Project Description: The primary objective of this project would be to develop guidance regarding the application of the fiduciary responsibility criterion in deciding whether and how governments should report fiduciary activities in their financial reports. Other objectives of this project include assessing whether additional guidance should be developed to (1) clarify the difference between a private-purpose trust fund and an agency fund, (2) clarify whether a business-type activity engaging in fiduciary activities should present fiduciary fund financial statements, and (3) consider requiring a combining statement of changes in assets and liabilities for agency funds.
Status: Added to Research Agenda: April 2010
- Major Research Issues
- Project History
- Current Developments
- Research Work Plan
- Recent Minutes
- Major Tentative Decisions to Date
- Project staff:
Fiduciary Responsibilities—Project Plan
Background: The process of implementing GASB Statements No. 25, Financial Reporting for Defined Benefit Pension Plans and Note Disclosures for Defined Contribution Plans, and No. 27, Accounting for Pensions by State and Local Governmental Employers (issued in November 1994) triggered numerous technical inquiries as to whether an employer should report a particular pension plan as a pension trust fund. Existing standards did not provide a basis for a clear answer to those questions. Moreover, staff became aware that, in the absence of authoritative guidance, preparers and auditors have tended to interpret government’s fiduciary responsibility in a variety of ways, ranging from very broadly to more narrowly (for example, focusing on custody of the trust assets).
During the deliberations that led to the issuance of Statement No. 32, Accounting and Financial Reporting for Internal Revenue Code Section 457 Deferred Compensation Plans, in October 1997, the Board recognized that the definition of fiduciary funds provided in NCGA Statement 1, as amended, and the fiduciary responsibility provisions in Statement 14, paragraph 19, may not be sufficiently descriptive to assist all governments in determining if a potential fiduciary activity should be reported as a trust or agency fund. The Board identified administrative involvement and investment functions as two possible characteristics of fiduciary responsibility in this situation. However, because modifying fund reporting requirements was beyond the scope of that project, the nonauthoritative guidance was presented in the Basis for Conclusions.
Issues regarding whether, or in what way, fiduciary activities should be included in employers’ financial reports also arose during the development of the financial reporting model promulgated in Statement No. 34, Basic Financial Statements—and Management’s Discussion and Analysis—for State and Local Governments. In Statement 34, the Board distinguished between (a) governmental and proprietary funds, which can be used to support the government’s programs or other services, and (b) fiduciary funds, which are held in a trustee or agent capacity for others. Statement 34 excludes fiduciary activities from the government-wide financial statements, because they cannot be used to support the government’s programs and services, but requires that fiduciary funds and component units be reported in fund financial statements, in view of the government’s stewardship responsibility for them.
Technical inquiries concerning financial reporting for fiduciary activities continue to come to the staff. For example, questions have arisen regarding reporting of state prepaid tuition plans (Internal Revenue Code Section 529 Savings Plans), which have grown in popularity and dollar significance over the past decade.
- Clarify the difference between private-purpose and an agency trust fund
- Clarify whether a business-type activity engaging in fiduciary activities should present fiduciary fund financial statements
- Consider requiring a combining statement of changes in assets and liabilities for agency funds
Project History: The project was added to the research projects list in 2000. The project was transferred from the research agenda to the potential projects list in January 2006. In April 2008, the project was combined with the project reexamining Statement 14. In November 2009, the Board decided to remove fiduciary responsibilities from the scope of the Statement 14 reexamination project and add it to the potential projects list. In 2010, additional research was conducted regarding user needs. Based on that, a draft project prospectus was prepared and presented to the GASAC at its October 2010 meeting. A project prospectus was presented to the GASB at its December 2010 meeting.
The completed research and a project prospectus were discussed and feedback was provided at the February 2011 GASAC meeting. At that time the project was ranked in the top 5 by the GASAC.
The GASAC also reviewed a draft report summarizing the results of the survey on fiduciary activities and the staff’s conclusions at its March 2012 meeting.
Current Developments: During May and June 2013 the project staff conducted 23 telephone interviews with governmental research analysts, city councilors, school district board members, county supervisors, state legislators, union representative, and state level parent-teacher association members. Interviewees were asked questions regarding the importance and utility of current reporting requirements for fiduciary activities to their assessment of a government’s accountability for its fiduciary activities. These questions were asked individually for: (1) pension (and other employee benefit) trust funds; (2) investment trust funds; (3) private-purpose trust funds; and (4) agency funds. Thirteen interviewees also were asked about the necessity and importance of stand-alone business-type activities (BTAs) reporting their fiduciary activities. These interviewees also were asked to compare the importance they place on this information for a city, state, or county government the importance they place on this information for a BTA. The research revealed a high level of support for requiring BTAs to report their fiduciary activities similarly to the current reporting requirements for general purpose governments.
An update of the project was presented to GASAC at their June 2013 meeting. Some GASAC members expressed continued support for the primary objective of this project.
