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 :
Final Statement, Fiduciary Activities , approved: January 2017
Exposure Draft approved: December 2015
Preliminary Views approved: November 2014
Added to Current Agenda: August 2013
Added to Research Agenda: April 2010

• Background
• Accounting and Financial Reporting Issues
• Project History
• Recent Minutes
• Tentative Board Decisions to Date
• Task Force
• Project staff:
  • Lisa Parker
     

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.

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:

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
3. Consider requiring a combining statement of changes in assets and liabilities for agency funds

• 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
• Public hearing held: April 2016
• Redeliberations began: May 2016
• Final Statement issued: January 2017

Minutes of Meetings, December 5-8, 2016

The Board began discussing two issues identified during the development of the preballot draft of the final Statement. The first issue discussed was the option provided in Statement No. 21, Accounting for Escheat Property, for escheat funds to be reported as fiduciary funds, governmental funds, or proprietary funds. The Board considered this guidance to be outside the scope of the project and tentatively agreed not to amend Statement 21. The second issue raised by staff was the applicability of Implementation Guide Question 7.52.5 to the guidance in the preballot draft. The question provides the option for resources held, that are not revenue of a government, to be reported as fiduciary funds, governmental funds, or proprietary funds. The Board discussed application of the question and tentatively decided to consider the deletion of this question when the next implementation guide update is reviewed.

The Board then discussed topics raised by participants at the Governmental Accounting Standards Advisory Council (GASAC) and the AICPA State and Local Government Expert Panel meetings on December 5-6, 2016. The first topic discussed was the application of the fiduciary criteria to student activity funds subject to specific policies that may be elected under certain state statutes. Specifically, the Board discussed whether these types of policies would constitute a government having administrative involvement. The second topic discussed related to the applicability of the guidance to retirement plans for nongovernmental employees that are administered by state governments. Following discussion of both topics, the Board tentatively agreed that both situations should be considered for inclusion in future implementation guidance.

Next, the Board discussed whether the revisions made to the Exposure Draft, Fiduciary Activities, related to the financial benefit/burden criteria warranted reexposure of the Exposure Draft. The Board tentatively decided not to reexpose the revisions to the Exposure Draft because of the amount of due process already conducted and the belief that the revisions made further aligned the provisions with prevalent practice.

Finally, the Board reviewed a preballot draft of a final Statement and provided clarifying edits. The Board agreed to move forward with a ballot draft of a final Statement.

Minutes of Teleconference, November 16, 2016

The Board discussed a research memorandum that presented survey feedback received from the October 2016 webinar on tentative Board changes made to the guidance during Exposure Draft redeliberations. In addition, the Board tentatively agreed that additional input should be received at the December Governmental Accounting Standards Advisory Council (GASAC) and AICPA State and Local Government Expert Panel (SLGEP) meetings before considering a preballot draft of a final Statement.

In addition, the board tentatively agreed to modify footnote 2 of the draft standards section. The footnote was modified to read as follows:


Minutes of Teleconference, October 5, 2016

The Board reviewed a draft of the Standards section of a final Statement, Fiduciary Activities, and discussed clarifying edits. The Board tentatively agreed to a reordering of the paragraphs within the identification of fiduciary activities section to more closely align with the order in which a government likely would determine whether an activity is a fiduciary activity. In addition, the Board discussed survey questions that will be provided to participants of the Fiduciary Activities webinar being conducted by the project staff on Tuesday, October 11, 2016.

Minutes of Meetings, September 13-15, 2016

The Board continued redeliberations of the Exposure Draft, Fiduciary Activities, by discussing additional research performed by the project staff related to the potential impact of the Exposure Draft proposals on governments that report single-employer and agent multiple-employer pension and OPEB plans. Feedback received regarding the following also was discussed: (1) the fiduciary activities criteria for certain postemployment benefits; (2) the statement of fiduciary net position, statement of changes in fiduciary net position, and business-type activity (BTA) reporting; and (3) the effective date and transition, flows charts, and illustrations.

First, the Board discussed the results of the research related to how single-employer and agent multiple-employer pension and other postemployment benefit (OPEB) plans would be reported should the proposed requirements in the Exposure Draft be carried forward to the final Statement. The research included surveys and follow-up calls with both state and local governments that report those types of plans. The project staff noted that the response rate was low and, therefore, the sample may not be representative.

