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A governmental agency are exempt from consideration as a potential VIE. According to the AICPA Audit and Accounting, Audits of State and Local Governments (GASB 34 Edition), a governmental agency has one or more of the following characteristics:

  • Popular election of officers or appointment (or approval) of a controlling majority of the members of the organization’s governing body by officials of one or more state or local governments;
  • The potential for unilateral dissolution by government with the net assets reverting to the government; or
  • The power to enact and enforce a tax levy.

‘Governmental agency’ also includes an entity that has the ability to issue tax-exempt debt, unless there strong evidence to the contrary.

Note that a government agency may hold a variable interest in a variable interest entity and should be included in the analysis of the entity only in that context.

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