Can an entity be a component unit of more than one primary government?

An entity can only be a component unit of one primary government at a time. This principle is rooted in the requirements set forth by the Governmental Accounting Standards Board (GASB). A component unit is defined as a legally separate organization for which the elected officials of a primary government are financially accountable. The financial accountability is established primarily when the primary government appoints a voting majority of the organization's governing body or is able to impose its will on the organization.

The nature of financial accountability ensures that a component unit is integrated within the primary government's financial statements, reflecting the financial resources and fiscal responsibilities effectively. Allowing an entity to be a component unit of more than one primary government could complicate financial reporting and create overlaps in accountability, which goes against the principles of transparency and clarity in governmental financial reporting.

In summary, the exclusivity of a component unit to one primary government ensures clear lines of accountability and accurate representation in financial statements, reinforcing the necessary separation of financial activities and responsibilities.