302433 Fiduciary Fund 1C1 Flashcards
Which of the following is not a fiduciary fund?
An internal service fund
A pension trust fund
A custodial fund
An investment trust fund
Question #302433
An internal service fund
Fiduciary funds are custodial funds, pension trust funds, investment trust funds, and private-purpose trust funds. Only resources held for the benefit of others are reported in fiduciary funds.
An internal service fund is a proprietary 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
Internal Service Funds
Internal service funds are proprietary funds used to account for any activity that provides goods or services to another fund, department, or agency of the primary government and its component units or to another government on a cost-reimbursement basis (i.e., an in-house enterprise, such as motor pool, garage, print shop, or data processing center) “Cost-reimbursement” implies that the costs of the service department are expected to be recovered through charges to the other departments (service department revenues = billings to other departments). Internal service funds are accounted for on the accrual basis.
GASB 1300.110
Internal service funds use accrual accounting and the economic resources basis of accounting, in contrast to the modified accrual method and current financial resources basis of accounting for governmental funds. Fund equity is termed “net position” and is reported in three categories: net investment in capital assets, restricted, and unrestricted. The capital assets of the service department (e.g., the copier machines) and any related long-term debt are recorded, and depreciated, in the internal service fund.
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.
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
2131.08
Types of funds. The GASB requires the following categories and types of funds.
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.
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.)
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.
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.
