Learning objectives

• Identify the four types of fiduciary funds.
• Identify how certain transactions are reported in fiduciary funds.
• Identify some of the unique reporting practices of fiduciary funds.

Reporting assets held by a government for others

How should governments report assets they hold that belong to others, such as private organizations or other governments? Governments use fiduciary funds — comprising trust funds and custodial funds, among others — to report the activities of assets held for others.

The use of fiduciary funds

Governments are sometimes asked to act as fiscal agents or custodians of resources for other organizations or individuals. In addition, large governments sometimes offer programs to other governments in which the other governments’ resources will be held in, for example, an external investment pool. In these cases, resources belonging to others are held by the custodian government, which may not use them for its own programs. Fiduciary funds are used to report the activity of these resources. The custodian government has a fiduciary responsibility for these funds.

GASB Statement No. 84, Fiduciary Activities, is effective for fiscal years beginning after December 15, 2018, and establishes criteria for identifying and reporting fiduciary activities. The criteria for identifying fiduciary activities primarily focuses on (a) whether a government controls the assets of the fiduciary activity and (b) on the beneficiaries with whom a fiduciary relationship exists.

Accounting and financial reporting for fiduciary funds reflect the fact that these funds are held for others and are not to be used to support the government’s own programs. Fiduciary funds are reported only in the fund statements; they are not included in the government-wide statements. Funds are reported by fund type and —rather than revenue and expenses — additions and deductions are reported.

Pension (and other employee benefit) trust funds do not report any actuarial liabilities in the fund financial statements. Actuarial information is included in separate schedules as part of required supplementary information.

There are four classifications of fiduciary funds: pension (and other employee benefit) trust funds, investment trust funds, private purpose trust funds, and custodial funds. Each type of fiduciary fund is described in the forthcoming sections.

Accounting differences

GASB Statement No. 67, Financial Reporting for Pension Plans — An Amendment of GASB Statement No. 25, provides detailed guidance on reporting certain defined benefit pension plans. In addition, GASB Statement No. 74, Financial Reporting for Postemployment Benefit Plans Other Than Pension Plans, provides detailed guidance on reporting for OPEB plans.

GASB Statement No. 72 defines an investment as a security or other asset that a government holds primarily for the purpose of income or profit and has a present service capacity based solely on its ability to generate cash or to be sold to generate cash. GASB Statement No. 72 generally requires that investments be reported at fair-value. However, certain investments are excluded from being measured at fair value, including money market investments, qualified external investment pools, investments in life insurance contracts, common stock meeting the criteria for applying the equity method, unallocated insurance contracts, and synthetic guaranteed investment contracts.

In general, fiduciary funds report using the economic resources measurement focus and accrual basis of accounting. However, it is important to remember that these resources belong to another party (or parties). Accordingly, the accounting should reflect this fiduciary relationship, such as that best illustrated by the pension (and other employee benefit) trust fund. The pension (and other employee benefit) trust fund would not report any actuarial accrued liabilities or net pension liability in the financial statements for pension benefits. Instead, the pension (and other employee benefit) trust fund reports the assets, deferred outflows of resources, liabilities (such as benefit payments due to plan members), deferred inflows of resources, and the difference as net position held for others.

Fiduciary funds also report additions and deductions to net position instead of revenues and expenses. Again, these resources are held for others; changes in these resources are not revenues and expenses of the government.

Fiduciary funds generally report net positions simply as net positions held in trust for others. The requirement to report net position in three separate classes for proprietary funds does not apply to fiduciary funds.

Reporting differences

Fiduciary funds are reported only as part of the fund financial statements. Because these resources belong to others, they are excluded from the government-wide financial statements. The fiduciary financial statements should report all fiduciary funds of the primary government and any fiduciary component units.

Fiduciary funds report the following two financial statements (for sample statements, see appendix A):

• Statement of fiduciary net position
• Statement of changes in fiduciary net position

Unlike governmental and proprietary funds, fiduciary funds’ financial statements are presented by fund type. For example, if a government has several private-purpose trust funds, only one column should be presented in the financial statements for this fund type.

Sometimes a fiduciary fund will hold financial resources that belong to other funds of the primary government. For reporting purposes, these resources should be included in the balances reported by these other funds; they should not be reported as part of the fiduciary fund. Therefore, the amounts reported in a fiduciary fund should reflect the amounts held for individuals and organizations outside the primary government.

For pension (and other employee benefit) trust funds, there are additional required supplementary information (RSI) requirements. RSI is reported after the notes to the financial statements and is part of the minimum requirements for general-purpose external financial statements. However, auditors do not opine on RSI.

GASB Statement No. 82, Pension Issues — An Amendment of GASB Statements No. 67, No. 68, and No. 73, was issued partially to address the way payroll-related measures are presented in required supplementary information.

GASB Statements No. 67 and No. 82 significantly changed the way certain information is measured and reported in RSI.

Practice questions

Please note that the following practice questions are not required reading material.

1. A citizen establishes a $100,000 endowment fund with a county government. The earnings from the endowment are to be used to support study abroad for local high school students. Which type of fund should the government use to report this activity?
   1. Permanent fund.
   2. Private-purpose trust fund.
   3. Investment trust fund.
   4. Custodial fund.
2. During the year, a government receives a $500,000 contribution to a private-purpose trust fund. The contribution should be reported in the statement of changes in net position as what?
   1. Revenues.
   2. Other financing sources.
   3. Additions.
   4. Special item.
3. A pension (and other employee benefit) trust fund would report
   1. Expenditures.
   2. Expenses.
   3. Deductions.
   4. Revenue.
4. Which financial statement is required for a private-purpose trust fund?
   1. Statement of revenues, expenses, and changes in net position.
   2. Statement of net position.
   3. Statement of cash flows.
   4. All the above.
5. Which statement is required for a custodial fund?
   1. Statement of activities.
   2. Statement of changes in fiduciary net position.
   3. Statement of cash flows.
   4. None of the above.
6. A city government participates in a statewide pension trust fund. Which financial statement should the city report for its participation in the statewide pension trust fund?
   1. Statement of net position.
   2. Statement of revenue, expenses, and changes in net position.
   3. Statement of cash flows.
   4. None of the above.
7. A city tax custodial fund holds $700,000 in cash at year-end. The cash belongs to the following entities:

   City general fund — $300,000

   City special revenue fund — $100,000

   School district — $250,000

   Fire district — $50,000

   In the statement of net position, what amount of cash should the tax custodial fund report?

   1. $50,000.
   2. $300,000.
   3. $400,000.
   4. $700,000.
8. Explain what items are reported in the statement of changes in fiduciary net position for trust funds.

    

    

9. What financial information should be reported for a pension (and other employee benefit) trust fund?