Blended Component Unit (BCU) vs. Discretely Presented Component Unit (DPCU)

Component units is a gray topic that never really seems to get answered despite its presence in government accounting. But Housing Authorities need to understand what component units are, as they expand into Rental Assistance Demonstration (RAD), Low Income Housing Tax Credits (LIHTC), and nonprofits. Additionally, it’s important that fee accountants and auditors of HAs familiarize themselves with this topic.

According to the official Governmental Accounting Standards Board (GASB), a component unit is defined as:

“[A] legally separate organization for which the elected officials of the primary government are financially accountable or where the nature and significance of their relationship with the primary government are such that exclusion would cause the reporting entity’s financial statements to be misleading or incomplete” [GASBS 14, ¶12 and ¶20].

Component units has a significant impact on Financial Data Schedule (FDS) Reporting, Group Audits, and Boards. The FDS separates component units into two categories: 1) Blended component units 2) Discretely presented component units.

Understanding the difference types of component units

BLENDED COMPONENT UNITS

Blended component units are component units that are so intertwined with the primary government that they are, in substance, the same as the primary government and are presented as part of the primary government.

If a component unit is blended, the fund types and account groups of the component unit should be blended with those of the primary government by including them in the appropriate combining statements of the primary government. A component unit should be included in the reporting entity financial statements using the blending method in either of these circumstances:

1. The component unit’s governing body is substantively the same as the governing body of the primary government.
2. The component unit provides services entirely, or almost entirely, to the primary government or otherwise exclusively, or almost exclusively, benefits the primary government even though it does not provide services directly to it.
3. The component unit exclusively, or almost exclusively, benefits the primary government by providing services indirectly. For example, a component unit established by a primary government to administer its employee benefit programs exclusively benefits the primary government even though it provides services to the employees rather than directly to the primary government itself.

DISCRETELY PRESENTED COMPONENT UNITS

All other component units that don’t fall under the blended category should be discretely presented. A discretely presented component unit is reported in a separate column(s) from the financial data of the primary government. The reporting entity’s combined statements should include one or more columns to display the combined financial statements of the discretely presented component units.

If a single column is used, equity of the component units may be presented using the same descriptions that are used to display the elements of the primary government’s equity; or it may be aggregated into other classifications (for example, “Fund balance—governmental component units,” “Retained earnings—proprietary component units,” or simply on a single line such as “Equity—component units.”

The discrete column(s) should be located to the right of the financial data of the primary government, distinguishing between the financial data of the primary government (including its blended component units) and those of the discretely presented component units by providing descriptive column headings. [GASB 14, ¶44]

Where to get professional knowledge and guidance on component units

If your Housing Authority is venturing into this gray area of component units and need help, be sure to gain an understanding of Government Accounting Standards Board #61. Know the difference between a Blended Component Unit (BCU) and a Discretely Presented Component Unit (DPCU) and the impacts on your accounting an audit responsibilities.

Be sure to check out the official HUD website for more information on understanding component units.

Consider contacting Chad Porter at our office 909-307-2323 or cporter@smco.cpa about questions you may have in this area. Chad has spent hours in contact with GASB, HUD, and other practitioners and has gained an in-depth understanding of the component unit world. It’s always better to know what is waiting for you before you jump off that cliff into the gray area, and we’re here to help.