When might legally separate, tax-exempt entities be included as component units?

Including legally separate, tax-exempt entities as component units is appropriate when their resources significantly benefit the primary government. This inclusion recognizes that while these entities are legally distinct, their financial activities and operations contribute to the achievement of the primary government's objectives or services.

In assessing whether to include such entities as component units, one of the primary considerations is the nature of the relationship between the primary government and the entity. If the entity's resources provide funding or support that is crucial for the primary government's functions, it makes sense to account for those resources together. This approach ensures a more comprehensive financial reporting that reflects the entire financial accountability of the government entity, thereby offering clarity to the users of the financial statements about the resources available to the primary government.

Other options suggest criteria such as board appointment requirements, direct funding, or specific types of entities like charter schools, which are narrower and do not encompass the broader rationale of financial benefit and accountability central to why component units are included in financial reports. Hence, the focus on the significant benefit to the primary government is the correct basis for determining the inclusion of these separate entities.