Unit Seven

Accounting for Fiduciary

Fund
Accounting for Fiduciary Fund
 Fiduciary activities benefit other individuals,
organizations, or governments, rather than the reporting
government.
 For this reason, GASB standards exclude the reporting
of fiduciary activities in the government-wide financial
statements.
 However, fiduciary activities are reported in the
fiduciary fund financial statements.
 Fiduciary funds are used to account for those activities in
which a government holds assets as an agent or trustee.
 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:
 Fiduciary fund
 Fiduciary funds use the economic resources
measurement focus and accrual basis of accounting,
with two exceptions.
 First, agency funds do not report revenues,
expenses, or net assets; however, changes in assets
and liabilities are recognized on the accrual basis.
 Second, certain liabilities of defined benefit
pension plans and certain postemployment health
care plans are recognized.
 Two statements are required:
 The Statement of Fiduciary Net Assets and
 The Statement of Changes in Fiduciary Net Assets.
 Accounting for Fiduciary Fund

 Agency funds are not included in the Statement of Changes

in Net Assets because they have no revenues (additions) or
expenses (deductions).
 Fiduciary funds are not included in the government-wide
financial statements.
 Fiduciary funds are often identified in governmental
financial reports as Trust and Agency Funds.
Types of Fiduciary funds
 GASB pronouncements distinguish four types of
fiduciary funds:
1. Agency funds,
2. private-purpose trust funds,
3. investment trust funds,
4. pension (and other employee benefit) trust funds.
 Types of fiduciary fund
 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.
 Types of fiduciary fund
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.
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
 1 Agency Fund
 Agency funds are used to account for assets held by a
government acting as agent for one or more other
governmental units or for individuals or private
organizations.
 Assets accounted for in an agency fund belong to the
party or parties for which the government acts as agent.
Therefore, agency fund assets are offset by liabilities
equal in amount; no fund equity exists.
 Agency fund assets and liabilities are to be recognized
at the time the government becomes responsible for the
assets.
 Additions (revenues) and deductions (expenses) are not
recognized in the accounts of agency funds.
 Agency Fund
 Unless use of an agency fund is mandated by law,
by GASB standards, or by decision of the
governing board, an agency relationship may be
accounted for within governmental and/or
proprietary funds.
 For example, local governments must act as agents
of the federal and state governments in the
collection of employees’ withholding taxes and
Social Security taxes.
 However, it is perfectly acceptable to a account for
the withholdings and the remittance to federal and
state governments within the same funds that
account for the gross pay of the employees.
 Illustration : Accounting for Tax Agency Funds

