Which of the following is evidence of fiscal independence for the purpose of considering whether one legally separate organization is a component unit of another?
A) The potential component unit is precluded from issuing long-term debt.
B) The potential component unit raises taxes without the approval of the primary government.
C) The budget of the potential component unit must be approved by the primary government.
D) The potential component unit sets user charges with approval of the primary government.

Question

Quizplus · Accepted Answer

The ability to raise taxes without approval from the primary government is evidence of fiscal independence, as it suggests that the potential component unit has the ability to generate its own revenue and make decisions about its own finances. None of the other options provide evidence of fiscal independence, as being precluded from issuing debt, having their budget approved by the primary government, or setting user charges with approval of the primary government all suggest a level of dependence on the primary government.

Which of the Following Is Evidence of Fiscal Independence for the Purpose