GASB 61: New Guidance Issued for Financial Reporting Entity
Posted 5-11-2011 | By David Mol | Download Article
The Governmental Accounting Standards Board (GASB) issued Statement No. 61, The Financial Reporting Entity: Omnibus amendment of GASB Statements No. 14 and No. 34, in November 2010. The effective date of GASB 61 is for periods beginning after June 15, 2012. GASB 61 modifies the existing guidance including changes to 1) criteria for including potential component units in the reporting entity; 2) criteria for reporting component units as blended or discretely presented; and 3) determination of a major component unit. This article addresses the new guidance regarding fiscal dependency criteria and blending criteria.
Fiscal Dependency. The existing guidance states if fiscal dependency exists, then including the component unit in the primary government’s financial statement was appropriate. Fiscal dependency was defined as the component unit not having the ability to A) determine budget, B) establish tax levy or rate, or C) issue debt without approval of another government.
The new guidance emphasizes that a financial benefit or burden relationship should exist. In other words, the primary government is A) legally entitled to or can otherwise access resources, or is B) legally obligated or has otherwise assured the obligation to finance deficits or provide financial support.
Blending Criteria. There are now three circumstances (of which only one needs to be met) under which a component unit is reported using the blending method within the primary government financial statements. The three circumstances are:
- Substantively the same governing body (changed). GASB provides guidance that the primary government also must generally manage the activities of the component unit in the same manner in which it manages its own programs. In other words, management of the primary government has operational responsibility for the component unit.
- Exclusive or almost exclusive benefit to the primary government (no change).
- Debt expected to be repaid by primary government (new). GASB emphasizes the total debt outstanding of the component unit is expected to be repaid entirely or almost entirely with resources of the primary government.
Recommended Action
The most significant change is how a component unit is included in a primary government’s financial report. This standard will result in more component units presented under the discrete method. As such, we recommend entities evaluate each component unit to determine if any changes are needed regarding inclusion method.
Please contact David Mol, CPA, at dmol@hltbtr.com or Peggy Moeller, CPA, at pmoeller@hlbtr.com with any questions.