 The following transactions are designed to illustrate

how the agency fund accounting operates. Each unit
using the Tax Agency Fund (i.e., the school district
and the village) would record its own levy in the
manner to be illustrated.
1) Assume that, for a given year, a county government
levies for its General Fund the amount of $2,000,000
in property taxes, from which it expects to realize
$1,960,000. The levy also includes $3,000,000 in
property taxes for the consolidated school district
and $1,000,000 in property taxes for a village within
the county. The county General Fund levy would be
recorded in the accounts of the county General Fund.
 Agency Fund
In Governmental fund level financial statements
Taxes Receivable—Current . . . . . . . . . . . . . . . . 2,000,000
Estimated Uncollectible Current Taxes . . . . . . . . . . . . . . . . 40,000
Revenues Control . . …. . . . . . . . . . . . . . . . . . . . . . . . . 1,960,000
2) The Tax Agency Fund entry for recording levies of other
governments certified to it, in this example totaling $4,000,000,
would be as follows:
In Agency fund level financial statements
Taxes Receivable for Other Governments—Current . . . 4,000,000
Due to Other Governments. . . . . . . .. . . . . . . . . . . . . . . . 4,000,000
Note that the gross amount of the tax levy for all funds and units,
not the net amount expected to be collected, should be
recorded in the Tax Agency Fund as a receivable, because the
county collector is responsible for attempting to collect all
taxes as billed. Note also that the receivable is offset in total by
the liability.
Agency Fund
3) If collections of taxes during a certain portion
of the year amounted to $2,400,000 for other
governments and $1,800,000 for the County,
the entry for the Tax Agency Fund would be:
In Agency fund level financial statements
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,400,000
Taxes Rec. for Other Gov’t—Current . 2,400,000
The County General Fund would make the
following journal entry:
In Governmental fund level financial statements
Cash. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,800,000
Taxes Receivable—Current . . . ... . . . . . .
1,800,000
Agency Fund
4) If cash is not distributed as soon as the previous computation is
made, the entry by the Tax Agency Fund to record the liability to
other governments would be as follows:
In Agency fund level financial statements
Due to Other Governments. . . . . . . . . . . 2,400,000
Due to County General Fund . . . . . . . . . . . . . . 24,000
Due to Village . . . . . . . . .. . . . . . . . . . . . . . . . 594,000
Due to Consolidated School District . . . . . . . 1,782,000
5) The entry made by the County General Fund to record the 1
percent amounting 24,000 fee would be:
In Governmental fund level financial statements
Due from County Tax Agency Fund. . . . . . . . . . . 24,000
Revenues Control . . . . . . . . . . . . .. .. . . . . . . . . . . . . . . 24,000
 An entry would be made by the Village General Fund and the
General Fund of the consolidated school district to record
expenditure for the amount of the collection fee. When cash was
transferred, the due to and due from accounts would be
extinguished.
 Financial Reporting for Agency Funds
 The assets and liabilities of agency funds
should be included in the fiduciary funds
Statement of Fiduciary Net Assets. However,
since agency relationships do not generate
revenues or expenses for the reporting entity,
the operations of agency funds are not
included in the Statement of Changes in
Fiduciary Net Assets.
 The Comprehensive Annual Financial Report
should include a Combining Statement of
Changes in Assets and Liabilities—All
Agency Funds.
 Trust Fund
 The fair value of assets placed in trust under a
trust agreement is referred to as the principal or
corpus of the trust.
 If the principal of the trust must be held
intact(whole) (nonexpendable) to produce income,
the trust is often called an endowment(donation)
 The income from the assets of an endowment may
be used only for the purposes specified by the
trustor.
 Not all trusts require that the principal be held
intact. Some trusts allow the principal to be spent
(expended) for the purpose specified by the trust.
 Trust fund
 Additionally, not all trusts make distinctions
between the use of principal and income.
 For example, loan funds operated as trust funds
usually require that both the principal and income
be held intact,
 Public retirement systems are trusts whose
principal and income are both expended for
specified purposes.
 Trust funds are also classified as public or private.
 Public trust funds are those whose principal or
income, or both, must be used for some public
purpose.
 Trust fund
 The beneficiaries of private trust funds are private
individuals, organizations, or other governments.
 A fund established for the purpose of holding
performance deposits of licensees under a government’s
regulatory activities is an example of a private trust
fund.
 A fund used to account for escheat property arising
from the estate of persons who die intestate without any
known heirs is another example of a private trust fund.
 Because most trusts administered by governments are
created for public purposes (for example, to maintain
parks and cemeteries or to acquire art for public
buildings),
 Trust fund
