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Government And Nonprofit Accounting > SU 12: Fiduciary Funds > Flashcards

SU 12: Fiduciary Funds Flashcards

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1
Q

Fiduciary funds

A

Account for assets that governments hold as trustees or agents for individuals, private organizations, or other parties.

Resources must be to benefit outside parties - not governments own programs

Fund accounts for both expendable and non-expendable resources

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2
Q

major types of fiduciary funds

A

Private purpose trust funds
Investment trust funds
Pension (and other employee benefit) trust funds

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3
Q

Trust fund

A

fund in which one party (trustee) holds resources for the benefit of another (usually under a formal agreement)

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4
Q

Are fiduciary funds reported in government-wide financial statements?

A

No

Resources are not available for government use so it would be misleading

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5
Q

Escheat fund

A

kind of private purpose fiduciary fund. holds abandoned money or assets that will revert to the state in the absence of legal heirs or claimants

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6
Q

Investment trust

A

investment pools where multiple governments / government agencies pool their money to get better rates

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7
Q

Risks associated with fiduciary funds

A
  • large amounts of highly-liquid (cash and investment) financial resources increases risk of loss from fraud or just decline in FMV (especially if government invests in risky assets)
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8
Q

Fiduciary assets

A
  • cash
  • ST & LT equity securities
  • ST & LT debt securities
  • tangible and intangible assets
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9
Q

Endowment trust fund

A

contribution where the donor requires that the principal is invested and remain intact (non-expendable) but income from the investment may be used (expended)

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10
Q

types of endowments

A

Perpetuity (principal/ corpus never used)
vs
Term endowment (principal is preserved for a specified period and then may be used)

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11
Q

Classifications of endowment trust income

A

Restricted (for a specific purpose transferred to Special Revenue fund or Capital Projects Fund)
vs
Unrestricted (any purpose - transferred to general fund)

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12
Q

Gains on unrestricted income

A

if unrestricted income is reinvested and earns gains the gains remain unrestricted

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13
Q

Revenue accounts for endowment income

A

Restricted (in special revenue fund/ capital products) - Revenue account

Unrestricted (general fund): investment income

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14
Q

General endowment fund

A

more relaxed rules about distributions

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15
Q

Addition

A

Anything that increases the fiduciary fund investment

(instead of revenue)

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16
Q

Deduction

A

Anything that comes out of the fiduciary fund investment

(instead of expense)

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17
Q

Types of gains in fiduciary funds

A

Realized (transaction related to something that has appreciated in value)
vs
Unrealized (change in FMV of assets)

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18
Q

Treatment of fiduciary fund gain

A

Donor may stipulate if gains are to be added to principal (non-expendable) or added to income (expendable)

unless specified otherwise GASB defaults to added to income

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19
Q

Spending rate

A

percentage of endowment money that can be taken out in the current year

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20
Q

Fixed rate of return approach to determine spending rate

A

Spending rate = % of principal = Annual ROI % - Annual inflation %

(Annual ROI% = interest + dividends + appreciation)

ROI factors = revenue, but only part is unrestricted. Discretionary restriction applied to inflation %

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21
Q

Accounting for pension trust fund

A

if maintained by government: full accrual accounting AND GOES INTO GOV-WIDE STATEMENTS

if maintained by outside institution: disclosure notes only

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22
Q

Pension assets

A

Cash
income producing investments

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23
Q

Pension “Normal cost”

A

Money that needs to be added to a pension fund for the benefits accrued by employees in the fiscal year based on analysis

calculated on annual % of PV of pension benefits found using entry age actuarial cost method

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24
Q

Pension costs

A

Shares of benefits per period (calculated with actuarial cost method)

25
Q

Pension expenditures

A

(Not sure when this would be used?)

costs paid with current financial resources

26
Q

Pension expenses

A

GASB defined pension costs

GOV required annual pension contribution + GASB adjustment

27
Q

Components of Defined benefit pension expense

A

Annual required contribution = normal cost + underfunded actuarial liability

28
Q

Underfunded actuarial liability

A

= PV (project benefit payments) - Pension Assets FMV

basically whatever of previously earned benefits (PV) is not covered by current assets

29
Q

What affects underfunded actuarial liability?

