What potential issue arises if an internal service fund is primarily used by governmental activities?

When an internal service fund is primarily utilized by governmental activities, it may lead to a need for reclassification as a governmental activity. Internal service funds are designed to provide goods or services to other departments within a government on a cost-reimbursement basis. If the fund primarily serves governmental activities rather than external clients or other funds, it blurs the distinction between the fund's operations and the governmental activities themselves.

Reclassifying the internal service fund as a governmental activity allows for more accurate representation in financial statements, as it aligns with the broader conceptual framework that governs government accounting. This shift can ensure that resources are properly allocated and that financial reporting provides a clear picture of the government's operations and financial health.

The other options do not directly address the implications of the internal service fund's primary use. Keeping it separate from fiduciary activities does not necessarily relate to its operations being primarily governmental. While it is expected that the overall financial reporting remains unaffected in terms of aggregate financial position or results, the specific needs for classification may affect how users interpret the financial statements. Reporting independently may not be relevant if the fund operates chiefly to serve government activities, as it should be integrated into the overall governmental reporting structure for clarity and compliance with accounting standards.