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The Financial Reporting Entity: Omnibus

June 06, 2012

By Jessica Aniskoff, CPA, MA

On December 17, 2010, the Governmental Accounting Standards Board (GASB) issued Statement No. 61, The Financial Reporting Entity: Omnibus.  This statement amends Statements No. 14, The Financial Reporting Entity, and No. 34,Basic Financial Statements – and Management’s Discussion and Analysis – for State and Local Governments.  The purpose of the new statement is to better meet user needs and to address issues that have surfaced since statements No. 14 and No. 34 were issued.

Statement No. 61 has two purposes:  It will improve the information presented by the financial reporting entity and add criteria for blending component units with the statements of the primary government. 

This statement modifies the criteria for including component units in the statements of a financial reporting entity as a discretely presented component unit as follows: 

  • If a component unit was previously included because it met the fiscal dependency criteria (which included the authority over the budget, setting of charges or issuance of debt), a financial benefit or burden relationship will now also need to be present for the component unit to be included. 
  • If an organization has not met the financial accountability criteria, but management has determined in the past that the financial statements may be misleading if the component unit is not included, there is now additional clarification of how this determination should be made and the types of relationships that should be considered in making the determination.

The GASB has two main intentions in issuing the above changes to the criteria for including a component unit.  The first is to ensure that only organizations for which the reporting entity’s elected officials are financially accountable are included in the financial statements.  The second is to ensure that the government’s determination that the absence of the component unit in the financial statements would cause the financial statements to be misleading, is appropriate and supportable.

For blended component units (component units reported as if they are part of the primary government), the Statement has amended the criteria for determining treatment in reporting as follows:

  • If a component unit is currently blended as a result of the “substantively the same governing body” criteria, this attribute alone is no longer enough to qualify the unit for blending.  The new statement now requires that (1) the primary government and component unit have a relationship that involves a financial benefit or burden or (2) management (below the level of the elected officials) of the primary government has operational responsibility for the activities of the component unit.
  • In addition, there are new criteria for the blending of component units whose total debt outstanding is to be repaid entirely or almost entirely by the primary government.
  • Provisions were also amended to clarify that funds of blended component units have the same financial reporting requirements as funds of the primary government.

These changes will help to ensure that only component units that are intertwined with the primary government are blended with the primary government in the financial statements. 

In addition to the changes above, the GASB further clarified:

  • For a primary government that is reported as a business-type activity in a single column with its blended component unit, the new guidance for reporting blended component units will require condensed combining information in the notes to the financial statements, to help users distinguish between the primary government and its component unit.
  • For the reporting of equity interests in legally separate organizations, the primary government is now required to report its equity interest in a component unit as an asset.

The changes above may result in organizations formerly presented as discrete and/or blended component units in the primary government’s financial statements no longer being reported as such.  The statement contains an updated flow chart to help determine the proper treatment of entities that may qualify as potential component units.

Ultimately GASB No. 61 seeks to improve financial reporting of a governmental financial reporting entity by ensuring that financial statements do not understate financial position and are more consistent and understandable in relation to equity interests. 

The statement is effective for periods beginning after June 15, 2012, although earlier application is encouraged.


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