Question

GASB establishes that the financial reporting entity is the primary government together with its component units. Define primary government and component unit.

Answer 1

Q). Define primary government and component unit.

Ans:

Primary Government:

A primary government is any state government or general-purpose local government (municipality or county). A primary government is also a special-purpose government (for example, a school district or a park district) that meets all of the following criteria:

a. It has a separately elected governing body.

b. It is legally separate

c. It is fiscally independent of other state and local governments

Component Unit:

Component units are legally separate organizations for which the elected officials of the primary government are financially accountable. In addition, component units can be other organizations for which the nature and significance of their relationship with a primary government are such that exclusion would cause the reporting entity’s financial statements to be misleading or incomplete.