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									MAKING THE MOST OF THE

New Blue Book
BY GREGORY S. ALLISON

T

he 2005 edition of Governmental Accounting,Auditing,and Financial Reporting — or the “Blue Book” as it is commonly known — incorporates the many significant developments in state and local government accounting, auditing, and financial reporting since the last edition was published in 2001. This article gives an overview of the many features and supplementary materials of the 2005 edition, both old and new, that will continue to make the Blue Book a “must have” for practitioners and students of governmental accounting. Coupled with a complimentary CDROM containing all 19 chapters of the book and newly updated companion materials, GAAFR 2005 is the ultimate training tool and technical resource on state and local government accounting. WHAT HAS CHANGED SINCE 2001?

es more than 50 statements and interpretations of the GASB, nine GASB implementation guides, and numerous other technical publications. GFOA determined that a new edition of the Blue Book was needed to consolidate the voluminous content of the 2002 GAAFR Update Supplement with GAAFR 2001 into one publication and incorporate the many significant developments that have occurred since 2002. HIGHLIGHTS OF GAAFR 2005 The preface of GAAFR 2005 includes the following summarization of the specific revisions and updates of the text of the 2001 edition:
s The incorporation of all of the amendments previously con-

tained in the GAAFR Update Supplement;

s The addition of entirely new material The 2001 edition was the most extensive modiCoupled with a comrelated to GASB Statements 39 through 45; fication that had occurred in the Blue Book’s plimentary CD-ROM s The addition of new material based on publishing history. The issuance of GASB guidance offered in the GASB’s 2004 containing all 19 Statement 34, Basic Financial Statements — Comprehensive Implementation Guide, which and Management’s Discussion and Analysis — chapters of the book includes guidance published for the first time in for State and Local Governments in June 1999, the Implementation Guide to GASB Statement 40; and newly updated as well as other significant changes in generally companion materials, s The addition of a new section that specifically accepted accounting principles that had addresses school district issues; occurred since the sixth edition was published in GAAFR 2005 is the s The significant reworking of a number of major 1994, necessitated monumental changes in the ultimate training chapters; format and presentation of the Blue Book text. For example, prior to the 2001 edition, the Blue tool and technical s A greatly expanded set of references to original Book devoted chapters to each of the fund types source material to facilitate further research; resource on state and the account groups, as well as to budgeting, s An expanded and revised glossary; and and local governfinancial reporting in accordance with GAAP, s A redesigned comprehensive index. and the comprehensive annual financial report. ment accounting. The remainder of this article will focus on these With the issuance of GASB 34 and the new focus revisions and updates. In addition, there are sevon both government-wide and fund reporting, the structure of the eral other “new features” that will be addressed, such as the aforebook was changed to reflect the new format of external financial mentioned CD-ROM and companion materials. reports. Likewise, the sample CAFR was completely updated in New Authoritative Literature. As identified in Exhibits 1 accordance with the requirements of GASB 34, and appendices and 2, the GASB has issued numerous statements and interpretawere added to provide practical “how to” guidance on deriving tions, as well as other forms of authoritative guidance, since 2001. government-wide financial statements. Likewise, GFOA has expanded its library of recommended pracSo, again, what has changed since 2001? In 2002, GFOA pubtices, and the Government Accountability Office has modified its lished GAAFR Update Supplement, which addressed the signifi“Yellow Book” standards to, among other things, strengthen and cant changes in governmental accounting, auditing, and financial better define auditor independence. The significant changes in reporting that occurred soon after the publication of the 2001 edithe GASB literature include, but are not limited to the following: tion. The primary changes addressed in the 2002 GAAFR Update s General note disclosure requirements Supplement are summarized in Exhibit 1. Since 2002, however, s Specific risk disclosures for deposits and investments even more changes have occurred (Exhibit 2 summarizes the most significant ones). The authoritative literature on governmens Accounting and financial reporting guidelines for impaired tal accounting, auditing, and financial reporting now encompasscapital assets

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Exhibit 1: Primary Changes Addressed in the 2002 GAAFR Update Supplement
s

