Project Pages

Fiduciary Activities

Project Description: The primary objective of this project is to develop guidance regarding 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:
Exposure Draft approved in December 2015
Preliminary Views approved in November 2014
Added to Research Agenda: April 2010

Fiduciary Activities—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 and how a government should report a fiduciary activity 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 (results reviewed in April 2015)
  • Public hearings held: April 2015
  • Redeliberations began: June 2015
  • Task force meeting held: October 2015
  • Exposure Draft issued: December 2015
  • Comment period: December 2015–March 2016

Current Developments
: At its September 2015 meeting, the Board reviewed issues raised by respondents to the Preliminary Views and continued redeliberations on the proposals presented in Chapter 4. Specifically, the Board redeliberated and reached tentative decisions on the recognition, measurement, and reporting proposals including (1) recognition of a liability in fiduciary funds, (2) reporting additions and deductions, (3) reporting of fiduciary component units of fiduciary component units, (4) public entity risk pool considerations, and (5) note disclosures.

At its October 2015 meeting, the Board continued its redeliberations and reached tentative decisions on (1) reporting of additions and deductions for fiduciary activities of stand-alone business-type activities, (2) transition, effective date, and comment period of the Exposure Draft, and (3) cost-benefit considerations. Further, the Board reviewed and provided feedback on a draft standards section and nonauthoritative flow charts to be included in an Exposure Draft.

At its November 2015 meeting, the Board reviewed and provided feedback on a preballot draft of the Exposure Draft. At its December 8, 2015, teleconference the Board approved the issuance of the Exposure Draft, Fiduciary Activities.

Work Plan:

 Board Meetings Topics to be considered

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 Activities—RECENT MINUTES


Minutes of Teleconference, December 8, 2015

The Board reviewed a ballot draft of a proposed Statement, Fiduciary Activities. After providing clarifying edits and comments, the Board voted unanimously to approve the issuance of the Exposure Draft.

Minutes of Meetings, November 18-20, 2015.

The Board reviewed a preballot draft of the proposed Exposure Draft, Accounting and Financial Reporting for Fiduciary Activities, and provided clarifying edits on the draft document. The Board tentatively decided to change the name of the project to “Fiduciary Activities.” The Board then agreed to move forward with a ballot draft of a proposed Statement.

Minutes of Task Force Meeting, October 6, 2015

GASB Chairman David Vaudt opened the meeting at 8:30 a.m. by welcoming the task force members and providing introductory remarks. The task force members at the table and on the phone and others at the table introduced themselves to the group. Mr. Vaudt then turned the meeting over to Lisa Parker.

The first topic addressed was the concept of control and the criteria for identifying and reporting fiduciary activities. Ms. Parker explained the Board’s initial preliminary views regarding when a government has control over assets and, after determining that control is present, when to report those assets as fiduciary activities in the fiduciary fund financial statements. Ms. Parker discussed the Board’s rationale for developing its initial preliminary views on the issues, the feedback received from respondents to the Preliminary Views, Financial Reporting for Fiduciary Activities, and the Board’s tentative decisions as a result of its redeliberations of the issues and in response to feedback received. Task force members provided feedback on the issues. Some members noted that the removal of citizenry from the definition added clarity. Other members highlighted potential areas of confusion surrounding the lack of guidance to determine control for pension and other postemployment benefit trust fund arrangements and the concept of holding assets versus having custody of assets.

The next topic discussed was the reporting of fiduciary activities in fiduciary funds. Ms. Parker discussed the Board’s tentative decisions regarding the types of funds that should be included in fiduciary funds, the classification of activities as a particular fiduciary fund, and the focus of what should be reported within each type of fiduciary fund. Ms. Parker explained that pension (and other employee benefit) trust funds, investment trust funds, private-purpose trust funds, and custodial funds should be used to report fiduciary activities. She also explained the types of resources that should be reported within each type of fund, as well as the fact that the classifications should be based, in part, on the presence or absence of a trust agreement or an equivalent arrangement. Task force members provided feedback on the decisions and also discussed the usefulness of having all fiduciary fund information reported in the fiduciary fund financial statements. A concern raised by some task force members was the confusion regarding the phrase individual investment accounts and whether individual college savings accounts would be reported as an investment trust fund or a private-purpose trust fund.