An educational memorandum that summarizes the results of the research and a project prospectus will be presented and discussed with the Board at their August 2013 meeting.
|Board Meetings||Topics to be considered
|Review project history and relevant literature.|
|September 2013:||Discussion of criterion for identifying fiduciary activities.|
|October 2013:||Discussion of how to report fiduciary activities in general purpose financial statements.|
|December 2013:||Continue discussion of how to report fiduciary activities.|
|January 2014:||Consideration of requiring a combining statement of changes in assets and liabilities for agency funds.|
|March 2014:||Discussion of whether a business-type activity engaging in fiduciary activities should present fiduciary fund financial statements.|
|April 2014:||Discussion of fiduciary fund types, including the difference between a private-purpose trust fund and an agency fund.|
|May 2014:||Consideration of note disclosures.|
|July 2014:||Review draft standards section.|
|August 2014:||Review preballot draft of Exposure Draft.|
|September 2014 (T/C):||Review ballot draft and issue Exposure Draft.|
|September–December 2014:||Comment period.|
|January–April 2015:||Redeliberate issues based on respondent feedback.|
|June 2015:||Review preballot draft of final Statement.|
|June 2015 (T/C):||Review ballot draft and issue final Statement.|
Minutes of Meetings, October 29-31, 2013
The Board discussed whether a government would be considered to be controlling assets in a fiduciary capacity if they had assigned or delegated the responsibility for holding the assets to another entity, such as a trust or a third-party administrator. In these instances, the government would be indirectly controlling the assets. The Board tentatively decided to propose that a government is controlling fiduciary assets when it has assigned or delegated the responsibility for holding the assets to another entity, if it has legally or contractually been authorized to do so.
The Board then discussed a proposed definition of a fiduciary based on the Board’s major tentative decisions proposed, the Board member recommendations made to improve the definition at the September 2013 meeting, and the project staff’s analysis of these recommendations. The Board tentatively decided to propose that a fiduciary be defined as “A government that controls assets other than those that can be used to support the government’s own programs.”
Finally, the Board discussed whether the definition of an asset included in Concepts Statement No. 4, Elements of Financial Statements, encompasses fiduciary activities for financial reporting purposes and how to report fiduciary activities in general purpose external financial reports. The Board tentatively concluded that the definition of an asset in Concepts Statement 4 encompasses fiduciary activities for financial reporting purposes. The Board also tentatively decided to propose that fiduciary activities continue to be reported as basic financial statements in general purpose external financial reports.
Minutes of Meetings, September 17-19, 2013
The Board reviewed and discussed the additional relevant literature related to defining fiduciary responsibility and related terms to supplement the research already completed and outlined in the project staff paper provided to the Board for the August 2013 teleconference.
The Board began deliberations on defining a fiduciary and fiduciary responsibility. The Board’s consideration of a definition for a fiduciary included the concept of (a) control and indirect control, (b) holding, and (c) administering (receiving, managing, disbursing, budgeting, investing, and reporting), as well as other duties of a fiduciary.
The Board tentatively decided that the concept of “control” should be included in the definition of a fiduciary. The Board also tentatively decided that a government should be considered to be “controlling assets in a fiduciary capacity” if (1) the present service capacity of the asset is used to provide benefits to the beneficiaries; (2) the present service capacity of one asset can be exchanged for another asset, such as cash; or (3) the assets can be employed in any other way that provides benefits to the beneficiaries.
The Board tentatively decided that the definition of a fiduciary should not include the concept of whether the government is “holding” the assets. The Board also tentatively decided that the concept of “administering” should not be included in the definition of a fiduciary. However, the Board tentatively decided that there should be a discussion outside of the definition of a fiduciary that explains how the concepts of “holding” and “administering” are implied within the concept of “control.”
The Board then discussed other duties of a fiduciary that were identified in the relevant literature. The Board tentatively decided that these other duties should not be included in the definition of a fiduciary. However, the Board also tentatively decided that there should be a discussion outside of the definition of a fiduciary that explains how these other duties are implied as part of their fiduciary responsibility.
The Board tentatively decided that a government has a fiduciary responsibility for financial reporting if it meets the definition of a fiduciary. The Board also discussed the proposed definition of fiduciary and provided suggestions for its improvement to the project staff. The project staff will provide the Board with an amended definition, incorporating these suggestions, for discussion at the next Board meeting.
The Board did not agree to or reach any conclusions on the potential implications that these major tentative decisions may have on defined benefit pension, defined contribution, deferred compensation, and college savings plans.
The Board tentatively agreed to propose that:
- The concept of “control” should be included in the definition of a ficuciary.
- A government could be considered to be “controlling assets in a fiduciary capacity” if those assets are used to provide benefits to specified or intended beneficiaries and have (a) present service capacity that can be used, (b) present service capacity that can be exchanged for another asset, such as cash, or (c) the ability to be employed in any other way that provides benefits.
- A discussion outside of the definition of a fiduciary should explain:
- How the concepts of “holding” and “administering” are implied within the concept of “control.”
- How a government is controlling the assets when it has assigned or delegated the responsibility for holding the assets to another entity if it has legally or contractually been authorized to do so.
- How other duties of a fiduciary are implied as part of their fiduciary responsibility.
- A government has a fiduciary responsibility for financial reporting if it meets the definition of a fiduciary.
- A fiduciary should be defined as, “A government that controls assets other than those that can be used to support the government’s own programs.”
- Fiduciary activities should continue to be reported as basic financial statements in general purpose external financial reports.