Project Pages

Fiduciary Responsibilities

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 general purpose external financial reports. Other objectives of this project include assessing whether additional guidance should be developed (1) to clarify the difference between a private-purpose trust fund and an agency fund, (2) to clarify whether a business-type activity engaging in fiduciary activities should present fiduciary fund financial statements, and (3) to consider requiring a combining statement of changes in assets and liabilities for agency funds.

Status:
Preliminary Views approved on November 2014
Added to Research Agenda: April 2010

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.   

Accounting and Financial Reporting Issues:

This project considers whether additional guidance should be developed for determining whether a government has fiduciary responsibility and whether additional guidance should be developed to:
  • Clarify the difference between a private-purpose trust fund and an agency 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:

  • Pre-agenda research approved: April 2010
  • Added to current technical agenda: August 2013
  • Task force established? Yes
  • Deliberations began: September 2013
  • Preliminary Views approved: November 2014
  • Comment period: November 2014–March 2015
  • Field test completed: March 2015
  • Public hearings held: April 2015
Current Developments: The comment period for the Preliminary Views, Financial Reporting for Fiduciary Responsibilities, ended March 6, 2015. A field test was conducted during this period. Additionally, three public hearings were held in April 2015.


Work Plan:

 Board Meetings Topics to be considered
June 2015: Review single-employer plan research and redeliberate scope, fiduciary description, and asset control issues based on respondent feedback.
July 2015: Continue redeliberations on asset control and begin redeliberations on recognition issues based on respondent feedback.

August 2015 (T/C):

Continue redeliberations on recognition issues.

September 2015:

Redeliberate measurement and reporting issues based on respondent feedback.

September (T/C):

Continue redeliberations on measurement and reporting issues and deliberate transition and effective date.

October 2015:

Task Force meeting and review draft standards section of an Exposure Draft.

November 2015:

Review preballot draft of an Exposure Draft.

December 2015 (T/C):

Review ballot draft and issue Exposure Draft.

January–March 2016:

Comment period.

April–August 2016:

Redeliberate issues based on respondent feedback.

September 2016:

Review preballot draft of a final Statement.

October 2016 (T/C):

Review ballot draft and issue final Statement.


FIDUCIARY RESPONSIBILITIES—RECENT MINUTES


Minutes of Meetings, April 21-23, 2015

The Board reviewed and discussed the results of the field test conducted during the comment period for the Preliminary Views, Financial Reporting for Fiduciary Responsibilities.

Minutes of Meetings, November 11-13, 2014

The Board provided clarifying edits and comments for the ballot draft of the Preliminary Views, Financial Reporting for Fiduciary Responsibilities. The Board then voted unanimously for the issuance of the Preliminary Views.

Minutes of Meetings, September 30- October 1, 2014

The Board reviewed a preballot draft of the Preliminary Views, Fiduciary Responsibility for Financial Reporting, and provided recommendations and suggestions for clarification on the draft document. The Board will review and consider for approval a ballot draft of the Preliminary Views at the November meeting.

Minutes of Meetings, August 20-22, 2014

The Board began deliberations by discussing whether and, if so, how fiduciary component units of a fiduciary component unit should be included in a primary government’s reporting entity. The Board tentatively decided to propose that fiduciary component units of a fiduciary component unit be included in a primary government’s reporting entity by use of a ‘layering approach.’ This approach would require fiduciary component units of a fiduciary component unit to be combined with the related activity of the component unit that includes them as a component unit. The combined fiduciary fund type totals would then be rolled up to the primary government reporting entity and included in the appropriate fiduciary fund type column of the primary government’s fiduciary fund financial statements.

The Board continued deliberations by considering an amendment to the proposed tentative definition of a fiduciary. The Board tentatively determined that, although conceptually sound, the present organization and language of the proposed definition functions more as a description of a fiduciary than a definition of a fiduciary. Consequently, the Board tentatively decided that the proposed tentative definition should instead be adopted as a proposed description of fiduciary and no longer be referred to as a definition. Further, the Board provided the staff with suggestions to improve the description of a fiduciary. The Board also requested that the proposed fiduciary determination flowchart be amended to support the revised description and that the flowchart be incorporated as a component of the proposed Preliminary Views document.

Finally, the Board provided its edits and comments for the draft of three of the four proposed chapters of the Preliminary Views on Fiduciary Responsibilities.