Next, Ms. Parker discussed the Board’s tentative decision that a liability should be recognized in a fiduciary fund when an event has occurred that compels the government to disburse the fiduciary resources. Task force members discussed the decision and, overall, did not object to the proposed provision.

Ms. Parker discussed the Board’s preliminary view that all fiduciary funds should report additions and deductions in the statement of changes in fiduciary net position. Additionally, all fiduciary funds would be required to report additions disaggregated by source and, if applicable, separately display investment income and investment costs; and deductions would be disaggregated by type and, if applicable, separately display administrative costs. Some respondents to both the Preliminary Views and the public hearings noted that there was a need to provide relief to governments that have custodial funds that are used to report resources held for a short period of time. As a result of the feedback received, the Board tentatively decided that governments that hold custodial resources for a period of three months or less can report a single amount for both additions and deductions in the statement of changes in fiduciary net position, without disaggregating in greater detail, as long as the descriptions of the totals are sufficient to indicate the nature of the resource flows. Some task force members discussed the potential ramifications of this exception, highlighting the fact that the exception may provide a benefit but at the expense of additional transparency. Other task force members expressed concerns about the potential cost and burden imposed by the proposed requirement to disaggregate administrative and investment costs.

The next topic discussed was the tentative decisions made by the Board concerning component units that are fiduciary in nature. Ms. Parker began by discussing the Board’s preliminary view that any legally separate entity that meets the definition of a component unit under Statement No. 14, The Financial Reporting Entity, as amended, and meets the proposed fiduciary reporting criteria would be reported in a fiduciary fund. Additionally, the Board’s preliminary view was that a fiduciary component unit, when reported in the fiduciary fund financial statements of a primary government, should include the combined information of that component unit and its component units that are fiduciary in nature. The Board concluded that, based on respondent feedback to the Preliminary Views, the scope exception for component units should be clarified if it is presented after the control and fiduciary reporting criteria in the Exposure Draft. The Board reaffirmed its view during redeliberations on the reporting of fiduciary component units that also have component units that are fiduciary in nature. The task force members discussed this matter and did not object to the proposed guidance. However, some task force members expressed confusion surrounding the presentation of fiduciary component units and their component units that are fiduciary in nature. For example, some task force members were unsure whether blending criteria should be applied to these component units.

The final topic of the task force meeting was financial reporting of stand-alone business-type activities (BTAs) that are engaged in fiduciary activities. Ms. Parker discussed the Board’s initial view that a BTA that engages in fiduciary activities should report the activities in separate fiduciary fund financial statements in its basic financial statements. However, during redeliberations, the Board noted that some BTAs may need additional cost relief, especially if the BTA only has a few custodial funds that are held for a short period of time. Ms. Parker provided the proposed staff recommendation that was to be presented to the Board at the October 2015 meeting. The task force members did not object to the need to provide BTAs with relief when they hold custodial fund assets for a short period of time, nor did they object to the proposed requirement for all other fiduciary activities of BTAs to be reported in separate fiduciary fund financial statements.

Mr. Vaudt thanked all task force members for their participation and concluded the meeting at 11:45 a.m.

Minutes of Meetings, October 6-8, 2015

The Board began redeliberations by discussing the financial reporting of stand-alone business-type activities (BTAs) engaged in fiduciary activities. Specifically, the Board reviewed custodial fund reporting options that could provide BTAs with additional cost relief. The Board tentatively decided to propose that the assets and related liabilities of fiduciary activities that otherwise would be reported in a custodial fund may instead be included in the statement of net position of the BTA if those assets are generally held for three months or less. Additionally, the Board tentatively decided to propose that a BTA that chooses to report custodial assets and liabilities in its statement of net position separately report significant additions, to the extent that they exist, and deductions as cash inflows and cash outflows, respectively, in the operating activities category of its statement of cash flows.

