Focus Area: Fiduciary Activities
GASB 84 Effective for FY 2021
October 1, 2018
Update: February 13, 2019 – added a link to The GASB Exposure Draft on the proposed Implementation Guide for Fiduciary Activities; added references and examples based on the proposed implementation guide.
Update: June 5, 2020 –updated the effective date based on GASB Statement 95; updated references to the Implementation Guide; updated the link to the Implementation Guide; updated the reporting criteria based on guidance issued in GASB Statement 92; added Appendix B – Reporting and Restatement Guidance and Examples
Update: April 28, 2021 – added Appendix C, Component Unit Q & A.
In January 2017, the Governmental Accounting Standards Board (GASB) issued Statement No. 84, Fiduciary Activities (GASB 84). This Statement supersedes or amends parts of 20 existing statements. GASB 84 establishes criteria regarding what constitutes fiduciary activities for accounting and financial reporting purposes, the recognition of liabilities to beneficiaries and how fiduciary activities should be reported. The objective of this Statement is to enhance the consistency and comparability of fiduciary activity reporting by state and local governments. It also is intended to improve the usefulness of fiduciary activity information primarily for assessing the accountability of governments in their roles as fiduciaries.
This Statement applies to all state and local governments engaged in fiduciary activities and clarifies that standalone business-type activities (BTAs) should report fiduciary activities. This statement is expected to impact standalone BTAs particularly (such as universities, community colleges, component units, and others), as they currently do not have fund-level financial reporting requirements. This reporting requirement does not apply to standalone reporting for enterprise funds, only legally separate entities.
GASB 84 was originally effective for fiscal year ending June 30, 2020. However, in May 2020, GASB issued GASB Statement No. 95, Postponement of the Effective Dates of Certain Authoritative Guidance (GASB 95). To determine where entities stood with the implementation of GASB 84, the Office of the State Controller (OSC) sent a survey to state entities asking if early implementation would cause a hardship. Based on the feedback received, OSC decided to delay the implementation of GASB 84 to fiscal year ending June 30, 2021 (based on the guidance in GASB 95). The criteria should be applied retroactively. The provisions of GASB 84 need not be applied to immaterial items
Fiduciary activities are those activities that state and local governments carry out for the benefit of individuals and other agencies outside the government. GASB 84 provides criteria for state and local governments to use to identify whether an activity is fiduciary and whether it should be reported as a fiduciary fund type in the basic financial statements. 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. Separate criteria are included to identify fiduciary component units and postemployment benefit arrangements that are fiduciary activities.
Identifying Fiduciary Activities
Under GASB 84, there are four paths for identifying fiduciary activities. Two of the paths involve fiduciary component units: 1) fiduciary component units that are postemployment benefit arrangements and 2) fiduciary component units that are not postemployment benefit arrangements. The remaining two paths are 3) postemployment benefit arrangements that are not fiduciary component units and 4) other fiduciary activities. Most fiduciary activities will be identified using Path 1 or Path 4. Common examples of fiduciary activities identified in Path 1 include pension and OPEB trust funds. Common examples of fiduciary activities identified in Path 4 include the external portion of an external investment pool, taxes collected on behalf of other governments, and funds held for the benefit of others such as patient, minor, inmate, seized cash/other financial assets, and student club/extracurricular accounts. See Appendix A for additional information on fiduciary activity criteria and identifying these activities.
Reporting Fiduciary Activities in Fiduciary Funds
Activities meeting the criteria of a fiduciary activity are required to report the activity as a fiduciary fund in the basic financial statements. There is some relief of the fund financial presentation for business-type activities, including enterprise funds, which are allowed to report assets with the corresponding liability in the statement of net position if the assets are expected to be held for three months or less, instead of reporting those in a separate custodial fund. If a BTA takes advantage of this exception, it will separately report the significant additions and deductions (as cash inflows and cash outflows) in the operating activities category of its statement of cash flows. Refer to questions 4.45, 4.46 and 4.50 in the Implementation Guide No. 2019-2, Fiduciary Activities for examples on business-type activity exceptions and guidance on determining if the assets are “normally” held for 3 months or less.
As with previous guidance, GASB 84 identifies four types of fiduciary funds: pension and other employee benefit trust funds, investment trust funds, private purpose trust funds and custodial funds. The use of agency funds has been eliminated with this statement and is replaced with custodial funds. It is anticipated that many of the activities now reported in agency funds will be reported in custodial funds.
