GASB Update #80 – Blending Requirements for Certain Component Units

A government may be the sole corporate member of a not-for-profit corporation that provides vital services to residents. A county government, for example, may offer healthcare services to residents via a not-for-profit hospital for which it is the sole corporate member. That hospital may acquire other entities so it can more effectively serve residents. In other instances, services provided by various government departments or functions may be spun off into not-for-profit corporations, with the government serving as the sole corporate member.

How should the methodology a state or local government uses to compile financial statements acknowledge such relationships? The Governmental Accounting Standards Board (GASB) addressed that question with the issuance of Statement No. 80 – Blending Requirements for Certain Component Units – in January 2016. 

Statement No. 80 amends GASB Statement No. 14 – The Financial Reporting Entity – by specifying the blending method for situations where a component unit is organized as a not-for-profit corporation with the government as its sole corporate member. That relationship and governance needs to be identified by the corporation’s articles of incorporation or bylaws. Statement No. 80 does not apply to component units addressed by Statement No. 39 – Determining Whether Certain Organizations Are Component Units.

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