Component units are organizations that are legally separate from the primary government for which the elected officials are financially accountable. A component unit may be a governmental organization (except a governmental organization that meets the definition of a primary government), a not-for-profit organization, or even a for-profit organization. In addition to qualifying organizations that meet the “financial accountability” criteria (described more fully below), a component unit can be another type of organization whose relationship with the primary government requires its inclusion in the reporting entity’s financial statements. Once it is determined that the organization is a component unit included in the reporting entity, the financial statement preparer decides whether the component unit’s financial information should be “blended” with that of the primary government or “discretely presented.”

Taken From : Governmental Accounting Made Easy

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