AN INTRODUCTION TO ACCOUNTING FOR STATE AND LOCAL
Answers to Questions
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
that the GASB has cleared.
The Municipal Finance Officers Association (MFOA) issued
Governmental Accounting, Auditing, and
Financial Report (GAAFR)
in 1968. These resources constituted the most complete frameworks of
accounting principles specific to governmental units, and they provided standards for preparing and
evaluating the financial reports of governmental units.
In 1974 the AICPA issued its industry audit guide,
Audits of Sate 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.
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.” [
] A governmental unit may have hundreds of
funds, but only seven
discusses three fund categories (governmental,
proprietary, and fiduciary) and seven fund types (general, special revenue, capital projects, debt service,
internal service, enterprise, and trust and agency 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, capital projects funds, and debt service funds.
are “nonexpendable” or “commercial type” funds used to account for ongoing
activities that are similar to those found in private enterprise. They use the business accounting equation
and their reporting parallels that of a business entity in most regards. They include two fund types—
enterprise funds and internal service funds.
are used to account for assets held by the governmental unit as trustee or agent
for individuals, private organizations, and other governmental units. Fiduciary funds include trust funds
(expendable, nonexpendable, and pension) and agency funds.