A
  • normal (service) cost
  • expected earnings on plan assets
  • interest on liability (time value of money interest)
  • actuarial gains and losses (changes in estimates)
  • changes in pension benefits (prior period costs)
30
Q

Additions to pension trust

A

interest
dividends
gains on sales of investments
increase in FMV of investments

31
Q

Deductions from pension trust

A

Depreciation
administrative costs
investment costs
losses on sales of investments
payments of retirement benefits
Decrease in FMV of investments

32
Q

GASB 67 and 68 updates

A
  • Amortization of unfunded liability only allowed if caused by employee changes (remaining service life of employees) or difference between actual vs projected earnings
  • Multi employer plans: each employer’s liability = % of collective liability (determined by relative contribution percentage)
33
Q

Employer liability in multiple-employer plans

A

% of collective liability to each employer determined by that employer’s contributions / total contributions

34
Q

Disclosures required for pension trusts

A
  • financial statements focus on net assets with disclosures showing actuarial information
  • schedule of funding process
  • schedule of employer contributions

essentially how they’re doing and how they plan to adjust

35
Q

Schedule of funding progress

A

Shows actuarial value of plan assets vs actuarial liability - 10 years of data

Gives funded ratio

36
Q

Funded ration

A

= plan assets / actuarial liability

ideally 100%, less than 80% considered bad

37
Q

Schedule of employer contributions

A

Shows if contributions were lower than necessary and how they changed the funded ratio

38
Q

Pension plan structures

A
  • single employer
  • agent multi-employer (one employer acts as agent)
  • Cost sharing plans (assets and liabilities pooled with % allocated)
39
Q

what pension plan structure REQUIRES full annual required contribution

A

Cost-sharing plan

40
Q

Legal restrictions on pension trust funds

A
  • Government contributions are irrevocable (cannot be withdrawn)
  • assets are legally restricted to paying retirees
  • assets are legally protected from government’s creditors
41
Q

Annual defined benefit pension amount

A

Final average salary (average of 3 (or 5) highest paid years)
x
Years of service (years employed)
x
Benefit multiplier (% of salary guaranteed by pension)

for monthly divide by 12!

42
Q

Qualifying pension plan

A

standard pension funds that obey all federal rules for pensions

43
Q

Effect if pension is accounted for in general fund

A
  • ONLY pension contributions paid with current resources would be recognized
  • would not be a qualified pension fund
  • would not be compliant with to use fiduciary fund
44
Q

Net pension liability

A

= total pension liability - Plan fiduciary net position

aka
= actuarial estimation of plan - FMV of assets

Could be a net asset but that’s unlikely

45
Q

Defined contribution plan contribution

A

GOV contribution % of employee salary
Employee contribution (varies, must often match GOV)

46
Q

Defined contribution plan

A

Gov (and potentially employee) make regular contributions into a 401k- like investment account and at retirement the employee gets a monthly annuity based on the fun balance at requirement

commonly held by a private financial instutution

47
Q

Annual Pension liability (Defined contribution plan)

A

= Annual contribution - Required contribution

48
Q

OPEB

A

Other post-employement benefit

same accounting as pension trust complete with disclosures for schedule of funding progress and schedule of employer contributions

49
Q

Criteria for investment trust fund

A
  • Gov with fiduciary relationship controls assets
  • Assets do NOT come solely from government revenue or from government mandated/ voluntary non-exchange transactions
  • assets are held in a qualifying trust
50
Q

GASB standard for investment trust funds

A

GASB 84

51
Q

Allocation of income in an investment trust fund

A

based on proportionate investments (or per trust agreement)

52
Q

Agency Funds

A

aka custodial
Purpose to account for assets held by government acting as an agent for other entity (principal)

basically a pass-through account

53
Q

When are agency funds not appropriate

A

If government acting as agent has any responsibility for the outcomes (principal should have the responsibility)

54
Q

When are agency funds required

A
  • dollar amount of transaction is high (requires accountability)
  • use will improve financial management or accounting
  • mandated by law, regulation, GASB standards
55
Q

Custodial funds

A

AKA Agency funds

56
Q

Accounting equation for Agency (Custodial) funds

A

Assets = liabilities

NO FUND BALANCE all assets belong to the principal so every asset creates a liability

57
Q

Agency (custodial) fund journal entries

A

DR Asset
CR Liability

58
Q

Typical transactions for Agency fund

A

ST investments of money purchased and sold

Gains and losses increase or decrease liability to principal

Government And Nonprofit Accounting (14 decks)

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