The research results indicated possible misinterpretation of the component unit criteria from Statement No. 14, The Financial Reporting Entity, as amended, used to determine whether a legally separate organization that administers a pension or OPEB plan is a component unit of the primary government. The Board discussed whether the implications of this misapplication should be addressed in the final Statement and tentatively decided to develop an additional component unit criterion that considers whether a legally separate organization that administers a pension or OPEB plan can provide a financial benefit to or impose a financial burden on the government.

The Board also discussed feedback received regarding the proposed criteria for certain postemployment benefits. The Board tentatively decided that additional guidance should not be provided in the final Statement to clarify whether defined contribution plans and deferred compensation arrangements should be reported as fiduciary activities. However, the Board tentatively decided that the Basis for Conclusions should include a reference to the answer for Question 5.116.5 of Implementation Guide 2015-1, which states that Internal Revenue Code Section 457 deferred compensation plans are not pensions.

The Board then discussed whether the description of pension and OPEB arrangements that are proposed to be reported as fiduciary activities if the government controls the assets (paragraphs 8a–8c of the Exposure Draft) should be amended in the final Statement. The proposed amendments would clarify that the requirements apply to defined benefit and defined contribution pension and OPEB plans that are administered through trusts or equivalent arrangements and to assets held in other arrangements for pensions and OPEB of other governments. The Board tentatively decided that the aforementioned should be amended in the final Statement.

Next, the Board discussed whether the description of all other pension and OPEB arrangements to be reported as fiduciary activities that are not described in paragraphs 8a–8c should be amended. The Board tentatively decided to clarify in the final Statement that these arrangements are to be reported as fiduciary activities if (1) the government controls the assets and (2) the assets are held in a trust agreement or equivalent arrangement that meets the criteria of paragraph 7a of the Exposure Draft.

The Board then discussed feedback received regarding the statement of fiduciary net position, the statement of changes in fiduciary net position, and the BTA custodial fund reporting exception. First, the Board tentatively decided that the last sentence of paragraph B27 in the Basis for Conclusions should be moved to paragraph 18 of the Standards section of the final Statement and amended to read as follows: “Liabilities other than those to beneficiaries should be recognized in accordance with existing accounting standards using the economic resources measurement focus.”

Next, the Board tentatively agreed to remove the Section 529 savings plan example in paragraph 18 of the Exposure Draft, which relates to the recognition of a liability to a beneficiary in the final Statement.

The Board then discussed topics for possible consideration in future implementation guidance question and answers. The Board tentatively decided implementation guidance should be considered related to the following issues:
(1) a prepaid Section 529 tuition plan and (2) deposits received from a contractor/performance bonds.

The Board then discussed whether paragraph 18 of the Exposure Draft, which prescribes when a government should recognize a liability to beneficiaries of a fiduciary fund, should be amended in the final Statement to read as follows: “Events that compel a government to disburse fiduciary resources occur when a demand for the resources has been made or when no further action, approval, or condition is required to be taken or met by the beneficiary to release the assets.” The Board tentatively agreed to the amendment.

The Board also discussed whether a footnote to paragraph 8c of the Exposure Draft, which states that a government is required to apply the provisions of paragraph 116 of Statement No. 73, Accounting and Financial Reporting for Pensions and Related Assets That Are Not within the Scope of GASB Statement 68, and Amendments to Certain Provisions of GASB Statements 67 and 68, should be added, identifying the specific provisions in paragraph 116 of Statement 73. The Board tentatively agreed that a footnote should not be added.

Next, the Board discussed whether paragraph 19 of the Exposure Draft, which prescribes that governments that report a pension or OPEB plan as a fiduciary fund to report the fund’s assets, deferred outflows of resources, liabilities, deferred inflows of resources, and net position in accordance with Statement No. 67, Financial Reporting for Pension Plans, or Statement No. 74, Financial Reporting for Postemployment Benefit Plans Other Than Pension Plans, as appropriate, should be carried forward to the final Statement without amendment; the Board tentatively decided that it should.

Next, the Board discussed whether paragraphs 20, 21, and 22 of the Exposure Draft related to the statement of changes in fiduciary net position should be carried forward to the final Statement. The Board tentatively agreed to carry forward paragraphs 20 and 22 to the final Statement without amendment. The Board tentatively agreed to carry forward paragraph 21 to the final Statement, including the example “property taxes collected for other governments” as a custodial fund addition to clarify what is meant by the “nature of the resource flows.” Further, the Board tentatively decided that clarification should be added that the determination of how long the resources are “normally expected to be held” is made upon their receipt.

