Project Pages

Blending Requirements for Certain Business-Type Activities

Research Description: The initial objectives of this potential project are (1) to research which method of reporting component units for BTAs will best meet financial statement user needs and (2) to consider the need for revisions to existing standards. The research will review the relevant portion of the standards contained in Statement No. 14, The Financial Reporting Entity, as amended by Statement No. 61, The Financial Reporting Entity, Omnibus. The research should provide the Board with the information necessary to consider whether additional guidance is needed and, if so, support deliberations over developing specific accounting and financial reporting standards.

Status: Added to Research Agenda: December 2013


: At a 2012 liaison meeting with interested parties from the Healthcare Financial Management Association (HFMA), financial reporting entity issues were discussed. During that discussion, HFMA representatives encouraged the Board to allow the optional single or multiple-column approach set forth in Statement 61 for blending component units to be applied to all component units of BTAs. Although some would view the introduction of such an option as a fundamental shift in the presentation of component units, others would view such a change as an enhancement of special-purpose entity reporting. This topic is an important issue to other types of BTAs as well, such as public colleges and universities.

Major Research Issues: Paragraph 8 in Statement 61 provides BTAs with the option to consolidate their blended component units. Statement 61 did not affect the manner in which discretely presented component units should be reported; that is, by adding a separate column or columns adjacent to the total column for the primary government. The option to present a reporting entity total column was likewise not affected by Statement 61. That total column would essentially present the same information that would be presented if all component units were blended (consolidated).

Paragraph 26 in the Basis for Conclusions of Statement 61 states, “Based on the research and the review of other reporting entity standards, the Board concluded that, in general, the reporting entity framework established in Statement 14 (the criteria for inclusion of component units, the display and disclosure requirements, and other provisions) continues to be appropriate and provides financial statement users with decision-useful information in a cost-effective manner.”

Some respondents to the Statement 61 Exposure Draft voiced a similar interest within the context of redefining the blending principle. Paragraph 44 in the Basis for Conclusions stated the following with regard to those concerns:

Some of the respondents expressed agreement with the current blending principle; however, others preferred a different blending principle based on control. Paragraph 123 in the Basis for Conclusions of Statement 14 states that, “only in specific situations in which a component unit is, in substance, an integral part of the primary government should a component unit be blended.” Primary governments often have control of organizations that are not an integral part of themselves. The notion of control as the foundation for the governmental financial reporting entity was considered during deliberations leading to Statement 14 and rejected in favor of the financial accountability concept because “control” is difficult to assess in the governmental environment and likely would be inconsistently applied and ineffective. The Board has reaffirmed the Statement 14 blending principle in this Statement.

While the Board considered the blending principle during the reexamination project in the context of the overall governmental environment, the reexamination research did not specifically focus on user needs associated with BTAs. Therefore, the following issue will be considered: Would financial statement users find component unit information more or less decision useful if that information were consolidated into a single column with a primary government that is a BTA?

History: This topic was added to the potential reexamination project list in April 2013. During their February 2013 meeting, the Governmental Accounting Standards Advisory Council (GASAC) members ranked the priority of this topic at the middle of all research activities and potential projects.

Current Developments: From January to April 2014, the staff reviewed relevant accounting literature and examined the financial reports of BTAs. Selected data was obtained from those financial reports. Also, an interview instrument for users was developed and will be used for the next phase of the research.

Research Work Plan: The research will consist of a literature review, archival research, and a survey of financial statement users.

The main portion of the research will be a survey targeted to users of relevant BTA financial reports, such as municipal bond analysts evaluating issuers of revenue-backed bonds. The purpose of the survey will be to elicit feedback on the manner in which users would prefer to see information about the component units of BTAs in the BTAs’ financial statements (as opposed to the separately issued financial statements of the component units themselves).

Board Meetings Research Activities
May–July 2014 Conduct additional outreach with financial statement users.
April 2014 Review results of research with the Board and consider addition of project to the current agenda.