Minutes of Meetings, July 9-10, 2014

The Board began deliberations by discussing its previous tentative decisions that (a) a commitment would be recognized and reported as a liability in a fiduciary fund only when the event giving rise to the liability has occurred and (b) the event that gives rise to the liability is the beneficiary having an immediate claim on the resources. Specifically, the Board discussed how to define what is meant by “having an immediate claim.” The Board tentatively decided to amend its previous tentative decision and propose that a liability be recognized in a fiduciary fund when an event has occurred that compels the government to disburse fiduciary resources.

The Board continued deliberations by discussing potential note disclosures related to fiduciary funds. The Board reviewed fiduciary fund requirements of other standards setters and tentatively decided that no additional note disclosures should be considered as a result of this review. The Board then discussed potential note disclosures recommended by users interviewed in the project staff research, and it tentatively decided that many of the recommended disclosures pertaining to investment trust funds and pensions and OPEB trust funds were already covered by current guidance. The Board tentatively decided to propose that additions be disaggregated by source and, if applicable, by net investment income, including separate display of investment income and investment expense, and deductions be disaggregated by type and, if applicable, by administrative expenses.

The Board continued deliberations by discussing additional potential note disclosures recommended by users interviewed in the project staff research that were not already covered by current guidance. The Board tentatively decided not to propose that a government engaged in fiduciary activities be required to disclose additional information regarding its obligations beyond current reporting requirements, including the identification of those with access to the resources, responsibility for disbursing the resources, and rights to receive the resources. The Board also tentatively decided not to propose that governments that report investment trust funds be required to disclose information identifying the participants, including how much each participant has invested in the trust. Finally, the Board tentatively decided not to propose that governments engaged in fiduciary activities be required to disclose information regarding the historical performance and rate of return achieved on investments held in a government’s fiduciary funds, except for what is already required for pension trust funds and what may be required for OPEB trust funds. The Board agreed that this issue, specifically related to external investment pools will be considered for addition to the GASB’s potential topics list.

Minutes of Meetings, May 28-29, 2014

The Board began deliberations by confirming the results of the Board’s deliberations at the April 2014 meeting on the difference between a government that has assigned and can reassign the responsibility for administering the exchange of assets (column 2 in the matrix presented in the staff paper) and a government that has no responsibility for administering the exchange of assets but can establish parameters for those who are responsible (column 3 in the matrix presented in the staff paper). The Board tentatively agreed that:
In column 2:
The government has assigned or can assign the responsibility for administering the exchange of assets to another party such as an asset manager.
The government is considered to still have control over the assets if it has the ability to reassign that responsibility to someone else.
In column 3:
The government does not have responsibility for administering the exchange of assets but can establish parameters for those who are responsible for administering the exchange of assets (for example, establishing a menu of investment options).
The government allows an individual or entity other than itself to make decisions about the types of assets held (which is why the government is considered to not have control over the assets).
The government does not have the ability to reassign the responsibility for administering the exchange of assets without the agreement of the individual that has the responsibility.
 
The Board also tentatively agreed that the matrix presented by the staff to determine whether the government has control over the assets should be included as an illustration in the Preliminary Views document.

The Board continued deliberations by discussing the modifications made to the flowchart created to determine if an activity should be reported in the primary government’s funds, a fiduciary fund, or not reported at all. The Board tentatively agreed with the modifications and that the flowchart should be included as an illustration in the Preliminary View’s document.

The Board then discussed the results of the project staff’s research conducted to understand (1) the importance users of business-type activity (BTA) financial statements place on the information currently required to be reported for fiduciary funds and (2) what information users currently focus on or need to assess a BTA’s accountability for fiduciary activities. Following the discussion of the research, the Board discussed whether the tentative decisions previously reached by the Board would be applicable to stand-alone BTAs that also engage in fiduciary activities. The Board tentatively decided to propose that a stand-alone BTA also engaging in fiduciary activities (1) meets the proposed tentative definition of a fiduciary and (2) should report that activity in general purpose external financial reports in a separate fiduciary fund section and not combined with the BTA’s operations.

The Board continued deliberations by discussing potential amendments to Statement No. 34, Basic Financial Statements—and Management’s Discussion and Analysis—for State and Local Governments, in order to clarify the tentative decision that BTAs also engaging in fiduciary activities should report that activity in general purpose external financial reports. The Board tentatively decided to propose that Statement 34 be amended to add a paragraph immediately following paragraph 141 that provides specific guidance for reporting by special-purpose governments engaged in both business-type and fiduciary activities.

