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Glenn Hegar  ·  Texas Comptroller of Public Accounts

Reporting Requirements for Annual Financial Reports of State Agencies and Universities

General Accounting

The Financial Reporting Entity
Reporting Equity Interest in Legally Separate Organizations

According to GASB 14, paragraph 55, as amended by GASB 61, paragraph 10a, if a primary government owns a majority of equity interest in a legally separate organization, the primary government’s intent for owning the equity interest determines whether the organization is reported as a component unit or an investment.

Report the organization as a component unit if the government owns the majority equity interest to directly enhance its ability to provide governmental services. For example, if the government purchases 100 percent of the stock of a concrete plant for the sole purpose of having a controlled source of concrete for its capital projects, then the concrete plant is reported as a component unit.

In addition to reporting the organization as a component unit, the equity interest is also reported in the agency’s financial statements. When the component unit is discretely presented, the equity interest is reported using the same criteria as discussed in Joint Ventures in The Financial Reporting Equity.

When the component unit is blended, the purchase is reported in the reporting period of the acquisition as an outflow of the fund that provided the resources. The activities of the component unit are reported just like any other blended component unit.

Note: Report the legally separate organization as a joint venture rather than as a component unit if the primary government owns the equity interest as part of a joint venture agreement.

Report the ownership of stock in a corporation as an investment (not as a component unit) if the government owns the stock for investment purposes rather than to directly aid its own operations, regardless of the extent of the equity ownership.

For more information on reporting equity interest, you may purchase a copy of GASB 14 from the GASB store or download a PDF version for free from GASB’s Pronouncement’s page.

Glenn Hegar
Texas Comptroller of Public Accounts
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