Fundamentals of Governmental Accounting and Reporting

Chapter 9Reporting Entity

Learning objectives

• Identify the reporting entity of a government.
• Distinguish what qualifies as a primary government.
• Distinguish what qualifies as a component unit.
• Recognize how component units are reported in the financial statements of a primary government.

What entities should be included in the financial statements?

In business, it is often easy to determine what separate legal entities should be included in the financial statements of a corporation. It is based on ownership. Often there is no ownership for governments, making it difficult to determine what entities to include. Governments come in all shapes and sizes. Some general-purpose governments provide a full range of services; others provide only limited services. Additional services often are provided by separate special-purpose entities. Under what circumstances should these separate legal entities be included in the financial statements of the general-purpose government? This chapter will try to answer that question.

The reporting entity

Governments can provide a range of services in different ways to meet the needs of its citizens. Sometimes, governments establish separate legal entities to provide services that meet certain needs. Alternatively, they may financially support extant separate organizations or may join with other governments in providing a regional approach to providing services. Examples include jails, airports, housing, and building authorities.

Should these separate ...