In January 2017, the Governmental Accounting Standards Board (GASB) issued Statement No. 84, Fiduciary Activities (Statement). The requirements of the Statement are effective for reporting periods beginning after December 15, 2018 (i.e., December 31, 2019 year ends and fiscal years ending in 2020). The statement will require governments to spend time evaluating their own potential fiduciary activities in order to determine whether they are appropriately including or excluding these activities within their fiduciary funds in accordance with the new Statement. Since the issuance of the Statement, implementation guidance has been pending from the GASB to help governments analyze their own situations.
On Thursday January 3rd, the GASB posted its proposed implementation guide on Fiduciary Activities with a set of new questions and answers. The comment period on the exposure draft ends February 28, 2019. The implementation guide has 53 new questions and answers about implementation issues concerning the identification of fiduciary activities, reporting fiduciary activities as well as amendments to previously issued guidance.
The purpose of the Statement is to create consistency regarding the identification of fiduciary activities for accounting and financial reporting purposes and how those activities should be reported. The Statement does so by establishing criteria for identifying fiduciary activities for all state and local governments, including those reporting business-type activities, and introducing new concepts of control, own-source revenue and administrative involvement. The focus of the criteria generally is on (1) whether a government is controlling the assets of the fiduciary activity and (2) the beneficiaries with whom a fiduciary relationship exists. However, for activities other than those that are reported as fiduciary component units or postemployment benefit arrangements, new concepts of control, own-source revenue and administrate involvement must be considered.
Other highlights from the Statement include:
- Agency funds terminology changed to custodial funds
- New statement of flows required for Fiduciary Funds
- Changes to liability recognition may lead to reporting net position
- Fiduciary activities apply to business-type activities except for assets held less than three months
Under the Statement, if a postemployment benefit plan is a component unit per GASB Statement No. 14, as amended, AND is administered through a trust that meets the criteria of GASB Statement Nos. 67 or 74, it is a fiduciary activity. If a postemployment benefit plan is not a component unit, you will need to assess control.
Component units that do not provide postemployment benefits must meet one or more certain criteria that will be met only rarely.
The Statement describes four fiduciary fund types: (1) pension (and other employee benefit) trust funds, (2) investment trust funds, (3) private-purpose trust funds, and (4) custodial funds. Custodial funds should report fiduciary activities that are not required to be reported in the other three types of fiduciary funds.
To report other activities in a custodial fund, the following criteria must be met:
- The assets associated with the activity are controlled by the government because the government holds the assets or has the ability to the direct the use of the assets. Use restrictions on assets do not negate the government’s ability to control the assets.
- The assets associated with the activity are not derived solely from the government’s own-source revenues or from government-mandated nonexchange transactions or voluntary nonexchange transactions. Own source revenues are revenues that are generated by the government itself, such as water and sewer charges or tuition fees. There is an exception for pass-through grants for which the government does not have administrative involvement or direct financial involvement. assets associated with the activity have one or more of the following characteristics:
- (1) administered through a trust in which the government itself is not a beneficiary, (2) dedicated to providing benefits to recipients in accordance with the benefit terms, and (3) legally protected from the creditors of the government.
- The assets are for the benefit of individuals and the government does not have administrative involvement with the assets or direct financial involvement with the assets. In addition, the assets are not derived from the government’s provision of goods or services to those individuals.
- The assets are for the benefit of organizations or other governments that are not part of the financial reporting entity. In addition, the assets are not derived from the government’s provision of goods or services to those organizations or other governments.
The criteria in the Statement are not likely to change conclusions for pension trust funds, investment funds or private purpose trust funds; however, the new criteria for custodial funds could result in activities previously reported within fiduciary funds no longer meeting the requirements, thus requiring those activities to be reported within the government’s governmental activities.
The Statement also requires all fiduciary funds to report a Statement of Fiduciary Net Position and a Statement of Changes in Fiduciary Net Position. As a result, governments will need to reassess whether custodial fund assets should be offset by a liability which is a significant change from the presentation of agency funds. The Statement of Changes in Fiduciary Net Position will report additions to and deductions from the fiduciary fund disaggregated by source.
Action steps for governments should take at this time include the following:
- Identify potential fiduciary activities
- Assess whether potential activities meet the fiduciary activity reporting criteria or should be reported as part of governmental or business-type activities
- Budget considerations regarding change in reporting activities
- Audit considerations
Readers should not act upon information presented without individual professional consultation.
Any federal tax advice contained in this communication (including any attachments): (i) is intended for your use only; (ii) is based on the accuracy and completeness of the facts you have provided us; and (iii) may not be relied upon to avoid penalties.