The Board then discussed how clarity might be added to paragraph 16 of the Exposure Draft, which states that BTAs may report resources with a corresponding liability that otherwise should be reported in a custodial fund in the statement of net position of the BTA if those resources are expected to be held for three months or less. The Board tentatively decided to amend paragraph 16 to clarify that the determination of how long the resources are “normally expected to be held” is made upon their receipt. Additionally, the Board tentatively decided to consider a question and answer in future implementation guidance related to this topic.

Next, the Board addressed feedback received regarding the effective date and transition provisions. The Board tentatively decided to modify the effective date to be for periods beginning after December 15, 2018, and that the effective date provisions should continue to encourage earlier implementation. The Board also tentatively decided to carry forward to the final Statement the transition provisions included in the Exposure Draft.

Lastly, the Board discussed whether to carry forward the flow charts in Appendix C and illustrations in Appendix D of the Exposure Draft to the final Statement; the Board tentatively decided to carry them forward. Further, the Board tentatively decided to amend the flow chart presented in Table 1 of Appendix C to reverse the order of the first two decision diamonds within the flowchart to clarify that the primary government should first ask the question of whether the definition of a component unit is met before asking whether the assets related to the activity are controlled by the government. The Board also discussed whether the net position element in the illustration of the Statement of Fiduciary Net Position should be amended such that those amounts for pension (and other employee benefit) trust funds, investment trust funds, and private-purpose trust funds are reported as being “held in trust” instead of “restricted.” The Board tentatively decided not to include such an amendment. The Board also tentatively decided to consider a question and answer in future implementation guidance to clarify situations in which BTAs may be required to report fiduciary fund financial statements in their basic financial statements.

Minutes of Meetings, August 10-12, 2016

The Board continued redeliberations of the Exposure Draft, Fiduciary Activities, by discussing tentative decisions and follow-up items from the June 2016 meeting as well as feedback received regarding (1) identification and reporting of fiduciary component units of fiduciary component units and (2) reporting fiduciary activities in fiduciary funds.

First, in regard to tentative decisions and follow-up items from the June 2016 meeting, the Board discussed presentation of external investment pools in fiduciary fund financial statements. The Board tentatively decided that the final Statement should retain the concept of reporting fiduciary activities based on the presence or absence of a trust agreement or equivalent arrangement. Governments should report external investment pools using two columns: (1) investment trust funds for those pools held in a trust agreement or equivalent arrangement and (2) custodial funds for those pools not held in a trust agreement or equivalent arrangement (in a sub-category titled external investment pool under the custodial fund heading).

The Board then discussed whether paragraph 5 of the Exposure Draft should be amended in the final Statement to provide that Statement No. 31, Accounting and Financial Reporting for Certain Investments and for External Investment Pools, paragraph 18, as amended, be further amended to provide that external investment pools should be reported in a fiduciary fund based on the final Statement. The Board tentatively agreed that Statement 31, paragraph 18, should be amended in the final Statement by changing the reference from external investment pools to fund classification guidance in this Statement.

Next, the Board discussed whether the term use should be retained in the context of defining what is meant by direct in the control criteria. The Board also discussed whether or not use should be defined as, “when a government expends or consumes an asset for the benefit of individuals, organizations, or other governments, outside of the government’s provision of services to them.” The Board tentatively agreed to both of the aforementioned.

The Board then discussed criteria 7b in the Exposure Draft: “The assets are 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. In addition, the assets are not derived from the government’s provision of goods or services to those individuals.” To clarify this criteria, the Board tentatively decided that criteria 7b should be amended in the final Statement to include the concept that the use of the assets is not substantively approved by the government.

Next, the Board considered whether the final Statement should include additional language to clarify that a primary government should not consider whether it controls the assets of its fiduciary component units when determining whether or not the activity is fiduciary in nature. The Board tentatively decided that additional clarifying language should be included.

Next, the Board discussed whether paragraph 23 of the Exposure Draft (which proposed that when reported in the fiduciary fund financial statements of a primary government, fiduciary component units include the financial information from their own fiduciary component units) should be carried forward to the final Statement. The Board tentatively decided to carry forward paragraph 23 and that further explanation should be added to the Basis for Conclusions related to (1) component units that are fiduciary in nature, including their fiduciary component units, rolling up to the primary government’s fiduciary fund financial statement and (2) the presentation of fiduciary activities of discretely presented component units that are not fiduciary in nature.

