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
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, 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 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 Archive

FIDUCIARY RESPONSIBILITIES—TENTATIVE BOARD DECISIONS TO DATE


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

These tentative decisions have been made since the issuance of the Preliminary Views and in anticipation of an Exposure Draft. The Board tentatively agreed to the following:
  • Any activity for which a government is a fiduciary should be subject to the proposed financial reporting guidance for fiduciary activities, except:
    • A pension or OPEB arrangement that falls within the scope of other GASB guidance would be reported in accordance with existing Pension and OPEB guidance. All other provisions of the proposed guidance, with the exception of the reporting guidance, would be applicable to these arrangements. A pension or OPEB arrangement that does not fall within the scope of other GASB guidance would apply all provisions of the proposed guidance.
    • A government that meets the component unit criteria in Statement No. 14, The Reporting Entity, as amended, would not apply the proposed control criteria identified in this project, when determining whether or not a component unit should be reported as a fiduciary activity. A component unit is fiduciary in nature if the assets from its activities meet one of the four criteria included in the description of a fiduciary activity identified below.
  • 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:
    • The assets result from a pass-through grant for which the government does not have administrative or direct financial involvement
    • The assets are administered through a trust agreement or equivalent arrangement in which the government itself is not a beneficiary
    • The assets are to be used for the benefit of individuals that are not required to be residents or recipients of the government’s goods and services as a condition of being a beneficiary
    • The assets are to be used for the benefit of organizations or other governments that are not part of the financial reporting entity.
  • A government controls the 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 (1) use, (2) exchange, or (3) employment of the present service capacity of the assets.