Nonexpendable public-purpose trusts are
accounted for as permanent funds and
expendable public-purpose trusts are
accounted for as special revenue funds.
There are relatively few private-purpose
trust funds compared with public-purpose
trust funds.
 [Link] –purpose Trust Fund
 Private-purpose trust funds are created to account
for trust agreements where principal and/or
income benefit individuals, private organizations,
or other governments.
 The distinguishing characteristic of a private-
purpose trust fund is that the benefit is limited to
specific private, rather than general public,
purposes
 In some cases, these trusts are created when
individuals or organizations contribute resources
with the agreement that principal and/or income
will be used to benefit others.
Private –purpose Trust Fund
 The fair value of assets placed in trust under a trust agreement is
referred to as the principal or corpus of the trust.
 If the principal of the trust must be held intact (nonexpendable)
to produce income, the trust is often called an endowment.
 The income from the assets of an endowment may be used only
for the purposes specified by the trustor.
 Not all trusts require that the principal be held intact. Some
trusts allow the principal to be spent (expended) for the purpose
specified by the trust.
 Additionally, not all trusts make distinctions between the use of
principal and income.
 For example, loan funds operated as trust funds usually require
that both the principal and income be held intact, whereas public
retirement systems are trusts whose principal and income are
both expended for specified purposes
Private –purpose Trust Fund
Illustrative Case—Private-Purpose Trust Funds
In the example that follows, we examine the accounting for
investments (specifically, GASB Statement 31) in the context
of a private-purpose trust fund. However, it should be noted
that the concepts apply to accounting and reporting for all fund
types.
Assume that, on January 2, 2012, a wealthy individual
contributed $500,000 to the City of Addis Ababa and signed a
trust agreement specifying that the principal amount be held
intact and invested. The income is to be used to provide
selected graduates from the city’s two high schools
scholarships to the colleges of their choice.
1)On January 2, the gift was recorded in the newly created
Scholarship Fund:
In Private Trust Scholarship fund level financial statements:
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 500,000
Additions—Contributions . .. . . . . . . . . . . . . . . . 500,000
[Link] –purpose Trust Fund
2) On the same day, City administrators purchased AB Company
bonds, as an investment, in the amount of $480,000 plus accrued
interest. The bonds carry an annual rate of interest of 6 percent,
payable semiannually on May 1 and November 1. As of that date,
accrued interest amounted to $4,800 ($480,000 X.06 X 2/12):
In Private Trust Scholarship fund level financial statements:
Investment in AB Bonds . . . . . . . . . . . . . . . . . . . . . . . . 480,000
Accrued Interest Receivable. . . . . . . …. . . . . . . . . . . . . . . 4,800
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
484,800
3) On May 1, the Scholarship Fund received interest in the amount
of $14,400, of which $4,800 was accrued at the time of purchase
(transaction 2 above).
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14,400
Accrued Interest Receivable. . . .. . . . . . . . . . . . . . 4,800
Additions—Investment Earnings—Interest . . . . . . 9,600
 [Link] –purpose Trust Fund
4) On May 31, $9,000 in scholarships were awarded:
Deductions—Scholarship Awards . . . .. . . . . . . . . . . . . 9,000
Cash . . . . .. . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . 9,000
5) On November 1, interest in the amount of $14,400 was
received:
In Private Trust Scholarship fund level financial statements:
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14,400
Additions—Investment Earnings—Interest . . . . . . . . . . . . . . . .
14,400
6) As of December 31, an interest accrual was made for November
and December:
In Private Trust Scholarship fund level financial statements:
Accrued Interest Receivable. . . . . . . . . . . . . . . . 4,800
Additions—Investment Earnings—Interest . .. . . . . . . 4,800
[Link] –purpose Trust Fund
7) GASB Statement 31requires that investments with determinable fair
values be reported at fair value. It was determined that the AB
Company bonds had a fair value of $482,000 on December 31,
exclusive of accrued interest:
In Private Trust Scholarship fund level financial statements:
Investment in AB Bonds . . . . . . . . . . . . . . . . . . . . . . . . . . 2,000
Additions Inv. Earning Net Increase in Fair Value of Inv.. 2,000
8) Finally, a closing entry was prepared for the Scholarship Fund:
In Private Trust Scholarship fund level financial statements:
Additions—Contributions . .. . . . . . . . . . . . . . ……… . .. . 500,000
Additions—Investment Earnings—Interest. . . . . . ………. . 28,800
Additions Inv. Earnings Net Increase in the Fair Value of Inv. . 2,000
Deductions—Scholarship Awards . . . . .. . . . . . . . . . . . . 9,000
Net Assets Held in Trust for Scholarship Benefits. . . . . .21,800
Summary of Government Trust Accounting
Purpose of Trust Trust Description Appr
opri
ate
Fund
Trust is to be used to benefit Expendable: Trust does not

