Which of the following circumstances would indicate that a potential component unit (PCU)should be included as part of the governmental financial reporting entity?
A) The primary government is entitled to the resources of the PCU.
B) Officials of the primary government appoint a majority of the members of the governing board of the PCU.
C) The primary government significantly influences the programs and activities of the PCU.
D) Officials of the primary government appoint a majority of the members of the PCU's governing board and the primary government is able to impose its will on the PCU.

Question

Quizplus · Accepted Answer

According to GASB Statement No. 14, a potential component unit should be included in the governmental financial reporting entity if it meets one of the following criteria: (1) the primary government is financially accountable for it, or (2) it is so intertwined with the primary government that it cannot be separated from the primary government. The condition described in choice D indicates financial accountability as well as a high level of operational integration between the primary government and the PCU. Therefore, the PCU should be included as part of the reporting entity. Choices A, B, and C may also indicate some level of financial accountability or operational integration, but they do not meet the high threshold established by choice D.

Which of the Following Circumstances Would Indicate That a Potential