GASB 84 has created new definitions for the four fiduciary fund types and has clarified that fiduciary assets administered through a trust agreement or an equivalent arrangement that meets specific criteria must be recorded in one of the three trust funds: pension and other employee benefit, investment, or private-purpose trust funds. Refer to GASB 84 paragraph B19 for the definition of an equivalent arrangement that meets specific criteria. Custodial funds will report only fiduciary activities that are not held in a trust agreement or equivalent arrangement that meets specific criteria. Additionally, the external portion of external investment pools that are not held in trust or an equivalent arrangement that meet the criteria of GASB 84 should be reported in a separate external investment pool fund column, under the custodial funds classification. Refer to questions 4.39 and 4.40 (Investment Trust Funds), 4.41 (Private Purpose Trust Funds), and 4.42 – 4.44 (Custodial Funds) in the Implementation Guide No. 2019-2, Fiduciary Activities for examples reporting fiduciary activities in fiduciary funds.
Under GASB 84, all fiduciary fund statements will include a statement of fiduciary net position and statement of changes in fiduciary net position. A significant change with the implementation of this Statement will involve the conversion of agency funds to custodial funds. Agency funds only required the presentation of assets and liabilities, whereas the custodial funds require the same elements as the other fiduciary funds, including net position.
The statement of fiduciary net position should report the following financial statement elements: assets, deferred outflows, liabilities, deferred inflows and fiduciary net position of fiduciary funds. A defined benefit pension or defined benefit OPEB plan in a pension trust fund should follow the requirements of GASB Statement No. 67, Financial Reporting for Pension Plans (GASB 67) and GASB Statement No. 74, Financial Reporting for Postemployment Benefit Plans Other Than Pension Plans (GASB 74), respectively, as amended by GASB Statement No. 92, Omnibus 2020 (GASB 92). For the other types of fiduciary activities, including defined contribution pension and defined contribution benefit OPEB plans, GASB 84, as amended by GASB 92, requires that governments recognize a liability to the beneficiaries in a fiduciary fund only when an event has occurred that compels the government to disburse fiduciary resources. Events that compel a government to disburse fiduciary resources occur when a demand for the resources has been made or when no further action, approval or condition is required to be taken or met by the beneficiary to release the assets. An example of an event that requires no further action, approval or condition is when the State receives taxes on behalf of local governments (see additional examples in the Implementation Guide No. 2019-2, Fiduciary Activities question 4.47). The change in liability recognition to the beneficiaries may result in net position balances for custodial funds, which did not report a balance of net position under the guidance for agency funds. Also, it should be noted that liabilities other than those to beneficiaries (for example, those for administrative costs for the fiduciary activity) should be recognized in accordance with existing accrual basis of accounting standards.
The statement of changes in fiduciary net position should report additions to and deductions from, with defined benefit pension and defined benefit OPEB trust funds reporting in accordance with GASB 67 or 74, as amended by GASB 92. Additions should be disaggregated by source, and if applicable, separately display investment earnings and investment costs. Deductions should be disaggregated by type. Unlike agency funds, custodial funds require a resource flow statement because they have a measurement focus. Additionally, GASB 84 allows for custodial funds that receive resources normally held and disbursed within three months, to be reported in one aggregate line in additions and deductions. The descriptions of these aggregate lines should be detailed and indicate the nature of the resource flows. The most common example of this would be a State that receives and disburses taxes to local governments (see additional examples in the Implementation Guide No. 2019-2, Fiduciary Activities questions 4.48-4.50).
Reporting for Fiduciary Component Units
Some fiduciary component units have component units of their own that are only engaged in fiduciary activities. When reported in the fiduciary fund financial statements, GASB 84 provides fiduciary component units should combine their fiduciary activities, by individual fiduciary fund, with those of their own fiduciary component units. This combined information would be aggregated in the primary government’s financial statements, in the appropriate fiduciary fund columns. These reporting requirements for fiduciary component units differ from the single column aggregated total roll up of all other component units (as explained in paragraphs 13 and 126 of Statement No. 34, Basic Financial Statements – and Management’s Discussion and Analysis – for State and Local Governments (GASB 34), as amended). For example, if a discretely presented component unit, such as a university, reports fiduciary funds in the standalone statements, the fiduciary fund statements of this discretely presented component unit would not be included in the primary government’s financial statements. However, fiduciary fund financial statements of a component unit that does not issue separate financial statements should be included in the reporting entity’s comprehensive annual financial report, as required by paragraph 50 of GASB Statement No. 14, The Financial Reporting Entity (GASB 14). Refer to questions 4.51-4.53 in the Implementation Guide No. 2019-2, Fiduciary Activities for additional guidance on reporting fiduciary component units.
