GASB 80: To blend or not to blend?
GASB 80, Blending Requirements for Certain Component Units (an amendment of GASB Statement No. 14) was released in January 2016 and is first applicable to June 30, 2017 year ends. While the standard itself is short and sweet (only seven paragraphs), the implications may require much more effort.
This statement is extremely narrow in scope. It requires component units that are organized as not-for-profit corporations in which the primary government is the sole corporate member to be blended with the primary government. Sole corporate member is the key term here; it is a legal term, typically referred to in the articles of incorporation or bylaws of the not-for-profit. One of these documents typically specifies that the not-for-profit is organized as a corporate membership (having members), instead of a traditional directorship (which would have a board of directors).
While we don't expect the standard to apply to foundations, there will be some impact to higher education, healthcare, and other governmental entities that have not-for-profit corporation component units.
Generally, the main purpose of these types of not-for-profits is to provide services to the public or organizations other than the primary government and its employees; therefore, they would not have met the blending criteria in the past.
There is one exception to this blending requirement. Component units included in the reporting entity for which the primary government is not financially accountable but are included due to the nature and significance of their relationship with the primary government should continue to be discretely presented. Specifically, these organizations are those legally separate tax-exempt organizations that raise and hold economic resources for the direct benefit of the primary government, the specific criteria which is outlined in GASB 39.
GASB suggests restating the financial statements for all prior periods presented, if practical (note: GASB does not consider inconvenience to be not practicable). This means for comparative financial statements, the management’s discussion and analysis (MD&A) will need to be updated for all three years presented. Also, for governments engaged in business-type activities that use single column for financial statement presentation, blending component units within the single column will require disclosing condensed combining financial information in the footnotes. There is work to do!
While we don’t expect the standard to apply to foundations of colleges, universities, and hospitals (which are typically organized as a directorship), there will be some impact to higher education, healthcare, and other governmental entities that have not-for-profit corporation component units. We recommend reaching out to your Plante Moran audit team as soon as possible with any questions.