Under which condition is blending appropriate according to GAAP?

Blending is appropriate under GAAP when there is a shared governing body. This condition allows for the financial activities of a component unit to be integrated with those of the primary government because they operate with a governance structure that is interconnected. The shared governing body creates a significant relationship between the primary government and the component unit, leading to a situation where the financial information should be presented together for clearer reporting and accountability.

In cases where the entity is entirely independent, there is no basis for blending, as the lack of governance overlap indicates that the operations and funds of the two entities should remain distinct. Similarly, when the governing body differs from that of the primary government, blending is not warranted due to the lack of functional interdependence. Establishing fiscal independence does not necessarily support blending either, as it suggests that the component unit operates independently of the primary government’s financial oversight and control. Therefore, blending remains applicable primarily in situations where governance is shared, allowing for a comprehensive view of financial resources and obligations.