What is a requirement for the scope of the CAFR regarding component units?

The Comprehensive Annual Financial Report (CAFR) has specific requirements regarding the inclusion of component units, which are legally separate entities for which the primary government is financially accountable. The correct requirement is that the CAFR must include all funds and component units. This reflects the principle of transparency and accountability in financial reporting, ensuring that all entities that are under the government's financial umbrella are represented. This includes any organizations that meet the criteria for component units based on their relationship with the primary government, which is crucial for users of the financial statements to have a complete picture of the government’s financial position and operations.

Excluding certain funds or only including core funds would not satisfy the comprehensive nature intended with a CAFR, which aims to provide a full disclosure of the government's financial activities and responsibilities. Additionally, while state approval processes might apply to certain financial practices, the requirement for inclusivity of funds and component units in the CAFR is a standard, foundational concept in governmental accounting practices.