GASB Statement No. 84, Fiduciary Activities, will have a widespread impact on government financial reporting, with some of the most significant changes affecting existing agency funds. Governments with fiscal year ends of Dec. 31, 2019 will be the first required to implement, while all other governments will implement for their fiscal year 2020. If you currently report agency funds, here are the primary changes to consider.
Criteria for classification
Under current guidance, fiduciary fund reporting guidance is limited, which leads to comparability issues. GASB 84 provides explicit criteria that needs to be met to quality as a fiduciary fund. During our webinar on April 12, 2018, Baker Tilly introduced a tool to assist in determining whether an activity should be reported as fiduciary under the new criteria.
Often agency fund activities will not meet the component unit reporting requirements, nor are they held in a trust. Therefore, governments will need to focus on the following key areas in assessing existing agency fund activity:
- Determine if control is met. Control is met when the government holds the assets or has the ability to direct the use, exchange or employment of the assets. Examples of this include assets being held in a bank account under the government’s name or the government setting the policy for how the assets are used.
- Assess the source of the assets in the activity. Keep in mind that the standard is not intended to alter the current reporting for pass-through grants (nonexchange) where the government does not have administrative involvement or direct financial involvement.
- Identify the individual or group benefiting from the use of the assets.
- Document the level of involvement the government has with the activity to determine if it meets the administrative involvement or direct financial involvement. Some questions to consider:
- Are there specific requirements? Does the government set the requirements?
- Does the government have an approved policy in place for monitoring the requirements or compliance?
- Is the person/group determining how the assets are used outside the government? Does the government have any discretion on how the assets are used?
- Does the government provide matching resources?
Depending on the answers to the above, the government may have administrative involvement or direct financial involvement. As noted in the tool, if it is determined that the government has either of these levels of involvement, the assets may not meet the criteria for fiduciary activities reporting, and may be considered a part of the governmental activities or business-type activities. Additional guidance on this matter is expected in the upcoming GASB implementation guide.
New financial statement included in the basic financial statements
Once the government has identified if current agency funds meet the criteria to be reported as fiduciary under GASB 84, the fund classification needs to be determined. Most existing agency funds that meet the criteria to be reported as a fiduciary fund under GASB 84 will fall under the custodial fund reporting unless the assets are held in a trust.
Custodial funds will be reported in a statement of fiduciary net position. In addition, the statement of changes in fiduciary net position will include custodial fund activity. This change will result in more detail of additions to and deductions from custodial funds than currently reported for agency funds. Governments should ensure they have a system in place to identify the sources of the asset additions and the types of deductions for financial reporting.
Although this will not change the financial statement presentation until the financial statement date, the information needed to compile these financial statements will need to be in place at the beginning of the fiscal year of implementation to ensure the financial information for the entire year is available.
Under GASB 84, the statement of fiduciary net position will continue to be reported for agency funds. Liabilities, however, may be recognized differently under the new standard.
The statement requires that a liability to the beneficiaries of a fiduciary activity should be recognized when an event has occurred that compels the government to disburse the fiduciary resources. Governments should assess if any action, approval or conditions are required to be fulfilled prior to the release of the assets to the beneficiaries. If a liability does not exist, the custodial fund will report net position. However, if no further events or actions are needed for the government to disburse the funds, a liability will be reported similar to how agency funds are reported today.
For more information on this topic, or to learn how Baker Tilly state and local government specialists can help, contact our team.