AN INTRODUCTION TO ACCOUNTING FOR STATE AND LOCAL
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
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
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.
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)
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.
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.
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
] Fund accounting facilitates budgetary control.
A governmental unit may have hundreds of funds, but only eight
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).