Question 1

Form 990, Return of Organization Exempt From Income Tax, requires all of the following except:

Accepted Answer

A)  Statement of Program Accomplishments 
B)  Governance, Management and Disclosures 
C)  Compensation Schedules 
D)  Statement of Cash Flows

Question 2

The document often relied on for financial analysis by investors and creditors for bonds in the secondary market is:

Accepted Answer

A)  The official statement issued by the government issuing the bonds. 
B)  The comprehensive annual financial report. 
C)  An analysis prepared by the government's auditor. 
D)  None of the above.

Question 3

Governmental attestation engagements must comply with both the Government Auditing Standards and with the AICPA's attestation standards.

Accepted Answer

A) True 
 B)False

Question 4

While the principal users of corporate audit reports are investors and creditors, the main user of Single Audit reports is the federal government.

Accepted Answer

A) True 
 B)False

Question 5

Assuming an auditee is not considered low-risk, the auditor is required to express an opinion on compliance on major programs, which must add up to 90 percent of federal funds expended by the auditee.

Accepted Answer

A) True 
 B)False

Question 6

Reporting requirements are a combination of requirements of the Government Auditing Standards and the single audit requirements. The auditor is required to prepare up to five reports. Which of the following is  not one of the reports?

Accepted Answer

A)  A report discussing the evaluation and testing of internal control and compliance with laws and regulations. 
B)  A report discussing the effectiveness of the government's programs. 
C)  A report describing instances of fraud, illegal acts, or other material noncompliance. 
D)  A report containing the views of responsible officials of the audited organization regarding any reported significant deficiencies.

Question 7

Unrelated Business Income Tax is an excise tax, applied to the gross receipts of a business activity. Therefore allocations of expenses incurred in generating the income are irrelevant.

Accepted Answer

A) True 
 B)False

Question 8

The program expense ratio is calculated as Program service expenses / Total expenses.

Accepted Answer

A) True 
 B)False

Question 9

Service Efforts and Accomplishments Reporting includes measures of service inputs, outputs and outcomes.

Accepted Answer

A) True 
 B)False

Question 10

The program expense ratio for a not-for-profit organization will improve if the organization shifts costs from fund-raising to program expenses.

Accepted Answer

A) True 
 B)False

Question 11

A ratio that measures a not-for-profit organization's solvency is:

Accepted Answer

A)  Net assets/expenses. 
B)  Working capital ratio. 
C)  Program expense ratio. 
D)  Fund-raising efficiency.

Question 12

The single audit requirements apply only to state and local governments. Private not-for-profits do not have to comply with these requirements, even if they receive federal grants.

Accepted Answer

A) True 
 B)False

Question 13

Service Efforts and Accomplishments Reporting is voluntary for not-for-profit organizations.

Accepted Answer

A) True 
 B)False

Question 14

Unreasonable executive compensation paid to executives of 501c3 organizations is an area of concern for the IRS. Which of the following is a sanction available to the IRS?

Accepted Answer

A)  If the executive receiving the excess benefits fails to repay the amount in a timely manner, an additional tax equal to 100 percent may be imposed. 
B)  Revoke the organization's 501c)3) status. 
C)  In the event compensation is found to be unreasonable, the organization will receive a penalty equal to 200% of the excess compensation. 
D)  In the event compensation is found to be unreasonable, the executive is required to pay back the excess benefit to the tax-exempt organization plus a penalty of 25% of the excess benefit on the individual receiving the compensation and a penalty of 10 percent on the individuals responsible for approving it.

Question 15

The Museum of Creative Arts had the following expenses: $4,000 of membership development expense, $2,000 of Fund-raising expense, $5,000 of Instructional Classes expense, and $1,000 of general and administrative expense. What is the program expense ratio rounded?

Accepted Answer

A)  24%. 
B)  33% 
C)  42%. 
D)  50%.

Question 16

The program expense ratio is calculated as follows:

Accepted Answer

A)  Total expenses / Program service expenses 
B)  Program service expenses + supporting service expenses / Total expenses 
C)  Program service expenses / Total expenses 
D)  Total expenses / Program service expenses + supporting service expenses

Question 17

Tax Code Section 501 provides that nonprofit organizations organized for charitable purposes may be exempt from federal income taxes.

Accepted Answer

A) True 
 B)False

Question 18

Assuming an auditee is considered low-risk, the auditor is required to express an opinion on compliance on major programs, which must add up to 50 percent of federal funds expended by the auditee.

Accepted Answer

A) True 
 B)False

Question 19

To compute the net debt per capita, a user of financial statements would need to look at in the CAFR:

Accepted Answer

A)  The government-wide Statement of Net Position and the population from the statistical section. 
B)  The debt and the amount available to pay that debt in the governmental funds Balance Sheet, and the population from the statistical section. 
C)  The debt in the governmental funds Balance Sheet, the amount available in the government-wide Statement of Net Position, and the population from the statistical section. 
D)  The debt in the government-wide Statement of Net Position, the amount available to pay that debt in the governmental funds Balance Sheet, and the population from the statistical section.

Question 20

Which of the following is true regarding the Single Audit Act and its amendments?

Accepted Answer

A)  Major programs selected for audit must equal 50 percent or more of federal expenditures, unless the organization is deemed to be low risk. 
B)  Separate reports are filed with every federal agency from which the audited organization receives funds. 
C)  Both A and B above. 
D)  Neither A nor B above.

Exam 13: Auditing, Tax-exempt Organizations, and Evaluating Performance

Form 990, Return of Organization Exempt From Income Tax, requires all of the following except:

The document often relied on for financial analysis by investors and creditors for bonds in the secondary market is:

Governmental attestation engagements must comply with both the Government Auditing Standards and with the AICPA's attestation standards.

While the principal users of corporate audit reports are investors and creditors, the main user of Single Audit reports is the federal government.

Assuming an auditee is not considered low-risk, the auditor is required to express an opinion on compliance on major programs, which must add up to 90 percent of federal funds expended by the auditee.

Reporting requirements are a combination of requirements of the Government Auditing Standards and the single audit requirements. The auditor is required to prepare up to five reports. Which of the following is not one of the reports?

Unrelated Business Income Tax is an excise tax, applied to the gross receipts of a business activity. Therefore allocations of expenses incurred in generating the income are irrelevant.

The program expense ratio is calculated as Program service expenses / Total expenses.

Service Efforts and Accomplishments Reporting includes measures of service inputs, outputs and outcomes.

The program expense ratio for a not-for-profit organization will improve if the organization shifts costs from fund-raising to program expenses.

A ratio that measures a not-for-profit organization's solvency is:

The single audit requirements apply only to state and local governments. Private not-for-profits do not have to comply with these requirements, even if they receive federal grants.

Service Efforts and Accomplishments Reporting is voluntary for not-for-profit organizations.

Unreasonable executive compensation paid to executives of 501c3 organizations is an area of concern for the IRS. Which of the following is a sanction available to the IRS?

The Museum of Creative Arts had the following expenses: $4,000 of membership development expense, $2,000 of Fund-raising expense, $5,000 of Instructional Classes expense, and $1,000 of general and administrative expense. What is the program expense ratio rounded?

The program expense ratio is calculated as follows:

Tax Code Section 501 provides that nonprofit organizations organized for charitable purposes may be exempt from federal income taxes.

Assuming an auditee is considered low-risk, the auditor is required to express an opinion on compliance on major programs, which must add up to 50 percent of federal funds expended by the auditee.

To compute the net debt per capita, a user of financial statements would need to look at in the CAFR:

Which of the following is true regarding the Single Audit Act and its amendments?