In applying the criteria and conditions that indicate financial accountability, a significant amount of judgment is required on the part of the financial statement preparer, because the breadth of variation in the “typical” governmental reporting entity is wide. In addition, GASBS 14 specifies that certain organizations should be included in the reporting entity of a primary government even if the financial accountability test is not met. These organizations should be included as component units if the nature and significance of their relationships with the primary government are such that exclusion from the financial reporting entity of the primary government would make the primary government’s financial statements incomplete or misleading. Clearly, a significant amount of judgment is required for compliance with this provision by the primary government.

Taken From : Governmental Accounting Made Easy

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