Do You Have a Fiduciary Responsibility?
Until recently, financial statement preparers and auditors interpreted the government’s fiduciary responsibility in a variety of ways, which resulted in inconsistent reporting. In response, the Governmental Accounting Standards Board (GASB) issued Statement No. 84 Fiduciary Activities (GASB 84) to assist local governments with identifying and reporting its fiduciary activities.
Identifying Fiduciary Activities
To determine whether an item or activity meets the new fiduciary activity requirements, a government must assess whether it is in control of the assets and who the beneficiaries are. GASB 84, paragraph 12 states, “A government controls the assets of an activity if the government (a) holds the assets or (b) has the ability to direct the use, exchange, or employment of the assets in a manner that provides benefits to the specified or intended recipients. 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.”
Reporting Fiduciary Activities
Activities meeting the definition of a fiduciary activity should be recorded in the fiduciary fund financial statements. As with previous guidance, there are four types of fiduciary funds:
- Pension (and other employee benefit) trust funds: Pension and other postemployment benefit (OPEB) plans administered through trusts that meet the criteria of GASB 67 and GASB 74.
- Investment trust funds: “The external portion of investment pools and individual investment accounts that are held in a trust that meets the criteria” of GASB 84.
- Private-purpose trust funds: “Fiduciary activities that (a) are not required to be reported in pension (and other employee benefit) trust funds or investment trust funds and (b) are held in a trust that meets the criteria” of GASB 84.
- Custodial funds:
- “Report fiduciary activities that are not required to be reported in pensions and (other employee benefit) trust funds, investment trust funds, or private-purpose trust funds.
- The external portion of investment pools that are not held in a trust that meets the criteria” of GASB 84 “should be reported in a separate external investment pool fund column, under the custodial funds classification.”
Financial Statement Changes
The most significant financial statement changes include:
- Governments must recognize a liability to the fiduciary fund beneficiaries when “an event has occurred that compels the government to disburse fiduciary resources.” Business-type activities, where assets are normally expected to be held for three months or less, are excluded from this requirement.
- The presentation of additions to and deductions from all fiduciary funds on the statement of changes in fiduciary net position change as follows:
- Additions are disaggregated by source. If applicable, investment earnings, investment costs, and net investment earnings should be displayed separately.
- Deductions are disaggregated by type. Administrative costs should be displayed separately.
- Resources that “are normally expected to be held for three months or less” are exempt from these changes.
Effective Date and Transition
GASB 84 is effective for fiscal years beginning after December 15, 2018. Early application is encouraged. Governments should apply GASB 84 retroactively, when practical, and restate the financial statements for all prior periods presented. When prior period restatement is not practical, a cumulative effect adjustment should be recorded to beginning net position.
Governments should evaluate whether they have been presenting fiduciary activities correctly and identify other activities that could be considered a component activity of the government. Also, evaluate your fiduciary activities with your auditor and determine whether early implementation of the standard is appropriate.