Government Insights - GASB Statement No. 80

Government Insights GASB Statement

No. 80

GASB Statement No. 80 establishes 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.

Effective Date STATEMENT NO. 80 takes effect for reporting periods beginning after June 15, 2016. The GASB encourages earlier application. The GASB also directs governments – if practicable – to retroactively apply Statement No. 80 provisions to previously-issued financial statements.

Anticipated Improvements STATEMENT NO. 80 is intended to make it easier to compare government financial statements, thereby improving the usefulness and value of those statements for evaluating performance and assessing government accountability.

Government Insights: GASB Statement No. 80

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Issues Addressed by Statement No. 80

Sara Dempsey, Partner Assurance Services sara.dempsey@weaver.com

IN DEVELOPING STATEMENT NO. 80, the GASB determined that while many services were provided by legally separate not-for-profit corporations in which the government is the sole corporate member, blending requirements were not previously required because: • Previous standards did not acknowledge that as a the sole corporate member, the government was the corporation’s governing body.

• Services provided by such corporations focus on providing services to individuals or entities beyond the government and its employees.

• Corporations with the government as the sole corporate member are generally expected to have sufficient resources to meet some or all of their own financial obligations.

Statement No. 80 addresses those issues by specifying that not-for-profit corporations that have a government as the sole corporate member be treated as components, similar to the way various government departments or activities are regarded as components for financial reporting purposes.

Summary A NOT-FOR-PROFIT CORPORATION with a government as its sole corporate member differs from government departments or functions in some respects, but ultimately has the government as its governing body. Therefore, Statement No. 80 extends component blending requirements to such not-for-profit corporations.

Statement No. 80 takes effect for reporting periods beginning after June 15, 2016.

The GASB encourages earlier application as well as restatement of previous financial statements, when practicable.

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