301155 Fiduciary Funds 1C2 Flashcards
The fiduciary funds of a government should include:
pension trust funds.
pension trust funds, custodial funds, and permanent funds.
custodial funds.
pension trust funds and custodial funds.
pension trust funds and custodial funds.
Four types of fiduciary funds are used in governmental accounting systems:
(1) pension (and other employee benefit) trust funds,
(2) investment trust funds,
(3) private-purpose trust funds, and
(4) custodial funds.
Permanent funds are a type of governmental fund.
Custodial Funds
Custodial funds are used to report fiduciary activities that are not required to be reported in pension (and other employee benefit) trust funds, investment trust funds, or private-purpose trust funds. The external portion of investment pools that are not held in a trust that meets the criteria below should be reported in a separate external investment pool fund column, under the custodial funds classification.
The assets are (a) administered through a trust in which the government itself is not a beneficiary, (b) dedicated to providing benefits to recipients in accordance with the benefit terms, and (c) legally protected from the creditors of the government.
The assets are for the benefit of individuals and the government does not have administrative involvement with the assets or direct financial involvement with the assets. In addition, the assets are not derived from the government’s provision of goods or services to those individuals.
GASB Statement 84.11 and .18
Fund Balance
Fund balance is the fund equity or the difference between the asset and liability accounts of a governmental fund. Fund balance should be reported in specific categories as circumstances require:
- Nonspendable reflects the value of prepaid or inventory items that are not monetary and will not support spending or the value of monetary resources legally contracted to be kept intact.
- Restricted reflects the value of assets whose use has previously been designated by an external party such as a grant.
- Committed reflects the value of assets whose use has previously been designated by the highest level of government, typically the legislature or city council.
- Assigned reflects the value of assets whose use has been previously designated by management without action by the highest level of authority in the government. The amount of resources to be set aside to cover encumbrances at year-end is usually designated either committed or assigned.
- Unassigned reflects the value of General fund assets whose use has not been previously designated. Only the General Fund has an Unassigned category of Fund balance.
GASB 1800.165–.178
Pension Trust Funds
In general, the FASB ASC Glossary defines a pension fund as the assets of a pension plan held by a fund agency. Governments may use a pension trust fund to manage pension or other retirement and postretirement benefit plans. Pension trust funds, like other fiduciary funds, are accounted for on the accrual basis: all contributions to and earnings of the fund are pension trust fund (PTF) additions, and all benefit payments, return of contributions, and pension plan administration costs are PTF deductions. Depreciation is recorded and a change in net position (Additions - Deductions) is reported.
Permanent Fund
In governmental accounting, a permanent fund is a governmental fund to be used to account for resources legally restricted such that only the earnings, not the principal, may be used to support the reporting government’s own programs. The government itself is the beneficiary of the earnings. A private-purpose trust fund, a fiduciary fund, should be used if the benefits accrue instead to individuals, private organizations, or other governments.
GASB 1300.108
Reserve
A “reserve” is the term formerly used to designate portions of fund balance not available for expenditure or legally segregated for a specific future use.
The Fund Balance section of the Balance Sheet should be reported in specific categories as circumstances require:
- Nonspendable reflects the value of prepaid or inventory items that are not monetary and will not support spending.
- Restricted reflects the value of assets whose use has previously been designated by an external party, such as a grant.
- Committed reflects the value of assets whose use has previously been designated by the highest level of government, typically the legislature or city council.
- Assigned reflects the value of assets whose use has been previously designated by management without action by the highest level of authority in the government. The amount of resources to be set aside to cover encumbrances at year-end is usually designated either committed or assigned. Unassigned reflects the value of General Fund assets whose use is not previously designated. Only the General Fund has an Unassigned category of Fund Balance.
GASB 1800.165
Note: Memoranda of outstanding purchase orders in governmental funds still use the term “reserved” in the entry that debits Encumbrances and credits Fund balance—reserved for encumbrances. These memoranda are removed before preparing the year-end balance sheet. The amounts of outstanding purchase orders are included in the balance sheet within the “committed” or “assigned” categories of fund balance depending on whether the purchase order had been approved by the highest level of government or a designee.
Trust Funds
Trust funds are fiduciary funds used to account for assets held by a governmental unit in a trustee capacity for others and, thus, cannot be used to support the government’s own purposes.
Trust funds are:
- private-purpose trust funds,
- investment trust funds, and
- pension trust funds.
GASB 1300.102
Types of funds. The GASB requires the following categories and types of
2131.08
a. Governmental funds: To finance and account for general government activities, such as police and fire protection, courts, inspection, and general administration. Most of their financial resources are budgeted and appropriated annually for specific general government uses (expenditures) by the legislative body. Governmental funds include the following:
(1) General fund
(2) Special revenue funds
(3) Capital projects funds
(4) Debt service funds
(5) Permanent funds
The accounting equation for governmental funds is presented in the GASB authoritative literature as Financial assets + Deferred outflows = Related liabilities + Deferred inflows + Fund balance.
The accounting equation of most governmental funds also can be thought of and perhaps more easily understood as Current assets (CA) − Current liabilities (CL) = Fund balance (FB).
Note that the governmental fund accounting equation typically approximates a working capital equation, and governmental fund operations are measured in terms of sources and uses of working capital (i.e., changes in working capital or in net current financial resources).
The accounting equation is not truly a working capital equation. For instance, “related liabilities” excludes many liabilities that affect working capital because liabilities for claims, judgments, compensated absences, pensions, and so on are included in governmental funds only when due and payable. However, many find it useful to understand the accounting for these funds by relating it to working capital reporting.
