Project Pages

Fiduciary Responsibilities

Project Description: The primary objective of this project would be to develop guidance regarding the application of the fiduciary responsibility criteria 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 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, and (3) consider requiring a combining statement of changes in assets and liabilities for agency funds.

Status:
Currently being deliberated.
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
Current Developments: At the May 2014 meeting, the Board confirmed the project staff’s understanding of the difference between a government that has assigned and can reassign the responsibility for administering the exchange of assets and a government that has no responsibility for administering the exchange of assets, but can establish parameters for those who are responsible (discussed above). The Board also tentatively agreed with an amended flow chart to determine if an activity should be reported in the primary government’s funds, a fiduciary fund, or not reported at all, and to include the chart in the Preliminary Views.

The Board was provided with an educational memorandum summarizing the project staff’s additional research on the value of fiduciary activities information to users of business-type activity financial statements. The research was conducted to inform the Board’s assessment of whether and how governmental entities engaged solely in business-type activities should report their fiduciary activities. The Board tentatively agreed that a stand-alone business-type activity that also engages in fiduciary activities meets the proposed tentative definition of a fiduciary, and should report that activity in general purpose external financial reports in a separate fiduciary fund section and not combined with their operations. Finally, the Board tentatively agreed to amendments to Statement 34 to provide specific guidance for reporting by special-purpose governments engaged in both business-type and fiduciary activities.

At the July 2014 meeting, the Board tentatively agreed to amend their previous tentative decision on when a liability should be recognized in a fiduciary fund and to propose that a liability should be recognized when an event has occurred that compels the government to disburse fiduciary resources. A government would be “compelled” when no other transaction or event would be required for the beneficiary to be entitled to receive the resources.

The Board also tentatively agreed that (1) additions would be disaggregated by source and, if applicable, present net investment income, including separate display of investment income and investment expense, and (2) deductions would be disaggregated by type, and if applicable, including administrative expenses. Finally, the Board tentatively agreed that these additions and deductions would be reported on the face of the financial statements.

At the August 2014 meeting, the Board discussed 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 also considered potentially amending the proposed tentative definition of a fiduciary based on feedback received from the GASAC. Finally, the Board reviewed a draft of the table of contents and three of the four proposed chapters of the Preliminary Views.


Work Plan:

 Board Meetings Topics to be considered

December 2014–February 2015:

Comment period.

March 2015: Analyze comments.
April 2015: Public hearings.

April–July 2015:

Redeliberate issues based on respondent feedback.

September 2015:

Review draft standards section.

August 2015:

Review draft standards section.

October 2015:

Review preballot draft of Exposure Draft.

October 2015 (T/C):

Review ballot draft and issue Exposure Draft.

November 2015–January 2016:

Comment period.

February–May 2016:

Redeliberate issues based on respondent feedback.

June 2016:

Review preballot draft of final Statement.

July 2016 (T/C):

Review ballot draft and issue final Statement.


FIDUCIARY RESPONSIBILITIES—RECENT MINUTES


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 of Meetings, March 3-5, 2014

The Board continued its deliberations of fiduciary responsibilities issues by discussing the reporting of pension and OPEB plans not administered through a trust agreement or equivalent arrangement. The Board tentatively decided to propose that resources of pension and OPEB plans not administered through a trust agreement or equivalent arrangement set aside for the benefit of another government’s employees be reported in a custodial fund. The Board tentatively decided to propose that administrative and direct financial involvement, as described in Statement No. 24, Accounting and Financial Reporting for Certain Grants and Other Financial Assistance, be used to distinguish between pass-through grants that are a government program and pass-through grants that are a fiduciary activity. The Board also tentatively decided that the term administering, as tentatively decided to be implied within the concept of control in the definition of a fiduciary, differs from administrative involvement in Statement 24 for pass-through grants.

The Board tentatively decided to propose that a liability is incurred from the perspective of a fiduciary fund when a beneficiary has an immediate claim on the resources. The Board discussed that as a result, certain custodial funds could potentially report a net position balance.

Minutes of Meetings, January 27-29, 2014

The Board began deliberations by discussing how to define and report agency funds in general purpose external financial reports. The board discussed how to classify fiduciary activities. The Board tentatively decided to propose that the classification of fiduciary activities be determined by the presence or the lack of presence of a trust agreement or equivalent arrangement.

The Board continued deliberations by discussing fiduciary arrangements not governed by a trust agreement or equivalent arrangement. The Board tentatively decided to propose that a fund type be established that would include any fiduciary arrangement that is not governed by a formal trust agreement or equivalent arrangement that would include certain funds previously classified as pension (and other employee benefit) trust funds, investment trust funds, private-purpose trust funds, and agency funds for which there is no trust agreement or equivalent arrangement. The Board also tentatively decided to propose that the expanded fund type be titled “custodial funds.”

The Board then discussed amendments required to Statement No. 34, Basic Financial Statements—and Management’s Discussion and Analysis—for State and Local Governments, to reflect the tentative decisions referenced above. The Board tentatively decided to propose that paragraph 69 of Statement 34 be amended, subject to clarifications and revisions agreed to at the meeting, to reflect the new custodial funds and how to distinguish these funds from other fiduciary funds. The Board also tentatively decided to propose that paragraph 73 of Statement 34 be amended, subject to clarifications and revisions agreed to at the meeting, and to further develop a definition of custodial funds at a future meeting. Furthermore, the Board tentatively decided to propose that paragraph 72 of Statement 34 be amended, subject to clarifications and revisions agreed to at the meeting, to modify the definition of private-purpose trust funds.

The Board then discussed whether custodial fund assets meet the definition of a fiduciary and should be reported in general purpose external financial reports. The Board tentatively decided to propose that a government with custodial fund activities meets the proposed tentative definition of a fiduciary. The Board also tentatively decided to propose that custodial funds of governments meeting the proposed definition of a fiduciary be reported in general purpose external financial reports.

The Board then discussed whether fiduciary fund assets should be recognized with a corresponding restriction of net position or a liability. The Board tentatively decided to propose that a commitment be recognized and reported as a liability only when the event giving rise to the liability has occurred; otherwise, the commitment should be recognized and reported as net position restricted for beneficiaries for all fiduciary funds (pension [and other employee benefit] trusts, investment trusts, private-purpose trusts, and custodial funds).

However, the Board requested that the staff provide further research and clarification on how to define the “events” that give rise to the liability. The Board also requested that the staff provide further clarification on how the proposed tentative decisions made by the Board thus far could potentially impact Statement No. 24, Accounting and Financial Reporting for Certain Grants and Other Financial Assistance.

Minutes Archive

FIDUCIARY RESPONSIBILITIES—TENTATIVE BOARD DECISIONS TO DATE


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