Based on GAAP criteria for defining the reporting entity, the library is what?

• A. The library is a joint venture.
• B. The library is a standalone government.
• C. The library is a component unit.
• D. The library is a department of the city.

Answer: (C)

Under GASB, the reporting entity includes the primary government and its component units—legally separate organizations that are financially accountable to the primary government or whose omission would make the financial statements misleading. The library fits this as a component unit because it is a legally separate entity that is tied to the city through governance or financial dependence (for example, the city appoints the library’s governing board and can impose its will or control the budget). It is not a department of the city, which would be a part of the primary government, and it is not a joint venture, which involves shared control with other governments. Therefore, the library is a component unit.