Revenue
the government or its distinguish between earnings and
citizenry. Examples: principal. Both may be expended for
Cemetery perpetual care or the purpose provided.
funds established to support
libraries, museums, or zoos.

Special
fund
Nonexpendable: Trust stipulates that Perman
earnings only (not principal) may be ent
expended for the purpose provided. fund
Trust is to benefit Although these are most commonly Private-
individuals, private nonexpendable, there is no purpose
organizations, or other requirement that they be so trust
governments. Examples: fund
Scholarship funds or funds
 3. Investment Trust Fund
 Accounts for assets held and invested on behalf of
other governments in a multigovernment investment
pool in which the reporting government is the
sponsor.
 Investment trust funds are used to report the
external portions of investment pools reported by
the sponsoring government.
 An investment trust fund is required when a
government sponsors an external investment pool
and the reporting government is the trustee.
 Investment trust funds are set up by state or
county governments, which pool together the idle
cash of local governments and invest the cash on a
short-term basis for the local governments.
Investment Trust Fund
Used to report the external portions of
investment pools reported by the
sponsoring government.
Required when a government sponsors an
external investment pool and the reporting
government is the trustee.
Are set up by state or county governments,
which pool together the idle cash of local
governments and invest the cash on a short-
term basis for the local governments.
Investment Trust Fund
 This is an important treasury management tool for small local
governments, which usually do not have the financial expertise
and personnel to manage cash investment on their own.
 For a very small amount of management fee paid to the sponsor
of the investment pool, local governments will have the safety
of investment and more importantly, the convenience of
depositing and withdrawing funds from the pool with only a
short notice.
 If the investment pool is an internal investment pool
(participating funds are all within the same government) an
agency fund may be used to account for the investments in the
pool.
 Each participating fund is required, for financial reporting
purposes, to report its proportionate share of pooled cash and
investments as fund assets, and the assets and liabilities of the
agency fund are not reported in the government’s external
financial statements.
 Investment Trust Fund
 If the investment pool has external participants (other
governments or organizations outside the government
administering the pool), an external investment pool is used.
 GASB standards require that an investment trust fund be used to
account for the assets, liabilities, net assets, and changes in net
assets corresponding to the equity of the external participants.
 Internal investment pools, which account for investments of the
reporting entity, are to be reported by the funds providing the
resources.
 On the other hand, many governments participate in external
investment pools, where investments for several governments are
maintained. For governments that maintain the multi-government
investment pool, the external portion is to be maintained in an
investment trust fund, a fiduciary fund.
 Investment trust funds are reported in the fiduciary funds
Statement of Fiduciary Net Assets and Statement of Changes in
 4. Pension Trust Fund
 State and local governments commonly provide pension plans
for their employees.
 Statewide plans often exist for teachers, state government
employees, local government general employees, local
government police and fire department employees, and
legislators.
 A pension plan may be either contributory or noncontributory,
depending on whether employees are required to contribute.
 A plan also may be defined benefit or defined contribution.
 A defined benefit plan is one in which the plan is required to
pay out a certain level of benefit regardless of the amount
available in the plan.
 A defined contribution plan is required only to pay out the
amount that has been accumulated for each employee.
 As a result, defined benefit plans may have unfunded actuarial
liabilities, whereas defined contribution plans do not.
Pension Trust Fund
 A defined contribution plan specifies the amount or rate
of contribution, often a percentage of covered salary, that
the employer and employees must contribute to the
members’ accounts in the pension plan.
 The level of benefits payable upon retirement is
determined by the total amount of contributions to a
member’s account, earnings on investments, and
allocations of forfeited contributions of other members
credited to the account.
 Because future benefits are neither formula based nor
guaranteed, the risk associated with defined contribution
plans rests primarily with employees; the employer’s
responsibility essentially ends once the required
contribution is made.
Pension Trust Fund
 Pension plans for governments are often called Public
Employee Retirement Systems (PERS).
 When a PERS is a part of the reporting entity of a
government, whether state or local, a pension trust fund
is created and included in the Comprehensive Annual
Financial Report.
 The pension trust fund data will be included in the
fiduciary fund statements the Statement of Fiduciary Net
Assets and Statement of Changes in Fiduciary Net
Assets.
 The fiduciary fund type is actually called pension and
other employee benefit trust funds and includes other
postemployment plans and any other employment
benefit plans.
Name of Fund Description
Fund

Economic
resource
Accrual

Agency Yes Yes Accounts for assets held temporarily for individuals,
Fund organizations, or other governments

Private Yes Yes Accounts for assets contributed to a government in which

Purpose the trust agreement stipulates that the income (or
Trust Fund principal) be used to benefit individuals, organizations, or
other governments.

Investment Yes Yes Accounts for assets held and invested on behalf of other
Trust Fund governments in a multi government investment pool in
which the reporting government is the sponsor.

Pension Yes Yes Accounts for assets held and invested on behalf of
Trust fund government employee pension (or other benefit) plans in
which the reporting government acts as trustee
 .

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