Next, the Board discussed the effective date and transition provisions to be proposed in the Exposure Draft. The Board tentatively agreed that the Exposure Draft should propose transition provisions requiring that changes adopted to conform to the provisions of the Statement should be applied retroactively by restating financial statements, if practical, for all prior periods presented. If restatement for prior periods is not practical, the cumulative effect, if any, of applying the Statement should be reported as a restatement of beginning net position (or fund balance or fund net position, as applicable) for the earliest period restated. In the first period that the Statement is applied, the notes to the financial statements should disclose the nature of the restatement and its effect. Also, the reason for not restating prior periods presented should be disclosed.

With regard to the effective date, the Board tentatively decided that the Exposure Draft should propose an effective date for fiscal years beginning after December 15, 2017. The Board also tentatively decided that earlier application should be encouraged. The Board then tentatively agreed that a 90-day comment period should be provided for the Exposure Draft.

The Board then considered whether the expected benefits of the financial reporting for fiduciary responsibilities exceed the perceived costs of implementation. The Board tentatively agreed that the expected benefits associated with the proposed requirements outweigh the anticipated implementation and ongoing costs.

Furthermore, the Board discussed the characteristics of the financial information that would be provided as a result of the proposed standard. The Board tentatively agreed that the proposed guidance would produce financial information that meets the needs of users, results from economic or financial events affecting the assessment of the governmental reporting entity, is relevant to reporting objectives, and falls within an appropriate information category in general purpose external financial reports.

The Board concluded deliberations by reviewing and providing clarifying comments on the proposed text of the standards section of the Exposure Draft.

Minutes of Meetings, September 1-3, 2015

The Board continued redeliberations on the Preliminary Views, Financial Reporting for Fiduciary Responsibilities.

The Board first considered respondents’ comments to the Preliminary Views regarding the recognition of a fiduciary liability. The Board reaffirmed its view and tentatively decided to propose that a liability be recognized in all fiduciary fund types when an event has occurred that compels the government to disburse fiduciary resources.

Next, the Board discussed respondents’ comments on the proposal to report additions and deductions in the statement of changes in fiduciary net position. The Board tentatively decided to propose that fiduciary funds report additions disaggregated by source and, if applicable, separately display investment income and investment costs, and deductions be disaggregated by type and, if applicable, separately display administrative costs. However, in order to relieve some of the burden on preparers and auditors for the cost and effort in preparing and auditing the fiduciary activity flows, the Board tentatively decided to propose that custodial fund activities, in which the government holds the resources for a period of three months or less, report a single amount for additions and a single amount for deductions in the statement of changes in fiduciary net position, without disaggregating in greater detail, as long as the descriptions of the totals are sufficient to indicate the nature of the resource flows. The Board also tentatively agreed that illustrative fiduciary fund financial statements should be included in the nonauthoritative appendix of the Exposure Draft.

Next the Board discussed the reporting of fiduciary component units of component units that are fiduciary in nature. The Board’s preliminary view was that a fiduciary component unit, when reported in the fiduciary fund financial statements of a primary government, should include the combined information of its component unit(s) that are fiduciary in nature. Further, component units of a fiduciary component unit should be aggregated and combined with the primary government’s fiduciary fund financial statements based on the fiduciary fund type(s). Based on the respondents’ feedback to this proposal, the Board reaffirmed its view and tentatively decided to propose that this guidance be carried forward to the Exposure Draft.

The Board also discussed the potential impacts of the proposed description of when a government is a fiduciary on public entity risk pools. To align the proposal with the guidance in Statement No. 10, Accounting and Financial Reporting for Risk Financing and Related Insurance Issues, the Board tentatively decided to exclude organizations or other governments that are recipients of a governments’ goods or services from the description of when a government is a fiduciary.