Minutes of Meetings, April 8-10, 2014

The Board began deliberations by discussing the concept of control in a fiduciary capacity. The Board tentatively agreed to propose that whether a government is controlling fiduciary assets be determined by the legal structure that defines the relationship of the governing body to the fiduciary activity and when a governmental entity has a responsibility for administering the exchange of the assets.

The Board continued deliberations by discussing when a governmental entity has responsibility for administering the exchange of assets. The Board tentatively agreed to propose that a governmental entity has the responsibility for administering the exchange of assets, including when the governmental entity has the ability to reassign that responsibility. When a governmental entity can make decisions about the types of assets held or assign the responsibility for those decisions and reassign the responsibility for those decisions, the governmental entity has the ultimate responsibility for administering the exchange of assets.

The Board continued deliberations by discussing the potential relationships between the legal structure that defines the relationship of the governing body to the fiduciary activity and when a governmental entity has a responsibility for administering the exchange of the assets, and the effect these relationships have on determining whether a government is controlling fiduciary assets. The Board tentatively agreed to propose the following regarding these relationships:
  1. A governmental entity that is directly holding the assets, regardless of its responsibility for administering the exchange of those assets, would have control over those assets.
  2. A governmental entity that is directly responsible for administering the exchange of assets, regardless of the legal structures that might separate the governmental entity and the entity that is holding the assets, would have control over those assets. A governmental entity that has assigned its responsibility for administering the exchange of assets but maintains the ability to reassign that responsibility, regardless of the legal structures that might separate the governmental entity and the entity that is holding the assets, would have control over those assets.
  3. A governmental entity that is acting as a trustee for fiduciary assets and has no responsibility for administering the exchange of assets, but maintains the ability to establish parameters for those that have the responsibility, would not have control over the assets.
  4. A governmental entity that is neither directly holding nor acting as a trustee for fiduciary assets and has no responsibility for administering the exchange of assets, but maintains the ability to establish parameters for those that have the responsibility, would not have control over the assets.
  5. A governmental entity that is neither directly holding nor acting as a trustee for fiduciary assets and has no responsibility for administering the exchange of assets would not have control over the assets.
The Board then discussed whether and, if so, how to define a “government’s own programs” as referenced in the Board’s proposed tentative definition of a fiduciary. The Board tentatively agreed to amend the proposed tentative definition of a fiduciary to remove the reference to a “government’s own programs.”

The Board continued deliberations by discussing whether the concept of variance power (the ability to redirect fiduciary assets to another beneficiary or to further the government’s own purposes) should be specifically referenced in the proposed tentative definition of a fiduciary. The Board tentatively decided that the concept of variance power not be specifically referenced in the proposed tentative definition of a fiduciary.

The Board continued deliberations by reconsidering whether the concepts of administrative and direct financial involvement, provided in Statement No. 24, Accounting and Financial Reporting for Certain Grants and Other Financial Assistance, should be utilized as criteria to determine whether a government is a fiduciary. The Board tentatively agreed to propose that administrative and direct financial involvement be utilized as criteria to determine whether a government is a fiduciary in the absence of a trust or equivalent arrangement. The Board also tentatively agreed to propose that the due process document issued on the Fiduciary Responsibilities Project solicit feedback on whether the activity of a government that is controlling assets to be used to provide benefits to individuals, organizations, or other governments and meets one of the five criteria for administrative or direct financial involvement (monitors, determines eligibility, exercise discretion, matches contributions, or is liable), should be reported in the primary government’s revenues and expenses, rather than in a fiduciary fund.

The Board concluded deliberations by discussing an amended proposed tentative definition of a fiduciary. The Board tentatively agreed to propose that a fiduciary be defined as “A government that controls assets either (1) as a trustee for the sole benefit of its own employees or recipients other than the financial reporting entity or (2) for which it does not have administrative or direct financial involvement over the assets or those assets are used to provide benefits to individuals that are not part of its citizenry, or organizations or other governments that are not part of the financial reporting entity.”

Minutes Archive

FIDUCIARY RESPONSIBILITIES—TENTATIVE BOARD DECISIONS TO DATE


The Preliminary Views, Financial Reporting for Fiduciary Responsibilities, was approved in November 2014.