The new Blue Book.

• Author: Gauthier, Stephen J.

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This spring, the Government Finance Officers Association (GFOA) released a new edition of its classic "Blue Book," Governmental Accounting, Auditing, and Financial Reporting (GAAFR). The first Blue Book was published some 75 ago, in 1936. Subsequent editions appeared in 1951, 1968, 1980, 1988, 1994, 2001, and 2005, making this this latest version the ninth edition. This newest GAAFR has been completely rewritten and significantly expanded, with comprehensive coverage through GASB Statement No. 66, Technical Corrections--2012.

WHAT'S CHANGED SINCE 2005?

The last edition of the GAAFR was released in 2005. Since then, a number of significant developments have taken place that significantly affect accounting, auditing, and financial reporting for state and local governments:

* The Governmental Accounting Standards Board (GASB) issued 21 statements, two technical bulletins, and three concepts statements. Meanwhile, the GASB's staff continued to offer extensive guidance on a broad range of technical issues by means of annual updates to the GASB's Comprehensive Implementation Guide.

* The Government Accountability Office (GAO) revised Government Auditing Standards (commonly known as the "Yellow Book").

* The Committee of Sponsoring Organizations (COSO) of the Treadway Commission issued detailed guidance on the monitoring component of its comprehensive framework of internal control.

* The GFOA issued or updated 19 best practices or advisories that directly relate to governmental accounting, auditing, and financial reporting.

As a result of these developments, among other things:

* A completely new approach is now in effect for classifying the components of fund balance in governmental funds.

* Important limitations have been placed on the use of the special revenue fund type.

* The rules for identifying component units and incorporating their data into the report of the financial reporting entity have been substantially modified.

* Governments must now distinguish assets from deferred outflows of resources and liabilities from deferred inflows of resources.

In addition, the GASB has provided a wealth of detailed guidance on a variety of specialized topics, including termination benefits, pollution remediation obligations, intangible assets (including computer software), derivatives, and service concession arrangements (that is, public/private and public/ public partnerships, or PPPs).

WHAT'S NEW ABOUT THE BOOK ITSELF?

All the recent editions of the GAAFR have used a 8 1/2" x 11" format to accommodate the reproduction of a complete illustrative comprehensive annual financial report (CAFR). The illustrative CAFR that accompanies this new edition of the Blue Book has been made available online, which allowed the new version to be printed in a more compact and convenient 7" x 10" format.

Previous editions of the Blue Book were also accompanied by a separate study guide that offered outlines and exercises. The new GAAFR offers a "chapter in brief" summary and exercises (with correct responses) for each chapter, obviating the need for a separate study guide.

In the past, individual chapters of the GAAFR were often broad in scope. For example, the 2005 edition of the Blue Book devoted a single chapter to all four sets of basic financial statements. Conversely, the new edition of the GAAFR aims to facilitate easy access to specific topics through the use of shorter, more narrowly focused chapters. Thus, the new Blue Book replaces the single chapter previously devoted to "Financial Reporting" with separate individual chapters on "Governmental Fund Financial Statements," "Proprietary Fund Financial Statements," "Fiduciary Fund Financial Statements," and "Government-wide Financial Statements." In the same way, the single chapter on "Governmental Funds" in the previous edition has been replaced by separate chapters on "Revenue Recognition in Governmental Funds," "Expenditure Recognition in Governmental Funds," "Other Financing Sources and Uses," and "Asset and Liability Recognition and Measurement in Governmental Funds."

Also in the past, aspects of a single technical topic were often addressed in different chapters. Thus, for exam pie, a reader who wanted to gain a comprehensive understanding of the appropriate accounting and financial reporting for an advance refunding needed to consult both the chapter on "Governmental Funds" and the chapter on "Proprietary Funds." In contrast, the new GAAFR has been expanded to include chapters that offer a comprehensive treatment of a wide range of specialized topics (for example, "Capital Assets," "Debt," "Derivatives," "Risk Financing and Insurance").

The combined effect of the changes just described explains how the number of chapters in the new GAAFR has more than doubled, from 19 to 47.

WHAT'S IN THE NEW GAAFR?

The text of the new GAAFR is divided into five parts: 1) Background and Framework; 2) Fund Accounting and the Basic Financial Statements; 3) Specialized Accounting Applications; 4) Reporting Beyond the Basic Financial Statements; and 5) Internal Control, Auditing, and Analysis.

Part I : Background and Framework. The first part of the new GAAFR is subdivided into three subsections that address basic background, the governmental financial reporting model, and basic recognition principles.

Section A: Basic Background. The first three chapters of the new Blue Book provide a basic foundation for approaching governmental accounting and financial reporting.

Chapter 1, "Accounting, Financial Reporting, and the Financial Statement Audit: an Overview," explains how accounting, auditing, and financial reporting relate to each other, taking special care to distinguish accounting from financial reporting. It then goes on to examine the different types of financial reporting (internal financial reporting, special-purpose external financial reporting, general purpose external financial reporting), the different means of communicating financial...