When are shared governing bodies evaluated for component unit status?

Shared governing bodies are evaluated for component unit status primarily based on the similarity in substantial decision-making. This evaluation is crucial because it helps determine the extent to which one entity may influence or control another, which is fundamental in assessing financial accountability. If a shared governing body has substantial decision-making similarities with a primary government entity, it indicates a level of dependency that warrants consideration for component unit classification.

The focus on substantial decision-making ensures that the evaluation reflects the actual governance relationship. It looks at how decisions are made and the extent to which one entity can affect the financial operations and governance of another.

Other aspects, such as fiscal relationships or board independence, might indicate certain relationships but do not directly address the degree of governance influence needed for proper component unit assessment. Therefore, the evaluation hinges on this critical factor of decision-making similarity to ascertain the true nature of the relationship between the governing bodies involved.