Overview of The New Blue Book: GAAFR 2001.

GAAFR 2001--the new Blue Book--is a definitive guidance masterpiece. This 680-page multi-purpose all-in-one book of timely, understandable, comprehensive, and practical guidance is the "must have" book for governmental accounting, reporting, and auditing professionals. This article reviews the new Blue Book and highlights sections of particular interest to practitioners.

It is likely that your office library is already stocked with up-to-date Governmental Accounting Standards Board (GASB) [1] guidance--including the latest Codification and Original Pronouncements volumes--as well as several contemporary governmental accounting textbooks. So why should a busy government finance officer, auditor, or consultant purchase yet another governmental accounting, financial reporting, and auditing book?

Governmental Accounting, Auditing, and Financial Reporting: Using the GASB Statement No. 34 Model [2] is not "just another book." To the contrary, GAAFR 2001--the new Blue Book--is a definitive guidance masterpiece. This 680-page multi-purpose, all-in-one book of timely, concise, understandable, comprehensive, and practical guidance--what to do and how to do it--is the must have book for governmental accounting, reporting, and auditing practitioners.

What makes the new Blue Book so special? Consider the structure and content--which are summarized in Exhibit 1. Even a cursory review of Exhibit 1 indicates some of the new Blue Book's features. For example, it is:

* comprehensive--and includes guidance on budgeting, budgetary reporting, internal controls, and auditing as well as on governmental accounting and financial reporting;

* illustrative-including a series of illustrative examples, a glossary, and summary appendices;

* accessible--because it has both a comprehensive general index to its contents, including journal entries and financial statements and a detailed table of contents; and

* useful--including practical "how to" guidance on implementing GASB Statement No. 34 and preparing the GASB Statement No. 34 based comprehensive annual financial report (CAFR).

Moreover, GAAFR 2001 is written for both the novice and the experienced practitioner. The experienced practitioner can quickly review the "Introduction" and "Fund Accounting" sections--noting the key changes under GASB Statement No. 34--whereas the earlier sections are a tutorial for the newcomer. All readers will ultimately focus extensively on the "Financial Reporting" section and the related "Appendices" illustrative examples, and most will at least scan the "Budgeting" and "Internal Controls and Auditing" sections.

Introduction

These first four chapters are designed primarily for the newcomer but provide an excellent review and update for the more experienced reader. They can be studied carefully one-by-one or reviewed rapidly as a four-chapter section.

* 1--GAAP and the Governmental Environment--emphasizes the unique environment of state and local governments (SLGs), how the SLG environment led to correspondingly unique accounting and financial reporting principles and standards, how generally accepted accounting principles (GAAP) applicable to SLGs are established, and the SLG GAAP hierarchy.

* 2--The Governmental Financial Reporting Model--briefly reviews the developments of fund accounting and reporting; the types of funds used, including their measurement focus and basis of accounting (MFBA); the evolution of the new integrated financial reporting model that includes government-wide statements as well as fund statements; and the interrelationships between the fund financial statements and government-wide financial statements.

* 3--Classification and Terminology--provides a summary overview of the several classes of SLG transactions (including nonexchange transactions) and interfund activity--and their appropriate accounting and reporting--as well as some of the specialized categories used in SLG financial reporting.

* 4--The Financial Reporting Entity--discusses applying the GASB criteria for when and how legally separate component units are "blended" or "discretely presented" in the financial statements for a single financial reporting entity.

Fund Accounting

The next four chapters are more technical than those in the introductory section. Chapters 5-8 focus on fund accounting--the "bread and butter" of governmental accounting--and how the fund data used to prepare the fund financial statements are converted and consolidated to prepare the government-wide financial statements.

* 5-Governmental Funds--discusses and illustrates the general rules of governmental fund accounting and their application--including revenue and expenditure recognition, other financing sources and uses, and asset and liability recognition.

* 6-Proprietary Funds--discusses and illustrates the accounting for enterprise funds and internal service funds--the business-type SLG funds--and the GAAP applicable to proprietary funds. Detailed guidance is included on topics such as impact fees, airport passenger facility charges, interest capitalization during capital asset construction, and tap fees.

* 7--Fiduciary Funds, Joint Ventures, and Other Similar Multi-party Arrangements--focuses on fiduciary (trust and agency) funds and other entities or activities that are not reported in the government-wide financial statements but may be disclosed in the notes to the financial statements.

* 8--Government-wide Financial Reporting--focuses in detail on the relationships between the fund financial statements and the government-wide financial statements--with emphasis on converting governmental fund data to "governmental activities data in the government-wide financial statements--and including consolidation of internal service fund data in the government-wide financial statements.

Financial Reporting

The tone and sophistication of the intermediate-level "Fund Accounting" chapters are necessarily higher than the more basic-level "Introduction to Governmental Accounting" chapters. The seven "Financial Reporting" chapters are deftly ratcheted up to provide professional level guidance. These seven chapters on financial reporting cover:

* 9--Financial Reporting Overview--focuses on the accounting-financial reporting relationships and the various types of contemporary financial reporting.

