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What to consider when implementing GASB Statement No. 61

October 31, 2013

GASB Statement No. 61, The Financial Reporting Entity: Omnibus, was issued in December 2010. Effective for periods beginning June 15, 2012 (i.e., generally for year-ends June 30, 2013, and later), GASB No. 61 amends Statements No. 14 and No. 36, and is now affecting government organizations.

In this article, you’ll find a summary of changes and key points to consider when implementing GASB No. 61.

GASB No. 61 primarily clarifies the requirements for blending component units and reporting equity interests in legally separate organizations. However, preparers should still perform an analysis of all potential component units to ensure the financial reporting entity is properly defined.

In the past, a legally-separate organization’s fiscal dependency 1 on the primary government would have required its inclusion as a component unit in the financial reporting entity’s financial statements. Under GASB No. 61, fiscal dependency alone no longer dictates a potential component unit’s inclusion. Instead, inclusion is now justified by the existence of a financial benefit or burden relationship between the potential component unit and the primary government.


  • GASB No. 61 clarifies the requirements for including blended component units. Several entities that had blended component units may now have to report those funds as discrete component units.

What makes an organization a blended component unit under GASB No. 61?

1. The expansion of the “substantively the same governing body” criterion
The criterion of having “substantively the same governing body” has been expanded to include an assessment as to whether (1) a financial benefit or burden relationship exists between the primary government and the component unit; or (2) the primary government’s management has operational responsibility for the component unit.

An organization has a financial benefit or burden relationship with the primary government if, for example, any one of these conditions exists:
a. The primary government is legally entitled to or can otherwise access the organization’s resources (e.g., the primary government has access to the checking account of the component unit).
b. The primary government is legally obligated or has otherwise assumed the obligation to finance the deficits of, or provide financial support to, the organization.
c. The primary government is obligated in some manner for the debt of the organization.

Management has operational responsibility if it manages the activities in essentially the same manner in which it manages its own programs, departments, or agencies.


  • The criterion for “substantively the same governing body” applies to the number of members of the governing body from the primary government: appearance of control of an organization does not qualify an organization as a blended component unit.
  • Unless at least one of the two above-referenced expansions to the criterion is present, primary governments must report funds previously reported as blended component units as discretely presented component units.

2. A new criterion related to debt
GASB No. 61 now requires component unit to be blended when its total outstanding debt, including leases, is expected to be repaid entirely (or almost entirely) with resources of the primary government.


  • This new criterion is a significant change that could require a formerly discrete component unit to be reported as a blended unit. After the debt is paid, the component unit may have to be reported again as a discretely presented component unit.

3. A change to the “exclusive benefit” criterion
As in the past, a component unit is blended if it provides services entirely (or almost entirely) to the primary government. A component unit may also be a blended if it exclusively (or almost exclusively) benefits the primary government yet does not provide services directly to it.

GASB No. 61 explains that the “exclusive benefit” criterion refers to services that are provided to the primary government itself, and not those provided entirely (or almost entirely) to external parties. For example, state lotteries and tribal casinos, or certain business-type activities such as utilities, healthcare entities, or universities that provide services to external parties such as customers, patients, or students, would not meet the exclusive benefit criterion for blending.

When is it necessary to report equity interest?

One of the changes brought about by GASB No. 61 is that a primary government must recognize the ownership of an equity interest in a component unit as an asset of the fund that has the equity interest (subject to reporting requirements for governmental funds), rather than as an expense or expenditure. It’s important to note that if the component unit were blended, the reporting entity would report the component unit rather than the asset. This change harmonizes the reporting of equity interests in component units with the reporting for joint ventures and for organizations with joint-venture characteristics.


  • An important question to ask in determining if an equity interest exists is, “Would the primary government receive any assets if the component unit or joint venture were dissolved?”

Consider this additional change related to note disclosure:

GASB No. 61 emphasizes that note disclosure requirements apply to each individual component unit, rather than to component units in general. That is, the notes to the financial statements should discuss reasons for the inclusion of each component unit.

In summary, here is a list questions and answers to help you determine if a component unit should be blended. Questions marked “NEW” are a result of GASB No. 61.
1) Does the potential component unit have separate corporate powers that would distinguish it as being legally separate from the primary government? – If NO, the component unit is blended.
2) Is the component unit’s governing body substantively the same as the governing body of the primary government (e.g., majority are council members)? – If YES, then ask:
(NEW) Is there a financial benefit/burden OR does management have operational responsibility for the component unit? – If YES, the component unit is blended. (Must answer “YES” for both questions.)
3) Does the component unit provide services entirely, or almost entirely, to the primary government or otherwise exclusively, or almost exclusively, benefit the primary government even though it does not provide services directly to it? – If YES, the component unit is blended.
4) (NEW) Is the component unit total debt expected to be repaid almost entirely with city resources?

Do you anticipate changes to your reporting under GASB No. 61? If so, we recommend reviewing the GASB standard and having a discussion with your audit professional.
1 Fiscal dependency is defined in GASB Statement No. 14. In general, fiscal dependency occurs when the primary government has the authority over any of the following: approving and modifying the component unit’s budget; levying taxes or setting of rates or charges; or the issuance of bonded debt.

Relevant Resources and Websites

GASB Standards
State and Local Government Expert Panel
Health Care Expert Panel
Not for Profit Entities Expert Panel
AICPA Governmental Audit Quality Center
AICPA Audit and Accounting Guide, State and Local Governments


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Andy Berg, CPA

Andy helps local governments serve their communities more efficiently through auditing and consulting services.

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