The primary government is defined as a government that has a separately elected governing body; that is, one that is elected by the citizens in a general, popular election. A primary government is any state or local government (such as a municipality or county). A primary government may also be a special-purpose government, such as a school district, if it meets all of the following criteria:

• It has a separately elected governing body

• It is legally separate

• It is fiscally independent of other state and local governments (defined below)

A primary government consists of all of the organizations that make up its legal entity. This would include all funds, organizations, institutions, agencies, departments, and offices that are not legally separate. If an organization is determined to be part of the primary government, its financial information should be included with the financial information of the primary government.
It is important to note that a governmental organization that is not a primary government (including component units, joint ventures, jointly governed organizations, or other stand-alone governments) will still be the nucleus of its own reporting entity when it issues separate financial statements. These other organizations should apply the guidance of GASBS 14 as if they were a primary government when issuing separate financial statements. For example, assume that a city located on a major river establishes a separate legal entity to manage its port operations and foster shipping and other riverfront activities. The port authority is a separate legal entity, although its governing board is appointed by the city’s mayor, that is, the governing board is not elected. The port authority is not a primary government.

However, assume the port authority itself sets up two additional separate legal entities: an economic development author ity (to promote economic activity on the riverfront) and a souvenir shop (to raise funds as well as to publicize the riverfront activities). If these two separate entities meet the tests described in the chapter to be considered component units of the port authority, they would be included in the port authority’s reporting entity, even though the port authority is not a primary government.

Taken From : Governmental Accounting Made Easy

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