Which situation includes the potential component unit as part of the financial reporting entity based on board appointment?

The situation where current board members select successors, but the primary government can dissolve the unit, reflects a scenario in which a component unit is part of the financial reporting entity due to the level of control and influence the primary government has.

In this case, while the board has some autonomy in selecting its successors, the critical factor is the primary government's authority to dissolve the unit. This power signifies that the primary government ultimately retains significant control over the component unit, which is an essential criterion for including a component unit in the financial reporting entity. Here, the possibility of dissolution indicates that the primary government has the ability to significantly influence or alter the operations of the component unit.

The other situations presented do not establish the same level of influence or authority. For instance, selecting from a narrow list of candidates does not demonstrate strong control; it merely shows limited influence. Approval of a list, while indicative of some level of oversight, does not imply that the primary government has significant authority over the operational aspects of the unit. Appointing a majority of board members is another format of influence, but without control mechanisms such as dissolution, it does not equate to the level of dependence that the situation in question does. Thus, the authority to dissolve the unit is the