In January 2017, the Governmental Accounting Standards Board issued GASBS No. 84, Fiduciary Activities, which provides guidance on the identification, accounting and financial reporting of fiduciary activities. Prior to issuance of this guidance, GAAP did not explicitly state what constitutes fiduciary activities, which has resulted in diversity in practice in the identification and reporting of fiduciary activities.
Identification of Fiduciary Activities
With all of the recent GASB activity in the pension and OPEB areas, you may have looked at the title of this statement and thought it was a reprieve from such topics. No such luck. Pension and OPEB arrangements are fiduciary by their very nature. In identifying fiduciary activities, one focuses on whether the government controls the assets in question and whom the assets are intended to benefit.
Pension and OPEB Arrangements That Are Not Component Units
The following pension and OPEB arrangements are fiduciary activities if the government controls the assets. Control is established if the government holds the assets or may direct the use, exchange, or employment of the assets. Legal or external restraints (such as those in a custodial or trust agreement) restricting the purpose for which the assets may be used don’t negate control of the assets.
- Pension and OPEB plans administered through a trust that meets specified criteria in GASBS Nos. 67 or 74.
- Assets from entities (not part of the reporting entity) accumulated for pension or OPEB not administered through trusts or equivalent arrangements that meet specified criteria in GASBS Nos. 73 or 74.
GASBS No. 84 establishes separate criteria for when a component unit of the government is fiduciary in nature. Pension and OPEB plans are common component units of the primary government that are fiduciary in nature.
Other Fiduciary Activities
An activity is a fiduciary activity if all of the following criteria are met:
- The government controls the assets associated with the activity.
- The assets are not derived from the government’s own-source revenues, government-mandated nonexchange or voluntary nonexchange transactions (except for pass-through grants with which the government has no administrative or direct financial involvement).
- The assets match at least one of the following criteria:
- The assets are administered through a trust committed to providing benefits to recipients. The government is not a beneficiary of the trust, and the assets are protected from the government’s creditors.
- The assets are for the benefit of individuals, and the government does not have administrative or direct financial involvement with the assets nor are the assets derived from the government providing goods or services to those individuals.
- The assets are for the benefit of other entities (not part of the financial reporting entity) and are not derived from the government providing goods or services to those entities.
Fiduciary Fund Types
The four fiduciary fund types defined in GASBS No. 84 are:
- Pension (and other employee benefit) trust funds – Reports fiduciary activities for pension and OPEB plans held in trusts meeting specified criteria.
- Investment trust funds – Reports fiduciary activities of the external participants’ portion of investment pools (but not those of the sponsoring government) and individual investment accounts held in a trust that meets specified criteria.
- Private-purpose trust funds – Reports fiduciary activities not required to be reported in investment trust funds or pension (and other employee benefit) trust funds held in a trust that meets specified criteria.
- Custodial funds – Reports fiduciary activities that are not required to be reported in the above fiduciary fund types.
Agency funds will no longer exist upon the effective date of GASBS No. 84. They will instead be custodial funds. The name was changed to eliminate confusion between the former agency fund type and the actual agencies that may comprise the government.
Fiduciary fund types are required to report a statement of fiduciary net position and a statement of changes in fiduciary net position. The statement of changes in fiduciary net position should display investment earnings, investment costs and net investment earnings separately, if applicable.
Custodial funds, unlike previous agency fund reporting, must also report a statement of changes in fiduciary net position. For custodial assets expected to be held three months or less, an aggregate total additions and total deductions may be displayed with a description indicating the nature of the addition or deduction.
Proprietary funds may have fiduciary activities and present the custodial assets and liabilities in the proprietary financial statements if they’re expected to be held for three months or less. If the cash flows associated with the fiduciary activities are significant, an aggregate total cash inflows and total cash outflows should be separately displayed in the operating portion of the cash flows statement. Separate identification of the cash flows is not required if they’re not significant. Custodial assets associated with business activities that are expected to be held longer than three months should be reported in a fiduciary fund.
Previously, there was confusion over how to handle the discretely presented component unit information for the fiduciary component units that would be included in the primary government’s financial statements. GASBS No. 84 requires that such information be aggregated with the fiduciary component unit information when reported in the primary government’s fiduciary fund financial statements.
GASBS No. 84 Included Resources
GASBS No. 84 contains two appendices to help in its implementation. Appendix C provides flowcharts for evaluating and reporting fiduciary activities. Appendix D illustrates example fiduciary fund financial statements.
GASBS No. 84 is effective for reporting periods beginning after December 15, 2018, with earlier application encouraged.