The Governmental Accounting Standards Board has issued revisions to its financial reporting entity standards to better account for business-type activities at government-run institutions such as state universities.

Statement No. 61, “The Financial Reporting Entity: Omnibus,” is designed to improve financial reporting for governmental entities by amending the requirements of Statements No. 14, The Financial Reporting Entity, and No. 34, Basic Financial Statements—and Management’s Discussion and Analysis—for State and Local Governments, to better meet user needs and address reporting entity issues that have come to light since those statements were issued in 1991 and 1999, respectively.

The new standards aim to improve the information presented about the financial reporting entity, which comprises a primary government and related entities or component units. The amendments to the criteria for including component units allow users of financial statements to better assess the accountability of elected officials of the primary government by ensuring that the financial reporting entity includes only organizations for which the elected officials are financially accountable or that the government determines would be misleading to exclude.

In addition, the statement amends the criteria for blending—that is, reporting component units as if they were part of the primary government—in certain circumstances. The amendments to the criteria for blending will help ensure that the primary government includes only those component units that are so intertwined with the primary government that they are essentially the same as the primary government, and will clarify which component units have that characteristic.

For primary governments that are business-type activities reporting in a single column (for example, a state university), the new guidance for reporting blended component units will require condensed combining information to be included in the notes to the financial statements, which will allow users to better distinguish between the primary government and its component units.

Lastly, the new requirements for reporting equity interests in component units help ensure that the primary government’s financial statements do not understate financial position and provide for more consistent and understandable display of those equity interests.

The requirements of Statement 61 are effective for financial statements for periods beginning after June 15, 2012. Earlier application is encouraged. More information on Statement 61 is available at www.gasb.org.

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