Next, the Board discussed note disclosures. The Board tentatively decided that existing guidance on disclosure of fiduciary fund types and specific fiduciary activities is sufficient and that no additional disclosures should be proposed in the Exposure Draft.

The Board also discussed the treatment of fiduciary activities for stand-alone business-type activities. The Board decided to continue deliberations on stand-alone business-type activities at a future meeting when the project staff has additional time to provide the Board with a possible recommendation that provides additional reporting relief to these specific entities.

Minutes of Meetings, July 21-23, 2015

The Board began its discussion of fiduciary responsibilities by reviewing research conducted by the project staff on the guidance for pass-through grants, which is found in Statement No. 24, Accounting and Financial Reporting for Certain Grants and Other Financial Assistance. The research was performed to inform the Board’s consideration regarding whether the guidance in Statement 24 should be reexamined as part of the Financial Reporting for Fiduciary Responsibilities project. After considering the research results, the Board tentatively decided to carry forward the Statement 24 exception in the proposed criteria for determining whether a government is a fiduciary as proposed in the Preliminary Views.

The Board then considered respondents’ comments on whether fiduciary funds should continue to be used to report the fiduciary activities of a government in the basic financial statements. The Board reaffirmed its view and tentatively decided that the Exposure Draft should propose that fiduciary funds continue to be used to report the fiduciary activities of a government in the basic financial statements.

The Board also considered respondents’ comments on the classification of activities as fiduciary funds. The Preliminary Views proposed that the classification of an activity as a particular fiduciary fund be based in part on the presence or absence of a trust agreement or equivalent arrangement. The Board reaffirmed its view and tentatively decided that fiduciary activities should be classified in fiduciary fund types based in part on the presence or absence of either a trust agreement or equivalent arrangement. The Board also tentatively decided that clarifying language should be added to the text and basis for conclusions of the Exposure Draft to further explain the term equivalent arrangement.

The Board considered respondents’ comments to the proposed guidance regarding the use of pension (and other employee benefit), investment, and private-purpose trust funds to report resources of fiduciary activities that are administered through trust agreements or equivalent arrangements that meet certain criteria. The Board tentatively decided that the Exposure Draft should propose that the three types of trust funds be used to report resources of fiduciary activities administered through trusts or equivalent arrangements. Additionally, the Board reaffirmed its view and tentatively decided that the descriptions of the three types of trust funds should focus on the types of restrictions on the resources that are reported in each fund type.

Finally, the Board considered respondents’ comments to the proposed guidance that would eliminate the agency fund type and replace it with the custodial fund type to report fiduciary activities for which there is no trust agreement or equivalent arrangement. The Board reaffirmed its view and tentatively decided that the Exposure Draft should carry forward the proposal to eliminate the agency fund type and replace it with a custodial fund type that should be used to report fiduciary activities for which there is no trust agreement or equivalent arrangement. Further, the Board tentatively decided to propose that resources held for a short duration of time that are not administered through a trust agreement or equivalent arrangement also be reported in a custodial fund.

Minutes of Meetings, June 2-4, 2015

The Board reviewed and discussed the results of the questionnaire that was distributed to governments sponsoring single-employer pension and other postemployment benefit (OPEB) plans during the comment period for the Preliminary Views, Financial Reporting for Fiduciary Responsibilities.

The Board next reviewed issues raised by respondents to the Preliminary Views and began redeliberations on the proposals presented in Chapters 2 and 3.

The Board began redeliberations by reviewing comments made by respondents about the scope of the proposed standard. The Board tentatively decided that the proposals, which exempted component units and pension and OPEB arrangements from certain provisions of the Preliminary Views, should be retained in the Exposure Draft. The Board also tentatively decided that the language of these exceptions should be clarified to enhance their understandability.

