Determination of Blended Component Units
There are two circumstances in which a component unit should be blended.
- The component unit’s governing board is substantively the same as the governing body of the primary government. Substantively the same means that there is sufficient representation of the primary government’s entire governing body on the component unit’s governing body to allow complete control of the component unit’s activities. For example, the board of a city redevelopment authority may be composed entirely of the city council and the mayor, serving in an ex officio capacity. The primary government is, essentially, serving as the governing body of the component unit.
- The component unit provides services entirely (or almost entirely) to the primary government, or otherwise exclusively (or almost exclusively) benefits the primary government even though it does not provide services directly to it. The nature of this type of arrangement is similar to that of an internal service fund. The goods and services are provided to the government itself, rather than to the
individual citizens. GASBS 14 provides the example of a building authority created to finance the construction of office buildings for the primary government. If the component unit provides services to more than just the primary government, it should still be blended if the services provided to others are insignificant to the overall activities of the component unit. Other component units that should be blended are those that exclusively (or almost exclusively) benefit the primary government by
providing services indirectly. GASBS 14 provides the example of a primary government that establishes a component unit to administer its employee benefit programs. In this case, the component unit exclusively benefits the primary government, even though the component unit provides services to the employees of the primary government, rather than to the primary government
itself.
Taken From : Governmental Accounting Made Easy