performance audits.

D. Present the findings in accordance with GAAP: GAAP is not a requirement for performance audits.

References:

GAO,Government Auditing Standards (Yellow Book).

Association of Government Accountants (AGA),Performance Auditing Practices.

Definition of a Material Weakness:According to auditing standards, a material weakness in internal control over financial reporting is a deficiency or combination of deficiencies that creates a reasonable possibility of a material misstatement in the financial statements that will not be prevented or detected on a timely basis.

Key Characteristics of a Material Weakness:

Reasonable Possibility:The likelihood of a misstatement is more than remote but less than certain.

Material Misstatement:The error or omission could impact the decisions of users relying on the financial statements.

Timely Detection:The deficiency allows errors to go undetected for an extended period, potentially affecting financial statement reliability.

Why Other Options Are Incorrect:

A.A misstatement in the basic financial statements may result from a material weakness, but the definition focuses on the reasonable possibility, not the actual result.

B.A material weakness impacts the financial statements, not "other accompanying financial information."

C.While timely detection is part of the issue, the definition focuses on the reasonable possibility of a misstatement, not management’s inability to perform specific duties.

References and Documents:

GAAS (AICPA SAS No. 115):Provides the formal definition of material weaknesses and guidance for auditors in evaluating control deficiencies.

COSO Framework:Emphasizes the need for effective internal controls to mitigate material misstatement risks.

Governmental Attestation Engagements:

These engagements involve providing assurance on specific elements of financial or non-financial information, such as compliance with laws, contracts, or bond covenants.

Reviewing revenue coverage requirements for outstanding bonds fits the scope of attestation engagements, which focus on confirming adherence to specific requirements.

Explanation of Answer Choices:

A. Monitor a subgrantee for compliance to the grant restrictions: Monitoring is a management responsibility, not typically part of an attestation engagement.

B. Establish a policy concerning fraud prevention: Establishing policies is a management duty, not a task for auditors.

C. Monitor purchasing card charges for compliance with travel policies: Monitoring is operational, not attestation-related.

D. Review the revenue coverage requirements on outstanding bonds: Correct. This falls within the scope of attestation engagements.

References:

GAO,Government Auditing Standards (Yellow Book).

AICPA,Attestation Standards for Government Engagements.

Definition of Computer-Assisted Audit Techniques (CAATs):

CAATs use software tools to perform audit tasks such as data analysis, testing transactions, and evaluating internal controls.

Obtaining accurate and relevant data is a key first step, as it forms the basis of any analysis performed using CAATs.

Explanation of Answer Choices:

A. Writing the system audit program: This is part of audit planning but not a specific feature of CAATs.

B. Verifying internal controls: While CAATs can be used to test controls, obtaining data is fundamental to this process.

C. Obtaining appropriate data: Correct. CAATs rely on accurate, relevant, and complete data for meaningful analysis.

D. Purchasing data mining software: While software is a tool for CAATs, the focus is on using data, not on acquiring the software itself.

References:

Information Systems Audit and Control Association (ISACA),Guide to Computer-Assisted Audit Techniques.

Association of Government Accountants (AGA),Data Analytics and Auditing Best Practices.

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.

What Is Forensic Accounting?

Forensic accountinginvolves investigating financial records to detect fraud, gather evidence, and support legal proceedings. It focuses on identifying and responding to fraud rather than proactively preventing it.

Tasks Performed in Forensic Accounting:

Auditing accounting records (Option A):Forensic accountants review records to uncover irregularities or fraud.

Interviewing related parties (Option C):They conduct interviews to gather information and evidence.

Serving as an expert witness (Option D):Forensic accountants often testify in court to explain their findings.

Why Prevention Is Not Part of Forensic Accounting:

Preventing fraud is typically the responsibility ofinternal controls, management, and auditors, not forensic accountants. Forensic accounting is reactive, addressing fraud that has already occurred.

References and Documents:

GAO Forensic Auditing Standards:Highlights the role of forensic accounting in investigating, not preventing, fraud.

AICPA Forensic and Valuation Services Practice Aid:Focuses on investigative and litigation support tasks performed by forensic accountants.

Purpose of the Analysis:A finance director needs to assess whether the organization has enough funds available to cover short-term obligations (bills due within 30 days). This requires evaluating liquidity.

Explanation of Key Ratios:

Quick/Current Ratio: Measures an entity’s ability to pay its short-term liabilities using liquid assets.

Current Ratio= Current Assets ÷ Current Liabilities.

Quick Ratioexcludes less liquid assets (e.g., inventory), focusing on assets that can quickly convert to cash.This is the appropriate measure for assessing immediate liquidity.

Receivables Turnover Ratio: Measures how efficiently receivables are collected but doesn’t directly evaluate liquidity for bills due within 30 days.

Budgetary Cushion Ratio: Refers to financial reserves relative to annual spending, not short-term liquidity.

Debt Burden Ratio: Evaluates debt relative to revenues but does not address immediate cash flow needs.

References:

Government Finance Officers Association (GFOA),Liquidity Management Best Practices.

Association of Government Accountants (AGA),Financial Statement Analysis for Government Finance Officers.

What Is Net Present Value (NPV)?

NPV analysisevaluates the profitability of long-term investments by calculating the present value of expected cash inflows and outflows over time, discounted at a specified rate (e.g., the opportunity cost of capital).

It helps decision-makers compare investment options by quantifying their value in today’s dollars.

Why NPV Is Appropriate for Long-Term Investments:

It considers thetime value of money(a dollar today is worth more than a dollar in the future).

NPV helps the treasurer evaluate and prioritize investments based on their overall profitability and financial impact over the long term.

Why Other Options Are Incorrect:

B. Regression Analysis:This statistical method analyzes relationships between variables but is not commonly used for evaluating long-term investments.

C. Horizontal Analysis:Focuses on financial data changes over time (e.g., year-to-year comparisons), not investment decisions.

D. Ratio Analysis:Measures financial performance but does not evaluate the profitability of long-term investment alternatives.

References and Documents:

GAO Guide on Investment Decision-Making:Recommends using NPV for evaluating long-term projects and investments.

OMB Circular A-94:Provides guidelines for using NPV in benefit-cost analysis of federal investments.

What Did the Accountability for Tax Dollars Act Do?

This act expanded the audit requirements tovirtually 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.

References 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.