Fiduciary (Trust) Funds | Governmental Accounting | CPA Exam FAR

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This page covers fiduciary funds which are agency fund accounts, private-purpose trust fund and pension  trust fund.

Agency Funds

Private Purpose Trust Funds

Pension Trust Funds

Fiduciary funds are used to account for assets held by a government acting as a trustee or agent for entities external to the governmental unit, including individuals, organizations, and other governmental units. For this reason, fiduciary funds are often identified in governmental financial reports as Trust and Agency Funds. Trust relationships are generally established through formal trust agreements, while agency relationships are not. Generally, governments have a greater degree of involvement in decision making for trust agreements than for agency relationships. GASB pronouncements distinguish four types of fiduciary funds:

An agency fund accounts for assets held by a government temporarily as agent for individuals, organizations, or other governmental units.

A private-purpose trust fund results when a contributor and a government agree that the principal and/or income of trust assets is for the benefit of individuals, organizations, or other governments.

An investment trust fund exists when the government is the sponsor of a multigovernment investment pool and accounts for the external portion of those trust assets.

Finally, a pension (or other employee benefit) trust fund exists when the government is the trustee for a defined benefit pension plan, defined contribution pension plan, other postemployment benefit plan, or other employee benefit plan.

Under the proposed standard, pension and postemployment benefit trusts continue to be reported in fiduciary funds. Additionally, fiduciary activities include activities in which a government controls assets that are not derived solely from the government’s own tax or service revenue, and one or more of the following criteria are met: The assets held by the government are dedicated by a trust or other agreement to providing benefits to some beneficiary and are legally protected from creditors, The beneficiary of the resources may be an individual or organization but is not required to be a resident or customer (i.e., the benefit is not in exchange for goods or services provided by the government), The beneficiary of the resources is not another fund, component unit, or other part of the governmental reporting entity, or The assets held by the government are from a pass-through grant and the government does not have discretion over their use. The proposal retains the categories of private-purpose trust funds, investment trust funds, and pension (and other employee benefit) trust funds. One of the issues the proposed standard is intended to address is the practice of some governments to classify activities as trusts when no trust agreement exists. Activities meeting the definition of fiduciary in nature but that lack a formal trust agreement will in the future be reported in a new category, custodial fund. Custodial funds would include many activities currently reported in agency funds as well as pass-through grants and other activities lacking trust agreements. The proposed standard provides guidance as to which activities are included in fiduciary funds but does not change the accounting and reporting of fiduciary activities. Fiduciary fund accounting and reporting is illustrated throughout the remainder of this chapter. Fiduciary funds use the economic resources measurement focus and accrual basis of accounting. The terms additions and deductions are used in trust fund reporting in lieu of revenues and expenses. However, additions and deductions are measured on the accrual basis.