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Understanding the Reporting Entity under GASB #14: Defining Primary Government and Financial Accountability

This report discusses the concept of "Primary Government" (PG) as per GASB #14, detailing its characteristics, including the ability to levy taxes, issue debt, and determine its budget independently. It also explains financial accountability criteria, including voting majority appointments and imposition of will, and highlights the significance of other entities deemed "significant" to the PG. Additionally, we explore the relationship between PG and other organizations, such as finance authorities and educational foundations, emphasizing their fiscal dependencies.

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Understanding the Reporting Entity under GASB #14: Defining Primary Government and Financial Accountability

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  1. THE REPORTING ENTITY GASB #14

  2. The Reporting Entity includes: • The “Primary Government” (PG); • Those the PG is “financially accountable” for; and, • All Others deemed to be “significant”.

  3. A. The Primary Government (PG) • PG is defined as an entity whose Board is elected by citizens, legally separate, and fiscally independent of other entities. It can: • Determine its own budget • Levy taxes • Issue bonded debt • In order to be a PG, must be able to do all 3 without needing approval by another govt.

  4. Those for which the PG is “Financially Accountable” • To be “financially accountable”: • PG appoints a voting majority of CU governing body, AND: • is able to impose its will; OR, • there is a potential for the CU to provide specific financial benefits or impose financial burdens on the PG.

  5. “financially accountable” (cont.) • Regardless of the previous condition, PG may be financially accountable if the CU is fiscally dependent on it.

  6. C. OTHERS, if significant • Examples include: • Finance Authorities created to issue debt on behalf of the local government and serves as a conduit for repayment (off balance sheet financing) • Educational Foundations

  7. “Impose Its Will” Defined: • The PG can impose its will if it can: • unilaterally abolish the CU; • remove Board members; • hire/fire managers; • modify or approve budget or rate changes; • veto decisions of the CU

  8. Benefits and Burdens • A benefit or burden relationship exists if: • PG is legally entitled the CU’s resources (net income of the lottery, for example); OR, • PG assumes deficits of CU or provides financial support (state colleges); OR, • PG is obligated for the debt of a CU.

  9. Fiscally Dependent • An example of fiscal dependency would be where a local school board, even though elected by the public or state, must obtain approval for the school district’s budget from a city – or perhaps the city must approve any tax levies.

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