Question

18. How are component units and related organizations reported in financial statements prepared by primary governments
19. What criteria determines whether an entity is a component unit
20. What is a special purpose government and what condition(s) determines whether an entity qualifies as a special purpose government

Answer 1

18.Two ways of reporting component units are :

(1) Discrete presentation: reporting one or more units in a single column, apart from the data of the primary government. This is the default means of reporting.

(2) Blending: combining the component unit's transactions and balances with those of the primary government or reporting the the unit's funds as if they were corresponding funds of a primary government.

*Discrete Presentation

Governments typically report discrete component units to the right of the totals column on the government wide statements, however they have several other options:

- They may combine all the component units in a single column

- They may report each component unit in a separate column

- They may combine component units

*Blending

When a primary government blends component units into its financial statements, it reports the fund of the component units as if they were it own funds. Two circumstances indicate that two entities should be blended:

- They have the same governing boards

- The component unit provides services solely to the primary government (not just to its citizens)

Component units are not incorporated into a primary government's general fund, it such instances the units should be listed as special revenue funds of the primary government.

*Required disclosures

Primary governments must disclose detailed information as to each major component unit. The information can be included in any of these locations:

- The government-wide statements

- Notes to financial statements

- Combining financial statements - presented as part of the government's basic financial statements in a section following the fund financial statements

The primary government should also include in the notes a brief description of both the blended and discretely presented component units and how they are reported.

Related organizations--The primary government is accountable because they appoint a voting majority of the board, but is not financially accountable.

a. The primary government should disclose in their notes the nature of its accountability for related organizations;

b. The notes of the related organization should disclose the primary government that is accountable for it and describe its relationship; and

c. Other information required by Codification Section 2300.105f.

Note Disclosures:

i. A description of the ongoing financial interest and ongoing financial responsibility;

ii. Information about availability of separate financial statements of the joint venture; and

iii. Other information required by Codification Section 2300.105f

19.As defined in GASB Statement No. 14, component units are legally separate organizations for which the elected officials of the primary government are financially accountable. They may be a governmental organization (except those that meet the definition of a primary government), a nonprofit corporation, or a for-profit corporation.Organizations that are legally separate, tax-exempt entities and that meet all of the following criteria should be discretely presented as component units. These criteria are:

*The economic resources received or held by the separate organization are entirely or almost entirely for the direct benefit of the primary government, its component units, or its constituents.

* The primary government, or its component units, is entitled to, or has the ability to otherwise access, a majority of the economic resources received or held by the separate organization.

* The economic resources received or held by an individual organization that the specific primary government, or its component units, is entitled to, or has the ability to otherwise access, are significant to that primary government.

20..A special purpose government is one which meets all of the following criteria:

a. It has a separately elected governing body;

b. It is legally separate--It has corporate powers to have a name, the right to sue and be sued and the right to buy, sell, lease and mortgage property in its own name; and

c. It is fiscally independent of other state and local governments--It must have substantive authority to do all three of the following:

i. Determine its own budget without another government's having the authority to approve and modify that budget;

ii. Levy taxes or set rates or charges without approval by another government; and

iii. Issue bonded debt without approval by another government