Which of the following is evidence of fiscal independence for the purpose of considering whether one legally separate organization is a component unit of another?
A)The potential component unit is precluded from issuing long-term debt.
B)The potential component unit raises taxes without the approval of the primary government.
C)The budget of the potential component unit must be approved by the primary government.
D)The board or council of the potential component unit includes members of the primary government's management team.

Question

Quizplus · Accepted Answer

Fiscal independence is demonstrated when an entity has the ability to raise taxes without the approval of a primary government. This would indicate that the entity has a significant amount of control over its own financial affairs, and therefore is less likely to be considered a component unit of another organization. Choices A, C, and D do not necessarily indicate fiscal independence, as an entity can have its budget approved by a primary government and still be considered fiscally independent, or have members of the primary government's management team on its board or council and still be considered separate.

Which of the Following Is Evidence of Fiscal Independence for the Purpose