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Beams9eSM_ch18 - Chapter 18 AN INTRODUCTION TO ACCOUNTING...

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Chapter 18 AN INTRODUCTION TO ACCOUNTING FOR STATE AND LOCAL GOVERNMENTAL UNITS Answers to Questions 1 The Governmental Accounting Standards Board has primary responsibility for setting standards that provide GAAP for state and local governmental units. The most authoritative literature includes GASB Statements of Standards and GASB Interpretations. The second level of authoritative literature includes GASB Technical Bulletins and those AICPA audit and accounting guides and statements of position that the AICPA intended to make applicable to governments and that the GASB has cleared. Before 1984, the Municipal Finance Officers Association (MFOA) and its National Committee on Governmental Accounting provided guidance via the publication of Municipal Accounting and Auditing in 1951 and Governmental Accounting, Auditing, and Financial Reporting (GAAFR) in 1968. Since 1974, the AICPA has also issued industry audit guides for audits of state and local governmental units. 2 The Municipal Finance Officers Association (MFOA), now referred to as the Government Finance Officers Association (GFOA), first issued Governmental Accounting, Auditing, and Financial Report (GAAFR) in 1968. For many years, this resource book – often referred to as the Blue Book due to its distinctive blue cover - constituted the most complete frameworks of accounting principles specific to governmental units, and provided standards for preparing and evaluating the financial reports of governmental units. Updated periodically to reflect changes to governmental accounting, the 2005 GAAFR is the most recent version. 3 In 1974 the AICPA issued its industry audit guide, Audits of State and Local Governmental Units , in which it noted that GAAFR’s accounting and reporting principles constituted GAAP except where they were modified by the audit guide. The AICPA’s endorsements was important to the GAAFR’s authority and general acceptance by preparers, auditors, and users of governmental financial statements. The AICPA’s 2005 version of the industry audit guide reflects changes under GASB 34. 4 A fund is a separate fiscal and accounting entity with a self-balancing set of accounts, “segregated for the purpose of carrying on specific activities or attaining certain objectives in accordance with special regulations, restrictions, or limitations.” [ GASB Codification ] Fund accounting facilitates budgetary control. A governmental unit may have hundreds of funds, but only eight fund types . The Codification discusses three fund categories (governmental, proprietary, and fiduciary) and eight fund types (general, special revenue, permanent, capital projects, debt service, internal service, enterprise, and trust and agency funds). 5 Governmental funds are “expendable” or “source and disposition” funds through which most governmental functions are financed. These funds are essentially working capital entities. They include the general fund, special revenue funds, permanent funds, capital projects funds, and debt service funds.
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