Effective for periods beginning after June 15, 2012, GASB 61 added requirements that either a financial benefit or burden relationship be present between component units and a primary government to cause inclusion of the component unit in the reporting entity’s financial statements.
If a government’s management determines that inclusions of certain component units which fail the financial accountability requirements for inclusion should, however, be included in financial reporting in order to provide clear accountability, GASB 61 provides clarification for making that determination.
Under GASB 61, a government which owns equity interests in legally separate organizations is now required to report its interest in component units as an asset.
Additional requirements for including component units have been added where component units, currently blended under the “substantively same governing body” requirement, must now also meet the financial benefit or burden requirement. In lieu of that requirement, the component unit and primary government must share a level of management for the responsibility of operations at a lower level than that of elected officials. Where the primary government is a business-type activity using a single column reporting presentation for financial statements, GASB 61 provides guidance for blending a component unit.
GASB 61 mandates that changes made to financial reports to comply with GASB 61 should be treated as a prior period adjustment. Restatement should be made for periods affected. If doing so is not practical, the reporting government may restate beginning net assets (of fund equity or fund balance) for the earliest period restated, with the cumulative effect of applying GASB 61. Disclosure should be made including the nature of the restatement and its effect in the first period GASB 61 is applied.