United States

Clarifications to guidance on majority equity interests


The Governmental Accounting Standards Board (GASB) recently issued Statement No. 90, Majority Equity Interests – an amendment of GASB Statements No. 14 and No. 61, to clarify the accounting and financial reporting for a state or local government’s majority equity interest in an organization that remains legally separate after acquisition. An example of a situation the guidance addresses is a public hospital acquiring a rehabilitation center that remains legally separate from the hospital after acquisition.

Statement No. 90 requires a government’s majority equity interest in a legally separate organization to be reported as an investment if that equity interest meets the GASB’s definition of an investment. Except in certain specific circumstances, a majority equity interest that meets the definition of an investment should be measured using the equity method. For all other holdings of a majority equity interest in a legally separate organization, a government should report the legally separate entity as a component unit, and the government or fund that holds the equity interest should report an asset related to the majority equity interest using the equity method.

Statement No. 90 also requires governments to use acquisition value to measure the assets, deferred outflows of resources, liabilities and deferred inflows of resources at the date of acquisition of a component unit in which the primary government acquired a 100 percent equity interest. Transactions presented in the flows statements of the component unit in that circumstance should include only transactions that occurred subsequent to the acquisition.

The requirements of Statement No. 90 are effective for reporting periods beginning after December 15, 2018.