Financial Reporting Unit Paper Example

Introduction

A financial reporting entity is made of primary government, the firms which the primary government is supposed to be financially accountable and ensure that it has adequate resources. The financial reporting entity is defined in relation to the issue of accountability, and it is regarded as being financially accountable in the case of the legally separate businesses if it manages to vote for the majority of the governing body in an entity. The business can lead to the rise of a financial burden or benefit in the event that the primary government gets entitled to the resources of the organization, it becomes responsible for the all or some of the debt that is owned by the business. Additionally, the burden or the losses can arise if the primary government is obligated in a manner that it becomes legally obligated, or it has taken the role of managing the debts owned by the business or incase it has agreed to undertake the responsibility of managing the business.

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Additionally, it also covers the other businesses in which the significance of their relationship and interaction with the primary government are in such a way that their exclusion would lead to the financial statements for the reporting entity to be incomplete or present misleading information. It usually has the capability to impose its will on the component unit if it manages to approve or modify the budget, remove the board members, and modify the decisions that have been made in the board level. Some of the primary government include the local, special purpose like the city and county and state governments (Ruppel, 2010). The schools district are also classified as primary governments. A component unit is a separate business that is legally binding, and the primary government's elected officials are usually held financially accountable.

The notes that are made to the financial statements of the reporting entity needs to make a distinction of the details that are pertaining to the component unit, and the primary government.

Blending and Discrete Presentation

Some of them are highly intertwined with the primary government to the extent that they are held in the same level to the primary government, and they are reported as a unit. In this cases, the transactions and balances of the component unit are reported using the same manner and structure as those of the primary government and this method of inclusion is regarded as blending. The discrete presentation refers to a situation where the component data unit is presented together, and it is separate from the government data, and the procedure can be accomplished in various ways which include making a presentation of condensed financial statements when making notes to the financial statements, either making an inclusion of combined statement of discretely component units that are presented. The data can also be presented in the government-wide books of accounts, and this should be in separate columns. The discrete presentation works well in the instance that there exist several components units in the primary government. The appropriate discrete presentation does exist on a wide spectrum of disaggregation and aggregation concepts and possibilities. In some instances, the component units are presented in a single column and individually and the disaggregation strategy tends to work well when there are a few components that the government manages. The presentation can be described as unwieldy in the event that there exist many component units.

References

Ruppel, W. (2010). Wiley GAAP for governments 2010: Interpretation and application of generally accepted accounting principles for state and local governments. Hoboken, N.J: Wiley.