GASB provides guidance for determining when a primary government should include a legally separate organization in its financial report. Outline the criteria for inclusion.
What will be an ideal response?
First, the relationship with the related entity must have one of the following characteristics: (1) the primary government controls a voting majority of the other organization's governing board or otherwise may impose its will on the organization; or (2) the other organization is fiscally dependent upon the primary government. An entity is fiscally dependent on a primary government if that government approves or modifies its budget, sets charges for its services, or if the government's approval is required to issue debt.
Second, the related organization must represent a financial benefit or burden to the primary government. A financial burden exists, for example, if the primary government is responsible for liabilities of the other organization. In contrast, a financial benefit exists if the government is entitled to or may access the other organization's resources.
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