* 10--Financial Statements--discusses and illustrates the format and content of each new basic financial statement. Exhibits illustrate the:

- calculation of the components of net assets 

- structure of the government-wide statement of activities

- proprietary fund statement of cash flows, including:

* categories of cash flows

* usual reconciling items between

operating income and cash flows from operating activities.

* 11--Notes to the Financial Statements--discusses the most significant note disclosures required to be presented as an integral part of the basic financial statements, as well as note-related materiality considerations.

* 12--Transaction-specific and Account-specific Guidance--deals with a variety of specific technical guidance topics related to the basic financial statements--including topics such as capital leases, investments, designations, and interfund debt.

* 13--The Comprehensive Annual Financial Report (CAFR)--focuses on the remaining topics related to the CAFR.

* 14--Professional Recognition Programs--discusses the GFOA Certificate of Achievement for Excellence in Financial Reporting program and the GFOA Popular Annual Financial Reporting Award program--both designed to encourage and recognize excellent financial reporting.

* 15--Reporting for Specialized Entities--examines guidance applicable to specific types of governments or government activities--including pension plans, risk pools, investment pools, and states--and when certain special-purpose governments can merge government-wide and fund financial statements.

The body of the text concludes with discussions on two topics of interest to government finance officers--"Budgeting and Its Relationship to Accounting and Financial Reporting" and "Internal Controls and Auditing"--and GAAFR 2001 concludes with a series of Appendices and the General Index.

Budgeting's Relationship to Accounting

The next two chapters focus on the unique role of the budget, budgetary accounting, and budgetary reporting in government.

* 16--Budgetary Integration and Reporting--deals with the most significant aspects of public-sector budgeting, budgetary accounting, and budgetary reporting.

* 17--Performance Measurement--examines the current status of SLG performance measurement and its relationship to budgeting and financial reporting.

Internal Controls and Auditing

The final two chapters of GAAFR 2001 conclude its discussions of the accounting, auditing, and financial reporting cycle.

* 18--The Internal Control Framework--focuses on the internal control framework and its relationship to SLG accounting and financial reporting--including how specific control policies and procedures can be evaluated.

* 19--Auditing in the Public Sector--discusses the different types of SLG audits, auditing standards, and auditors--and includes an "audit scope" chart designed to clarify the degrees of responsibility taken by the auditor for the presentations and disclosures in the CAFR.

Appendices and General Index

The seven Appendices and the General Index are extremely effective ancillaries to the GAAFR 2001 text--and comprise almost half of its 680 pages.

* A--Illustrative Journal Entries--presents most journal entries that lead to the basic statements in the illustrative CAFR (Appendix D). For ease of study and reference, the illustrative journal entries are:

- numbered sequentially;

- labeled with descriptive titles; and

- referenced in the General Index.

* B--Illustrative Trial Balances--presents for each fund for which illustrative entries are provided (in Appendix A) these current year trial balances:

- beginning of year;

- preclosing--end of the year; and

- postclosing--end of the year.

A matrix at the beginning of this appendix serves as its table of contents.

* C--Illustrative Conversion Worksheet--illustrates the use of a worksheet approach to converting and consolidating the illustrative data in Appendices A and B to develop the data needed to prepare the governmental activities data in the government-wide financial statements. Appendix C will be immensely useful to SLG practitioners, and Appendices C and D are likely to be among the most helpful and most used sections of GAAFR 2001.

* D--Illustrative Comprehensive Annual Financial Report (CAFR)--discusses and illustrates presentation of most of the new and changed requirements for preparing the CAFR in conformity with GASB Statement No. 34 and GFOA award program standards. Specifically, Appendix D addresses and illustrates:

- Letter of Transmittal--which is refocused under GASB Statement No. 34.

- Management's Discussion and Analysis (MD&A)--which is required for SLGs for the first time under GASB Statement No. 34.

- Government-wide Financial Reporting--also new under GASB Statement No. 34.

- Notes to the Financial Statements--which are impacted by GASB Statement No. 34, note additions and changes to existing notes.

- Combining and Individual Fund Presentations--provides a complete set of combining and individual fund financial statements and schedules that are consistent with the new financial reporting model.

- Budgetary Reporting--again, consistent with the new GASB Statement No. 34 provisions.

* E--Illustrative Accounts, Classifications, and Descriptions--revises and updates the time-tested GFOA sample chart of accounts to comply with the new reporting model.

* F-Glossary--provides a totally new glossary to assist practitioners in coping with the numerous new and changed technical terms introduced recently by the GASB, as well as other SLG accounting, financial reporting, and auditing terms.

* G--Transition and Summary of Changes--contains a concise summary of the GASB Statement No. 34 transition provisions and the most significant differences between the pre- and post-GASB Statement No. 34 financial reporting models.

* General Index--a unique comprehensive index that includes references to journal entries as well as to topics, terms, etc.