To gain additional understanding of GASB 84, please refer to the following resources:
- GASB webpage from which you can access a PDF file of GASB 84 and GASB 95 as well as other GASB pronouncements - GASB Pronouncements
- Government Finance Review Article - The Key Guidance in GASB Statement No. 84
- Implementation Guide No. 2019-2, Fiduciary Activities
GASB 84 Implementation
To prepare for implementation of this standard, all entities should begin identifying and reviewing potential assets that are held in a fiduciary capacity as well as meet with staff responsible for managing those assets. Information helpful to evaluate fiduciary activities would include the purpose of the activity/resources, the beneficiaries of the resource, the source of the resources, any agreements or trust documents, legislation or general statutes for the activity, understanding the flow of resources, and how long the resources are held. Additionally, entities should evaluate existing fiduciary funds to ensure proper reporting under GASB 84. To assist with the implementation of GASB 84, the Office of the State Controller has sent a survey to all agencies and institutions to evaluate existing and potential new fiduciary activities.
Additionally, GASB issued an implementation guide for fiduciary activities in June 2019. This guide clarifies, explains and elaborates on the requirements issued in Statement 84 and provides examples on these requirements. It is important that agencies and component units begin evaluating potential fiduciary activities now to allow for sufficient time for implementation at July 1, 2020.
With the implementation of GASB 84, restatements may be required. There will be two types of restatements – fund reclassifications and restatements resulting from the change in measurement focus when converting agency funds to custodial funds.
- A fund reclassification restatement will be a result of the fund being moved from one type of fund to another fund. An example would be if fiduciary activity is reclassified from a private purpose trust fund to a custodial fund. Fund reclassifications will be directed by OSC based on research and information provided by the individual entities.
- The change in measurement focus restatement would result from the difference between how entities recorded liability transactions in custodial funds versus how they were recorded under previous guidance in agency funds. For example, if a government receives money to hold on behalf of a beneficiary, rather than record the amount received as a liability, as would be done in an agency fund, the receipt would be recorded as an addition and any payments to the beneficiary would be recorded as a deduction in the custodial fund. A liability to the beneficiary would be recognized by the government only when the government is compelled to pay the beneficiary. To determine the restatement, entities will need to determine their liability balances for agency funds as of June 30, 2020 using the new liability recognition criteria under GASB 84. The difference between what is reported in the fiscal year 2020 financial statements for agency funds and the calculated June 30, 2020 GASB 84 liability balances should be the custodial fund restatement.
Additional guidance and examples have been added to Appendix B to assist agencies on how to report/reclassify activities in fiscal years 2020 and 2021, complete the comprehensive annual financial report worksheets for fiscal year 2021, and record restatements.
Standalone, legally separate BTAs (such as universities, community colleges, and other component units) with material fiduciary activities will need to present fiduciary fund statements in their separately-issued financial statements with the implementation of GASB 84. These fiduciary fund financial statements will include the Statement of Fiduciary Net Position and Statement of Changes in Fiduciary Net Position. A restatement will be required the first year fiduciary funds are reported in the separately-issued financial statements. Because the fiduciary activities of these BTAs should not be reported in the State’s comprehensive annual financial report, these entities must exclude material fiduciary activities from the fiscal year 2020 comprehensive annual financial report packages (i.e. the 905 excel worksheet for universities, Exhibit A for discretely presented foundations and community colleges and the GASB Statement worksheets for nonmajor component units). Examples of activities that could potentially be fiduciary activities under GASB Statement 84 for BTAs include the external portion of an external investment pool, self-sponsored defined contribution pension or OPEB plans (such as 401k or 457 plans), student club/extracurricular accounts, assets held for foundations that are not part of the financial reporting entity (i.e. not discretely presented or blended), and/or LLCs that are outside the BTA’s financial reporting entity. We will expect most of the potential fiduciary activities for standalone, legally separate BTAs to be currently reported as funds held for others and/or as part of the investment assets. Additionally, if an entity continued to track fiduciary funds separately after the implementation of GASB Statement No. 34, these funds will need to be re-evaluated to ensure they meet the definition of a fiduciary activity under GASB 84.
Thank you for your time and attention to this important change. OSC will continue to provide updates as the standard is implemented and additional information is obtained. Additional implementation guidance will also be issued for items such as the structural and account changes for the conversion of agency funds to custodial funds, restatement examples and comprehensive annual financial report package worksheet examples. Questions regarding this specific update should be directed to Ellen Rockefeller at 919-707-0528 or ellen.rockefeller@ncosc.gov.