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Reporting Requirements for Annual Financial Reports of State Agencies and Universities

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Reporting Requirements for Annual Financial Reports of State Agencies and Universities

Notes & Samples

NOTE 19 – The Financial Reporting Entity

The financial reporting entity of the state of Texas includes not only all state agencies (and institutions of higher education), but also those outside organizations for which agencies are financially accountable. The financial reporting entity also includes other organizations whose nature and  agency’s financial statements to be misleading.

An agency may determine an outside organization to be a:

  • Component unit
  • Related organization
  • Joint venture
  • Jointly governed organization
  • Related party
  • Limited liability company

For component units, the financial information of the component unit must be included in the agency’s financial statements. The required note disclosure includes a discussion of the criteria for inclusion of the component units in the financial reporting entity and how the component units are reported (for example: blended or discrete). Agencies must also include information about how to obtain the separate financial statements for the outside organizations.

When an agency is analyzing its relationship with an outside organization, it must consider the relationship from a further viewpoint than just at the agency level. For example, when an agency is analyzing if the state appoints the voting majority of the governing body of an outside organization, it means that appointment could be made by either the:

  • Governor
  • Legislature
  • Agency commissioner
  • Members of the agency board

According to GASB 100, “changes to or within the financial reporting entity” meets the classification of an accounting change and requires certain financial statement adjustments and note disclosures (for example: a change in a component unit’s presentation as blended or discretely presented, or a change in a fund’s presentation as major or nonmajor).

In addition to the required disclosure for Note 19, agencies must also disclose certain information in Note 14. For more information on qualifying changes, reporting and disclosure requirements for changes to or within the financial reporting entity, see Note 14’s Changes To or Within the Financial Reporting Agency.