Reporting Requirements for Annual Financial Reports of State Agencies and Universities

Notes & Samples

NOTE 19 – The Financial Reporting Entity
Sample (Illustrative, may not tie to exhibits)

The Financial Reporting Entity

As required by the generally accepted accounting principles, the financial statements present Sample Agency and its component units. The component units discussed in this note are included in Sample Agency’s reporting entity because of the significance of their operational or financial relationships with the Sample Agency.

Individual Component Unit Disclosures

Blended Component Units — A five-member board appointed by the Sample Agency board governs the Sample Component Building Authority (SCBA). Although it is legally separate from the Sample Agency, the SCBA is reported as if it were part of the primary government because its sole purpose is to finance and construct Sample Agency’s public buildings. The SCBA’s financial data is reported as a capital projects fund (USAS D22 fund XXXX) on the combining statement of revenues, expenditures and changes in fund balances — capital projects funds in Sample Agency’s AFR.

Discretely Presented Component Units — Sample Agency is financially accountable for the following legally separate entities (Component Units); however, they do not provide services entirely or almost entirely to the Sample Agency. The component units are reported in a separate column on the combined financial statements. Except for the Sample Component School District (SCSD), the Sample Agency board appoints the governing bodies of all component units. SCSD’s board is elected by the citizens of Major City.

• The SCSD operates twelve elementary and three high schools. The SCSD may not issue debt without the Sample Agency’s approval and its property tax levy request is subject to Sample Agency board approval. The district’s taxes are levied under the taxing authority of the Sample Agency and are included as part of the Sample Agency’s total tax levy. The SCSD is reported for the year ended Sept. 30, 20PY.
• The Sample Component Governmental Parks and Recreation Commission (SCPRC) operates and maintains three public golf courses and the public parks. Sample Agency provides a material subsidy to the commission, primarily to finance the operations of the public parks. The SCPRC is reported for the year ended Aug. 31, 20CY.
• The Sample Proprietary Component Transit Authority (SCTA) provides mass transit services to the citizens. The Sample Agency annually provides significant operating subsidies to the authorities. The SCTA is reported for the year ended Dec. 31, 20PY.
• The Sample Proprietary Component Airport Authority (SCAA) operates a noncommercial airport facility. The authority’s operating budget is subject to the approval of the Sample Agency board. The board is also required to approve proposed capital improvements or additions to the authority’s facilities. The SCAA is reported for the year ended Aug. 31, 20CY.

Complete financial statements of the individual component units can be obtained from their respective administrative offices.

Related Organizations

The Sample Agency’s officials are also responsible for appointing the members of the boards of other organizations, but Sample Agency’s accountability for these organizations does not extend beyond making the appointments. The Sample Agency board chairman or specific committees of the Sample Agency board appoint the board members of the Sample Conservation Commission, the Bicentennial Commission and the Economic Development Association. In 20CY, the Sample Agency appropriated operating grants of $1,000 and $5,000 to the Bicentennial Commission and the Economic Development Association, respectively.

Joint Ventures

The Sample Agency is a participant with Major City (the city) in a joint venture to operate Memorial Stadium, a sports and recreation facility. The Memorial Stadium Authority (MSA), a public benefit corporation, was created for that purpose. On dissolution of the corporation, the Sample Agency and the city will share the net position of the MSA equally. A six-member board composed of three appointees from the Sample Agency and three from the city governs the MSA. The Sample Agency and the city are each obligated by contract to remit $250,000 annually to supplement the MSA’s operating revenues and are each entitled to one-half of the MSA’s annual operating income (if any). In accordance with the joint venture agreement, the MSA remitted $350,000 to the Sample Agency for 20CY. The Sample Agency’s net investment and its share of the operating results of the MSA are reported in the Sample Agency’s recreation fund (an enterprise fund). The Sample Agency’s equity interest in the MSA was $2.3 million at Aug. 31, 20CY. Complete financial statements for the MSA can be obtained from the MSA’s administrative office at 460 Stadium Drive, Major City, or from the Sample Agency.

Jointly Governed Organizations

The Sample Agency, in conjunction with North and South counties and the cities of Eastville, Westburg and Major City, has created the Regional Planning Commission (RPC). The RPC’s board is composed of three members from Sample Agency, three members from each of the county boards and one member from the governing board of each of the three municipalities. The Sample Agency appropriated $60,000 for an operating grant to the RPC for 20CY.

Related Parties

In order for Sample Agency to have a controlled source of concrete for its capital projects, Sample Agency owns the majority equity interest in Concrete Plant Inc. This allows Sample Agency to further enhance its ability to provide services to the citizenry. Therefore, Concrete Plant Inc. is reported as a discrete component unit.

During fiscal 20CY, Sample Agency entered into a purchase agreement for Concrete Plant Inc. to provide concrete to Sample Agency for the purpose of building Sample Agency’s Community Center. As of Aug. 31, 20CY, Sample Agency paid $10,000.00 to Concrete Plant Inc. for the purchase of concrete products. These transactions are reported in Sample Agency’s AFR as a capital projects fund (USAS D22 fund XXXX) on the combining statement of revenues, expenses and changes in fund balances — capital projects funds.

As of Aug. 31, 20CY, Sample Agency also incurred $5,000.00 in payables related to concrete materials delivered by Concrete Plant Inc. that Sample Agency has not yet paid for. In accordance with the purchase agreement, the balance will be paid in full by Oct. 31, 20CY.

Limited Liability Companies

The Sample Agency’s officials entered into an agreement to purchase a majority equity interest in a limited liability company (LLC). The Sample Agency paid $30,000 for the LLC. This allows the Sample Agency access to software capabilities of the LLC. The Sample Agency Executive Director has the ability to appoint a majority of the board of directors of the LLC. Therefore, since the Sample Agency holds a majority equity interest in the LLC, it must report the LLC’s investment in its financial statements using the equity method of accounting. If the Sample Agency has investments, other than majority equity interests, those investments must be reported in Sample Agency’s AFR as investments held at fair value. If the Sample Agency holds a majority equity interest in a legally separate organization that does not meet the definition of an investment, the holding of the majority equity interest results in the agency being financially accountable for the organization. The agency must report the legally separate organization as a component unit.