The Board tentatively decided that the control exception for component units that are fiduciary in nature should be placed after the discussion of the control criteria, and the reporting exception for pension and OPEB arrangements that are within the scope of existing GASB guidance should be placed in the reporting provisions section of the Exposure Draft, rather than in the scope section. The Board also tentatively agreed to address certain pension and OPEB arrangements that are subject to the reporting provisions in the Exposure Draft in the Basis for Conclusions section in the Exposure Draft.

The Board considered respondents’ comments that requested the proposed standard to specifically identify certain activities that would be reported as fiduciary activities. The Board tentatively decided not to identify specific activities that would be reported as fiduciary activities in the authoritative section of the proposed guidance.

The Board also tentatively decided that it may be appropriate to propose amending the reporting entity flowchart in Statement No. 14, The Financial Reporting Entity, by including a decision box that would be used to assess whether a component unit is a fiduciary activity.

The Board next considered issues raised by respondents to the Preliminary Views about the concept of control and its role in determining whether a government has a fiduciary responsibility for financial reporting purposes. The Board tentatively decided to propose that the concept of control be retained as the focus for determining whether a government should report a fiduciary activity. The Board also tentatively decided to propose that assets that are controlled by a government in a fiduciary capacity have a present service capacity that can be used, exchanged for another asset, or employed in some other way that provides benefits.

The Board tentatively decided that the notions of holding and administering should be retained as indicators of whether control is present; however, the term administering will be replaced by another term in the Exposure Draft. The Board tentatively decided to propose the following revised description of whether a government controls assets in a fiduciary capacity (subject to modifications that would result in addressing other tentative decisions):

A government controls assets of an activity that are used by the government (or its assignee) to provide benefits to specified or intended beneficiaries if (a) the government holds the assets or (b) the government has the ability to administer or direct the use, exchange, or employment of the present service capacity of the assets.
 
The Board then considered respondents’ comments regarding the factors the Preliminary Views suggested should be considered in determining whether a government is a fiduciary. The Board tentatively decided that the proposed description of whether a government is a fiduciary should explicitly include that the assets of the activity are not derived solely from the government’s own-source revenue as defined in Statement No. 44, Economic Condition Reporting: The Statistical Section. The Board also tentatively decided that whether a government has administrative or direct financial involvement for assets resulting from a pass-through grant should remain in the criteria in the Exposure Draft for determining whether a government should report its fiduciary activities.
 
The Board tentatively decided to delete the word trust when describing the two conditions necessary to be considered a qualified trust or equivalent arrangement to clarify what constitutes an equivalent arrangement. The Board also tentatively decided that the word citizenry should be replaced with residents or recipients of the government’s goods and services in the Exposure Draft. The Board tentatively decided that examples of citizens that were included in the Preliminary Views should be removed from the guidance in the Exposure Draft and instead be considered for inclusion in a future Implementation Guide. The Board tentatively decided that the proposed criteria for determining whether a government should report its fiduciary activities should be as follows:

An activity is a fiduciary activity of a government if the government controls the assets of the activity, the assets of the activity are not derived from the government’s own-source revenue as defined in Statement No. 44, Economic Condition Reporting: The Statistical Section, and one of the following criteria is met:
  1. The assets result from a pass-through grant for which the government does not have administrative or direct financial involvement
  2. The assets are administered through a trust agreement or equivalent arrangement in which the government itself is not a beneficiary
  3. The assets are to be used for the benefit of individuals that are not required to be residents or recipients of goods and services as a condition of being a beneficiary
  4. The assets are to be used for the benefit of organizations or other governments that are not part of the financial reporting entity.
The Board tentatively decided to retain in the Exposure Draft Tables 1 and 1A of Chapter 2 in the Preliminary Views and to remove Table 2 of Chapter 3 in the Preliminary Views. The Board also tentatively agreed upon certain clarifying edits to various provisions of the Preliminary Views in order to enhance their understandability.

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 Archive

Fiduciary Activities—TENTATIVE BOARD DECISIONS TO DATE


The Exposure Draft, Fiduciary Activities, was approved in December 2015.