GASB Statement 37 — Amendments to GASB Statement 34 GASB Statement 38 — Additional note disclosures GASB Statement 39 — Nonprofits as component units Guidance provided by the GASB’s Guide to Implementation of GASB Statement 34 and Related Pronouncements Revised “Yellow Book” independence rules GFOA recommended practices:
• Appropriate • Establishing

ronment for both the public and private sector has changed significantly in recent years. GAAFR 2005 reflects these updates and represents the latest guidance available in the public sector audit arena. New and Improved Topics. As noted earlier, the basic format of GAAFR 2005 is consistent with the 2001 edition, which had been significantly modified. However, several sections have been enhanced to reflect recent authoritative changes, and some topics are included for the first time. One obvious example is the expanded discussion related to the statistical section of a CAFR. GASB Statement 44 substantially modifies the format and content of the statistical tables that are included in a CAFR. As mentioned earlier, the sample CAFR has been updated to reflect the modified statistical section, as has the text discussion. GAAFR 2005 has greatly expanded the coverage of states and special-purpose governments. There have been numerous changes in the authoritative literature since 2001 addressing enti-

s s s

s s

Level of Unreserved Fund Balance in the General Fund the Estimated Useful Lives of Capital Assets of Accounting Policies and Procedures

• Documentation • Measuring

the Cost of Government Services

• Performance

Measurement: Using Performance Measurement for Decision Making

Exhibit 2: Significant Changes Since the Publication of the 2002 GAAFR Update Supplement
s

s Accounting and financial reporting requirements for other

GASB Statement 40 — Investment disclosures GASB Statement 41 — Budgetary perspective differences GASB Statement 42 — Capital asset impairments GASB Statement 43 — Other postemployment benefit plans GASB Statement 44 — Statistical section GASB Statement 45 — Employer accounting for other postemployment benefits GASB Technical Bulletin 2003-1 — Derivative disclosures GASB Technical Bulletin 2004-1 — Tobacco settlement GASB’s 2004 Comprehensive Implementation Guide GFOA recommended practices:
• Considerations • Using Web • Improving • Enhancing • Including

postemployment benefits (from both an employer’s perspective and a plan’s perspective)
s Modification of the required elements of the statistical section

s s s

of a CAFR GAAFR 2005 addresses these key changes and, where necessary, the illustrative CAFR and supporting journal entries have been modified to incorporate the changes. For example, the statistical section of the illustrative CAFR has been completely updated and complies with the requirements of GASB Statement 44, Economic Condition Reporting: The Statistical Section — An Amendment of NCGA Statement 1. GFOA’s Executive Board is committed to identifying and recommending best practices for state and local governments. Many of these recommended practices directly relate to governmental accounting, auditing, and financial reporting issues. As such, applicable recommended practices are incorporated into the text of GAAFR 2005 and identified accordingly. Thus, the text not only describes GAAP in understandable language, but it also addresses practical issues and the manner in which practitioners deal with them. GAO recently updated its “Yellow Book” to address, among other issues, auditor independence. The independent audit envis s s

s s s s

on the Use of the Modified Approach to Account for Infrastructure Assets sites to Improve Access to Budget Documents and Financial Reports the Effectiveness of Fund Accounting Management Involvement with Internal Control Management’s Discussion and Analysis in Department Reports

Revised GFOA guidance on appropriate contents of the letter of transmittal

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Exhibit 3: Outline and Structure of GAAFR 2005
Introduction to Governmental Accounting s GAAP and the Governmental Environment
s s s s s

Professional Recognition Programs State and Special-Purpose Governments

The Governmental Financial Reporting Model Classification and Terminology The Financial Reporting Entity

Budgeting and its Relationship to Accounting and Financial Reporting s Budgetary Integration and Reporting
s

Fund Accounting s Governmental Funds
s s

Performance Measurement

Proprietary Funds Fiduciary Funds, Joint Ventures, and Other Multi-Party Arrangements Government-Wide Financial Statements

Internal Controls and Auditing s The Internal Control Framework
s

Auditing in the Public Sector

s

CAFR Preparation Appendices s Illustrative Journal Entries
s s s

Financial Reporting s Financial Reporting Overview
s s s s

Illustrative Trial Balances Illustrative Conversion Worksheet Illustrative CAFR

Financial Statements Notes to the Financial Statements Transaction-Specific and Account-Specific Guidance The Comprehensive Annual Financial Report

