Under GASB 34, when are Enterprise funds required?

Enterprise funds are required under GASB 34 when debt is backed solely by fees and charges. This necessity arises because enterprise funds are specifically designed to account for operations that are financed and operated similarly to private business enterprises. Therefore, for a government to establish an enterprise fund, there must be a situation where the services are financed through user fees rather than through taxes or broader governmental funding.

The rationale behind this requirement is that enterprise funds are intended to reflect the financial health and performance of those services that are primarily funded by the charges paid by users. This method of accounting provides a clearer picture of the costs, revenues, and overall viability of service delivery that is supported directly by user fees, aligning with a business-oriented approach to financial reporting.

In contrast, the other options do not align with the specific criteria for creating enterprise funds. Public assets and services provided free of charge do not necessitate the establishment of enterprise funds, as they relate to broader governmental functions rather than user fee-based operations. Additionally, budgetary constraints or cost overruns do not dictate the existence of an enterprise fund; rather, they are situations that may arise independent of the funding structure that enterprise funds are meant to represent.