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Inclusion of Component Unit in CFAR

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A compressive financial annual report for a primary government comprises the entire financial dealings that the said body is involved in, in a given financial year, thus, the question is if any of component units in the financial statement come up. What if any of them are the potential problems that could emanate from the inclusion of these bodies in the financial statement?

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There are several different interactions that enable them to achieve their aims, as it is often the case that these interactions contain varying degrees of financial commitments by both parties. It follows that to some extent, the financial footprints of both parties are linked, thus, raising the issue of what qualifies a component unit to be included in the financial statement of a primary government. The inclusion of the component bodies is dependent on the government being financially accountable for the said organization. This can be understood when we consider the following questions; “…are the economic resources received held to any degree by these bodies for the benefit of the government? Does the government to any degree, have assess to a majority of funds held by these outside units? And finally are the resources held by these outside bodies that the government has access to, significant to the government?” (GASB). Also the body must show fiscal dependence on the government. “…This means the organization cannot adopt its own budget, levy taxes or set rates, or issue bonded debt without the approval of the primary government” (Hoyle et al., 757)

Ultimately, the inclusion is largely dependent on how much policy control the government has over the affairs of the unit and the degree of financial dependence that the government has on the said unit. If all of the above requirements are answered in the affirmative then, it grounds for inclusion of the component unit in the financial reports of the primary government.

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