The Board then considered the fund classifications proposed in paragraphs 12, 14, and 15 of the Exposure Draft discussing pension trust funds, private-purpose trust funds, and custodial funds. The Board tentatively decided paragraphs 12, 14, and 15 should be carried forward to the final Statement.

Lastly, the Board discussed potential clarifications conveying that the requirements of the final Statement apply to stand-alone business-type activities (BTAs). The Board tentatively decided that additional language should be added to the Basis for Conclusions in the final Statement that specifically addresses the provision that requires the application of these standards to stand-alone BTAs.

Minutes of Meetings, June 22-23, 2016

The Board continued redeliberations of the Exposure Draft, Fiduciary Activities, by discussing the feedback received regarding the identification of fiduciary activities.

First, the Board discussed the control criteria provided in paragraphs 7 and 10 of the Exposure Draft. To clarify how a government could control assets of an activity when it is not holding the assets, the Board tentatively decided to remove the term administer and carry forward the term direct from the criteria used to determine whether a government is controlling the assets to the final Statement. Further, the Board tentatively decided to define the term direct in the final Statement as, “The government, or its designee who is acting on behalf of the government, has the ability to use, exchange, or employ the assets. The designee, when applicable, is performing the government’s fiduciary duties and not assuming them. As a result, appointing a designee to act on its behalf does not change the fact that the government has the ability to use, exchange, or employ the assets.”

The Board then discussed the last sentence of paragraph 10 of the Exposure Draft. To clarify that restrictions that stipulate assets can be used only as described in a custodial or trust agreement do not negate a government’s control of the assets, the Board tentatively decided that the final sentence of paragraph 10 of the Exposure Draft should be modified to state, “Restrictions from legal or other external restraints that stipulate the assets can be used only for a specific purpose do not negate a government’s control of the assets.”

Next, the Board discussed the definition of own-source revenue. The Board tentatively decided to carry forward the definition provided in the Exposure Draft but expand upon it to include the notions of exchange, exchange-like, and nonexchange revenues. The definition should be included in the final Statement as follows:


Additionally, the Board tentatively agreed that the definition will be included as its own separate paragraph in the Standards section, rather than in a footnote. To provide further explanation, the Board also tentatively decided to incorporate a discussion on the definition of own-source revenue in the Basis for Conclusions of the final Statement.

Finally, the Board discussed the four fiduciary criteria proposed in paragraphs 7(a)–7(d) of the Exposure Draft. As the Board’s original intent in the Exposure Draft was to apply the criteria at the asset level, the Board tentatively decided that the criteria should be applied to assets rather than activities. The Board also tentatively agreed to carry forward the criterion proposed in paragraph 7(a) of the Exposure Draft. Further, the Board tentatively decided to not define the term beneficiary in the final Statement.

The Board also discussed respondents’ feedback to paragraphs 7(b) and 7(c) and tentatively decided to carry forward the criteria, but to clarify that the assets also should not be derived from the government’s provision of goods or services to those individuals, organizations, or other governments. The Board then discussed criterion 7(d) regarding pass-through grants, and tentatively decided to carry forward the provision to the final Statement by applying the requirement at the same time as consideration is made in relation to own-source revenues, without further clarifying the term pass-through grant. Finally, because the Board’s intent is to develop the criteria using a principles-based approach, the Board tentatively decided not to provide guidance on the applicability of the fiduciary criteria to specific activities such as student activity funds and scholarship funds.

Minutes of Meetings, May 10-11, 2016

The Board began redeliberations of the Exposure Draft, Fiduciary Activities, by considering general feedback from respondents to the Exposure Draft, as well as testifiers at the public hearing held on April 21, 2016. First, the Board discussed comments generally supportive of and generally opposed to the provisions in the Exposure Draft. Next, the Board discussed comments related to the scope and applicability of the proposed Statement. As a result of the discussion, the Board tentatively decided to amend paragraph 5 in the final Statement to highlight that Statement 32, paragraph 4, as amended, is superseded, in its entirety. Finally, the Board discussed potential resolutions to issues raised by stakeholders regarding the identification of fiduciary activities, but no tentative decisions were reached.


Statement No. 84, Fiduciary Activities , was approved in January 2017.