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The purpose of this chapter is to examine and
critique the formal approach (i.e., the compliance and
liquidity model) used by state and local
governments to prepare their financial statements,
particularly with governmental funds.
For the most part, this will entail looking at the
financial statements as they appear in the
Comprehensive Annual Financial Report (CAFR) or
financial statements released separately. The rules
and format for these statements are established by
the Governmental Accounting Standards Board (GASB).
Given the nature and emphasis of the compliance and liquidity model, this chapter
concentrates on the annual financial performance as
reported in the financial statements in contrast to long term issues or
consequences. In the compliance and liquidity model costs or promises that go beyond one year are
not given the same attention in the financial statements as are current inflows and outflow of
money. How the compliance and liquidity model deals with long term obligations is covered in
the next chapter.
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