In January 2017, the Governmental Accounting Standards Board (GASB) issued Statement No. 84 Fiduciary Activities (GASB 84). The Statement is effective for fiscal years beginning after December 15, 2018, which in practice means for fiscal years ending December 31, 2019, and later. Fiduciary activities are those activities that state and local governments carry out for the benefit of individuals and other agencies outside the government such as employee groups, members of the public, and other governments. This article is the second of a two-part series of articles on GASB 84, which will focus on the financial statement changes that will need to be made going forward.
GASB 84 defines four generic types of fiduciary funds:
- Pension (and other employee benefit) trust funds are used to accumulate resources to fund pension and other post-employment benefit (OPEB) plans either as defined in GASB Statement No. 67 or 74, or in a qualifying trust. A “qualifying trust” is one that:
- The government itself is not a beneficiary of
- Is dedicated to providing benefits to recipients in accordance with the benefit terms
- Is legally protected from the creditors of the government
- Contributions to the trust and earnings on the contributions are irrevocable
- Investment trust funds are used to report the external portion of investment pools held in a qualifying trust. In this case, the “qualifying trust” definition does not include the irrevocable contribution criteria as it does for Pension and OPEB trusts.
- Private-purpose trust funds are those funds held in a qualifying trust (same definition as Investment trust funds) that are not required to be reported in Pension (and other employee benefit) or Investment trust funds. These funds are used for specific purposes (such as endowments or scholarship funds) that were originally defined by the person or organization that gave the funds to the government.
- Custodial funds are used to report fiduciary activities that are not required to be reported as another fiduciary fund type. In practical terms, this equates to what was historically reported in Agency funds.
The Custodial funds are new, which replace the former Agency funds. The other three fiduciary fund types are not new, as they were originally defined by GASB Statement No. 34. The terminology of Agency funds to Custodial funds was changed to avoid any confusion between the terminology of agency funds and agencies of a government, such as larger governments that refer to its various departments as “Agencies;” now there will be no ambiguity over that terminology. The Custodial funds are the area where the most significant changes will take place.
The basic financial statements for fiduciary funds defined by GASB 84 are as follows:
- Statement of Fiduciary Net Position – full accrual basis financial statement that shows all of the assets and liabilities of the fiduciary activities.
- Statement of Changes in Fiduciary Net Position – shows how net position changes during the year.
These basic financial statements are not new, but the way they are applied (especially in the Custodial funds) will be different. The most significant change is that Agency funds formerly presented everything in the Statement of Fiduciary Net Position as assets and liabilities, but now Custodial funds will show Net Position (the difference between assets and liabilities) where it had not been before. GASB 84 also has criteria about when liabilities are supposed to be recognized, which is when an event occurs that compels the government to pay, such as an accounts payable or accrued liability. Amounts previously shown as liabilities in Agency funds as owed to individuals or outside entities will now be shown as part of net position in the Custodial funds. An exception to this is taxes collected for other governments; those will be shown as liabilities just as they have been in the past.
The Statement of Changes in Fiduciary Net Position shows all additions and deductions (different terminology than revenues and expenditures in governmental funds) to or from net position of the funds. In the past, Agency funds were not included in the Statement of Changes in Fiduciary Net Position, but this will now be required for the new Custodial funds.
Additions and deductions should also be presented “disaggregated by source,” which means that more details about the sources and uses of the funds will need to be presented than was done in the past, such as additions broken down by contribution source, investment type, type of tax collected and deductions broken down by type of disbursement, administrative expense, type of tax remitted, etc. An exception to the disaggregation requirement is for resources normally held for three months or less (such as property taxes). Those can be shown in two lines as collected for and distributed to other governments.
With the effective date of this standard being what it is, we still have time to analyze, learn, and plan for implementation. Additionally, we expect specific guidance to be forthcoming from the GASB, GFOA, and MGFOA to help with implementing this standard. The GASB expects to issue an implementation guide including this standard in 2019. For now, we can focus on educating ourselves on the standard and starting to analyze how it might affect each of our unique situations.
Yeo & Yeo is here to help. Please don’t hesitate to reach out to your Yeo & Yeo professional with questions on this standard. We will be happy to assist you.