Franklin City established an Airport Authority as a municipal corporation under state law for the purpose of acquiring, maintaining, operating, and financing an airport. The Authoritys governing board consists of five members--four appointed by the citys Mayor and one appointed by the Board of County Commissioners. The authoritys Board members may not be removed by the appointing officials, except for cause through an impeachment process. The Airport Authority has authority to issue bonds, levy taxes, own property in its own name, determine its own budget, and establish billing rates. All debt issued is payable from revenues derived solely from the operation of the Authority and Franklin City has no obligation for the debt of the Authority. The authority's Board controls the day-to-day operations of the organization. The authority has sole responsibility for financing its deficits and has sole control of any surplus funds. ACC506 Mini Test #2 Page 2 of 3 The citys Finance Director is preparing the citys financial statements for the current fiscal year. The Director has come to you, as the citys Accounting Supervisor, asking for your opinion as to whether the city should include the authority in its financial statements as a component unit. If not, should it be reported as something else or not at all?

You need to determine how the city should report the authority in its financial statements. Explain and justify your conclusion by citing the applicable accounting standards criteria that you are relying on to make your determination.