Exhibits

One of the most useful distinguishing features of the new GAAFR 2001 is it 41 exhibits. These tables, charts, flowcharts, and other exhibits are distinctive because they are based on careful analysis and are presented in a simple, straight-forward manner that makes them extremely useful to practitioners.

Three of the shorter exhibits are reproduced here to illustrate the various types of exhibits in GAAFR 2001:

* Exhibit 2--Classes of Transactions and Interfund Equity--presents new terminology and relationships from GASB Statement Nos. 33 and 34 in an understandable manner.

* Exhibit 3--Components of Fund Balances--clearly explains the composition and relationships of governmental fund assets, liabilities, and fund balance.

* Exhibit 4--Accounting and Financial Reporting for Joint Ventures--succinctly leads the reader to the proper conclusions regarding joint venture financial reporting.

These illustrative exhibits are indicative of some of the types of exhibits presented throughout GAAFR 2001. However, the immense value of its 41 exhibits is most apparent in their context in various chapters throughout the new Blue Book.

Conclusion

Journalism students are taught this premier rule of effective written communication: "Tell them what you're going to tell them, tell them, and then tell them what you told them." Author Stephen Gauthier scored an A+ in creating the definitive new Blue Book, GAAFR 2001, and included a host of outstanding analytical exhibits and illustrative appendices for good measure.

SLG accounting, financial reporting, auditing, and consulting practitioners should stock their libraries with the GASB literature, textbooks, journal articles, and the new Blue Book, GAAFR 2001. But the most used of these will no doubt be the new Blue Book.

ROBERT J. FREEMAN is the Distinguished Professor of Accounting of Texas Tech University. Freeman served on the Governmental Accounting Standards Board (GASB) for 10 years, co-authors one of the leading governmental textbooks, and frequently participates in professional conferences and continuing professional education seminars.

NOTES

(1.) Governmental Accounting Standards Board (GASB), Norwalk, Connecticut. www.GASB.org.

(2.) Gauthier, Stephen J., Government Finance Officers Association (GFOA), 2001.

Exhibit 1

STRUCTURE AND CONTENT OF THE NEW GAAFR

Introduction to Governmental Accounting

* Chapter 1: GAAP and the Governmental Environment

* Chapter 2: The Governmental Financial Reporting Model

* Chapter 3: Classification and Terminology

* Chapter 4: The Financial Reporting Entity

Fund Accounting

* Chapter 5: Governmental Funds

* Chapter 6: Proprietary Funds

* Chapter 7: Fiduciary Funds, Joint Ventures, and Other Similar Multi-party Arrangements

* Chapter 8: Government-wide Financial Statements

Financial Reporting

* Chapter 9: Financial Reporting Overview

* Chapter 10: Financial Statements

* Chapter 11: Notes to the Financial Statements

* Chapter 12: Transaction-specific and Account-specific Guidance

* Chapter 13: The Comprehensive Annual Financial Report

* Chapter 14: Professional Recognition Programs

* Chapter 15: Reporting for Specialized Entities

Budgeting and its Relationship to Accounting and Financial Reporting

* Chapter 16: Budgetary Integration and Reporting

* Chapter 17: Performance Measurement

Internal Controls and Auditing

* Chapter 18: The Internal Control Framework

* Chapter 19: Auditing in the Public Sector

Appendices

* Appendix A: Illustrative Journal Entries

* Appendix B: Illustrative Trial Balances

* Appendix C: Illustrative Conversion Worksheet

* Appendix D: Illustrative Comprehensive Annual Financial Report

* Appendix E: Illustrative Accounts, Classifications, and Descriptions

* Appendix F: Glossary

* Appendix G: Transition and Summary of Changes

General Index

Source: GAAFR Review, January 2001, p. 5.

Exhibit 2
CLASSES OF TRANSACTIONS AND INTERFUND ACTIVITY
Value given/received  External
Equal                 Exchange transactions
Approximately equal   Exchange-like transactions
Not equal             Nonexchange transactions:
                      * derived tax revenues
                      * imposed nonexchange
                        revenues
                      * Government-mandated
                        nonexchange transactions
                      * voluntary nonexchange
                        transactions
Value given/received  Internal
Equal                 Reciprocal interfund activity
                      * interfund loans
Approximately equal   * interfund services/provided used
Not equal             Nonreciprocal interfund activity
                      * interfund transfers
                      * interfund reimbursements
Source: GAAFR2001, p.41
Exhibit 3
COMPONENTS OF FUND BALANCE
Assets available for spending and  Liabilities normally expected to
                                   be
not subject to legal limitations   paid from current financial
                                   resources
                                   Undesignated unreserved fund
                                   balance
                                   [available for appropriation]
                                   Designated unreserved fund balance
                                   (subject to tentative management
                                   plans)
                                   [available for appropriation]
Assets subject to legal
limitations
Unavailable assets                 Reserved fund balance
(e.g., long-term loans receivable) [not available for apropriation]

[Graph omitted]