New guidance on the letter of transmittal.

• Author: Gauthier, Stephen
• Position: The Accounting Angle - Government Finance Officers Association's Governmental Accounting, Auditing, and Financial Reporting

Traditionally, the focal point of the introductory section of a comprehensive annual financial report has been the letter of transmittal. While the National Council on Governmental Accounting established the requirement to present a letter of transmittal, that pronouncement provided no specific guidance on what its contents should be. (1) Rather, financial statement preparers have looked to the Government Finance Officers Association's Governmental Accounting, Auditing, and Financial Reporting, commonly known as the "Blue Book," for guidance on what they should include in a letter of transmittal.

The Governmental Accounting Standards Board's Statement No. 34, Basic" Financial Statements--and Management's Discussion and Analysis--for State and Local Governments, introduced management's discussion and analysis into the CAFR. Since MD&A and the letter of transmittal share many similarities, the introduction of the former created the potential for redundancy. To mitigate this risk, the GASB took pains to discourage governments from duplicating in the letter of transmittal information already provided in MD&A. (2) Likewise, GFOA modified its recommendations concerning the contents of the letter of transmittal in the 2001 edition of the GAAFR.

Recently, GFOA's Committee on Accounting, Auditing, and Financial Reporting reviewed the recommendations in the 2001 GAAFR in the light of the experience gained by governments that have already implemented GASB Statement No. 34. As a result of that review, the Committee decided both to modify and expand those recommendations.

RECOMMENDED CHANGES

The 2001 GAAFR proposed that the letter of transmittal contain four basic elements:

* Formal transmittal

* Profile of the government

* Information useful in assessing the government's economic condition

* Awards and acknowledgements

The Committee continues to believe that it is appropriate to organize the letter of transmittal based on these four elements. At the same time, it believes certain modifications and clarifications would be helpful for each of the first three elements.

Formal Transmittal. The 2001 GAAFR recommended that the letter of transmittal, consistent with its title, begin by formally transmitting the CAFR to its intended users. It was recommended that formal transmittal include each of the following items:

* Citation of relevant legal requirements fulfilled by issuing the CAFR

* Management's acknowledgement that it is responsible for the contents...