Chapter 18 Q and A

Chapter 18 Q and A - Chapter 18 AN INTRODUCTION TO...

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Chapter 18 AN INTRODUCTION TO ACCOUNTING FOR STATE AND LOCAL GOVERNMENTAL UNITS 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 According to the AICPA’s Audit and Accounting Guide, a governmental entity is generally created for the administration of public affairs and has one or more of the following characteristics: ▪ Popular election of officers or appointment (or approval) of a controlling majority of the members of the organization’s governing body by officials of one or more state or local governments; The potential for unilateral dissolution by a government with the net assets reverting to a government; or The power to enact or enforce a tax. An organization may also be classified as a governmental entity if it possesses the ability to issue debt that is exempt from federal taxation. 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
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Chapter 18 Q and A - Chapter 18 AN INTRODUCTION TO...

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