Illustrative Chart of Accounts, Classifications, and Descriptions

ties other than counties and municipalities. For example, the topics related to states now include financing authorities and accounting guidance for tobacco settlements. Also, with the recent release of the GASB’s accounting and reporting standards for other postemployment benefits, more extensive discussion is now included to address the new authoritative literature. And, for the first time, a section of the text has been devoted to unique accounting and financial reporting issues associated with school districts. Expanded Training and Research Resources. The Blue Book has always been considered the premier GAAP-based resource for state and local government finance officials. Users value its understandable text, unique illustrations that succinctly explain often complicated accounting and reporting concepts, extensive illustrative journal entries and conversion tools, up-to-date sample CAFR (including a letter of transmittal, MD&A, and statistical section), and expansive glossary and index. Needless to say, all of these features have been included and most

have been expanded and improved since the last edition. Applicable guidance from other resources has been included to the greatest level to date, complete with extensive crossreferencing. Since the publication of the 2001 edition, for example, the GASB issued its 2004 Comprehensive Implementation Guide. Guidance included in this extensive publication has been incorporated and cross-referenced throughout GAAFR 2005. Another example concerns the numerous changes to auditor independence rules that have occurred since 2001, forever changing the public sector audit environment. Both state and local government finance officials and independent auditors are being forced to reevaluate what services independent auditors may provide and which services they can no longer provide. These issues are addressed extensively in the auditing chapter of the text. It should also be noted that the comprehensive index has been completely redesigned and should prove invaluable for quick referencing of all topics (Exhibit 3 outlines the structure and contents of the main text).

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THE NEW STUDY GUIDE Government finance officers, public sector auditors, and educators have often used the Blue Book as a training tool. It is a particularly useful resource for those new to government financial management. The book’s numerous illustrations are often used as visual aids in training sessions, and, as noted earlier, its comprehensive glossary and index are invaluable for quick technical references. Since the 1994 edition, there has been a companion study guide for the text that provides an additional educational resource. The study guide for the 2005 edition is completely new and offers the following features:
s Extensive narrative outlines for each chapter,

organizations, it may also be used for continuing professional education credit. The GAAFR Self-Study Course, also completely updated, offers professionals an opportunity to earn continuing professional education credits by taking a multiple-choice exam based on GAAFR Study Guide: Outlines & Exercises. Participants receive practical feedback from the grading, including a list of all incorrectly answered questions and full explanations as to the correct answers. Those receiving a passing grade are then rewarded with 16 hours of self-study continuing education credit. Again, the technical resources of GAAFR 2005 go far beyond the text itself. SOMETHING FOR EVERYONE GFOA has always placed member service as its number one priority. In all areas and sectors of public finance, GFOA continues to be the technical resource that members turn to first. Users know that the information and training they receive from GFOA will not only be “top-of-the-line,” but that it will also be timely and expertly presented. GAAFR 2005 continues this tradition. While it is always a daunting task to improve upon an already excellent product, GFOA has done it with this new edition. No other publication is equally as useful to those who are new to the governmental environment, as well as to those professionals that have worked in the field for decades. The following appears in the text’s introductory “How to Use the GAAFR” section, and it appropriately summarizes the uses and users of GAAFR 2005:
s a comprehensive introduction to public sector accounting

excellent for quick study references;
s Seven hundred multiple choice and true/false

questions, covering all 19 chapters; and
s A companion answer booklet that provides not only

the correct answers for each question, but also explanations. While the GAAFR Study Guide: Outlines & Exercises is often used simply as a reference guide, or to assist one in preparing for the many certification programs offered either by GFOA or other

and auditing for experienced financial professionals new to state and local government;
s a practical reference tool for accounting and auditing staff; s a practice-oriented textbook for college-level classes

and seminars on governmental accounting, auditing, and financial reporting;
s a convenient guide to current practice; and s a practical introduction to governmental accounting

and auditing for new staff members. This summary is self-explanatory. GAAFR 2005 truly has something for everyone. Soon, this new edition will be a standard desktop feature in state and local governments nationwide. ❙

GREGORY S. ALLISON is assistant director of the School of

Government at the University of North Carolina at Chapel Hill.

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