Permanent funds are a special type of governmental fund that is used to account for and report amounts that are restricted in use. Usually this is the case when assets are a gift to the governmental entity and the principal amount is restricted in use. Income from such assets may be used for support of government programs.
Types of funds. The GASB requires the following categories and types of
2131.08
b. Capital assets and long-term liabilities: Because the governmental funds are primarily working capital (or net expendable financial assets) entities, general government capital (fixed) assets are not accounted for in these funds. Likewise, general government long-term liabilities (with the exception of long-term interfund liabilities) are not accounted for in governmental funds. Therefore, these capital assets and long-term liabilities must be accounted for separately. These general government capital assets and long-term liabilities are reported only in government-wide financial statements, not in the governmental fund financial statements. GAAP does not mandate a specific accounting entity to maintain accountability for general government capital assets (called general capital assets) and general government long-term liabilities (called general long-term liabilities). They are not reported independent of the government-wide financial statements. Because different governments use different forms of general capital asset and general long-term liability ledgers to maintain accountability for these items, we do not illustrate them in the journal entry illustrations. (Note that all other capital assets and long-term liabilities are reported either in a proprietary fund or in a fiduciary fund.)
Types of funds. The GASB requires the following categories and types of
c. Proprietary funds: To finance and account for a government’s self-supporting business-type activities (e.g., utilities). Proprietary funds include the following:
(1) Enterprise funds
(2) Internal service funds
The accounting equation of proprietary funds is similar to that of a business corporation. Thus, the proprietary fund accounting equation includes accounts for all related assets and liabilities—not only for current assets and current liabilities. However, proprietary funds also must report the deferred outflows of resources and deferred inflows of resources elements in proprietary fund statements of net position and report using different classifications than businesses. The accounting equation is:
* Assets + Deferred outflows of resources − Liabilities − Deferred inflows of resources = Net position
Note that assets include capital assets of the proprietary activity and other noncurrent assets as well as current assets. Liabilities include both current and long-term liabilities of the proprietary activity. The GASB states that the concepts of liquidity and current versus noncurrent classifications do not apply to deferred outflows of resources and deferred inflows of resources. Note also that contributed capital and retained earnings are not reported.
Proprietary fund operations are measured in terms of revenues earned and expenses incurred. However, net income or loss is not reported. Fund net position is reported in three categories:
(1) Net investment in capital assets
(2) Restricted net position
(3) Unrestricted net position
Proprietary fund operations are reported based on revenues earned and expenses incurred.
Types of funds. The GASB requires the following categories and types of
2131.08
d. Fiduciary funds: To account for resources (and any related liabilities) held by a government entity for individuals or entities outside of the government (not to support the government’s programs). Fiduciary funds include the following:
(1) Pension (and other employee benefit) trust funds
(2) Investment trust funds
(3) Private-purpose trust funds
(4) Custodial funds
Fiduciary fund reporting focuses on fiduciary net position and changes in fiduciary net position.
GASB Statement 84, Fiduciary Activities
2132.16
GASB Statement 84, Fiduciary Activities, sets the criteria for identifying fiduciary activities of primary governments and their component units. Criteria are provided for three kinds of activities: (1) fiduciary component units, (2) pension and other postemployment benefit (OPEB) arrangements that are not component units, and (3) other fiduciary activities. Fiduciary funds are used to account for a government’s fiduciary or stewardship responsibilities for other governments, organizations, and/or individuals.
A. An organization that meets the criteria to be treated as a component unit laid out in GASB Statement 14, The Financial Reporting Entity, as amended is considered a fiduciary activity if it is one of the following:
A pension plan or other postemployment benefit (OPEB) plan that is administered through a trust that meets the criteria outlined in GASB Statement 67 (Financial Reporting for Pension Plans) or GASB Statement 74 (Financial Reporting for Postemployment Benefit Plans Other Than Pension Plans), respectively
Assets from entities that are not part of the reporting entity and are accumulated for pension or OPEB, as detailed in GASB Statement 73 or GASB Statement 74, respectively
GASB Statement 84, Fiduciary Activities
2132.16
A component unit that is not a pension or OPEB plan arrangement is considered a fiduciary activity if the assets associated with the activity meet one or more of the following criteria:
* The assets are administered through a trust or equivalent arrangement in which the government is not a beneficiary, required to be used to provide benefits to recipients in accordance with the benefits agreement, and legally protected from the government’s creditors.
* The assets are for the benefit of individuals and are not derived from providing goods or services to them. The government does not have direct financial or administrative involvement with the assets.
* The assets are for the benefit of other governments or organizations that are not part of the financial reporting entity and are not derived from providing goods or services to them.
GASB Statement 84, Fiduciary Activities
2132.16
Control of the assets of the component unit by the primary government is not to be considered in determining whether it is classified as a fiduciary component unit. The GASB concluded that the financial burden criteria are met if the primary government is legally obligated or has assumed the obligation to make contributions to the pension or OPEB plans.
GASB Statement 84, Fiduciary Activities
2132.16
Pension and OPEB arrangements that do not qualify as component units are fiduciary activities if the government controls the assets of:
* a pension plan or other post-employment benefit (OPEB) plan that is administered through a trust that meets the criteria outlined in GASB Statement 67 or GASB Statement 74, respectively.
* assets from entities that are not part of the reporting entity and are accumulated for pension or OPEB, as detailed in GASB Statement 73 (Accounting and Financial Reporting for Pensions and Related Assets That Are Not Within the Scope of GASB Statement 68, and Amendments to Certain Provisions of GASB Statements 67 and 68) or GASB Statement 74, respectively.
