In January 2017, the Governmental Accounting Standards Board (GASB) issued Statement 84, Fiduciary Activities. To provide key guidance and clarification to the standard, it issued Implementation Guide No. 2019-2, Fiduciary Activities, in June 2019. Here’s what you need to know about the Guide and action steps to take now.
First, a refresher on GASB 84
GASB Statement 84 is effective for fiscal years beginning after Dec. 15, 2018. The first step is to analyze potential fiduciary activities. Although a good starting point would be the fiduciary activities that are currently being reported in your financial statements, it’s critical to also consider other potential fiduciary activities based on other activities of your organization.
GASB Statement 84 defines four paths to identifying fiduciary activities:
- Fiduciary component units that are pension and other postemployment benefit (OPEB) arrangements
- Fiduciary component units other than pension and OPEB arrangements
- Pension and OPEB arrangements that aren’t component units
- Other fiduciary activities
The criteria for each of these paths is outlined in our article, GASB Statement 84: The changing landscape of fiduciary activities.
Implementation guide clarifications
GASB Implementation Guide 2019-2, Fiduciary Activities, clarifies certain concepts within the standard and gives specific examples of decision points when identifying fiduciary activities.
One of the most significant clarifications is the treatment of pension and OPEB plans, particularly in relation to the definition of a component unit. Understanding how the implementation guidance might change what we once thought of as a component unit, particularly with these plans, is critical to making the right determination under GASB 84. Certain plans, which previously weren’t included in a government’s financial statement, may now meet the definition of a fiduciary component unit. This will require additional effort by the employer to gather the necessary information to achieve the required financial reporting along with additional effort by auditors who will need to test this information for the first time.
In addition to the above clarification, the Implementation Guide provides guidance to many common scenarios, including defined benefit plans (with and without appointment of a voting majority of the board members by the employer), retainages, payroll withholdings, performance deposits, and student organization and scholarship funds, among others. The Implementation Guide should be considered a key resource in understanding this standard.
After identifying all potential fiduciary activities, you’re ready to move on to the next step: reporting.
GASB 84 and reporting
GASB 84 changes the reporting of fiduciary activities significantly. First, it defines the four types of fiduciary funds as pension and OPEB trust funds, investment trust funds, private-purpose trust funds, and custodial funds. Custodial funds have replaced what was previously known as agency funds, although the criteria are slightly different.
There are two statements required to be presented in the financial statements under the new standard: the Statement of Fiduciary Net Position, and the Statement of Changes in Fiduciary Net Position.
- The Statement of Fiduciary Net Position will present each of the four fund types in a separate column, with the exception that custodial funds may be broken up into two separate columns: “External Investment Pool Funds”, which would represent external investment pools not held in trust, and “Other Custodial Funds.” The Statement of Fiduciary Net Position will report assets, deferred outflows (if applicable), liabilities, deferred inflows (if applicable), and net position.
A significant change to the Statement of Fiduciary Net Position is that custodial funds will no longer automatically present assets equal to liabilities in all cases. The standard requires that a liability to the beneficiary of a fiduciary activity (other than pension and OPEB activities, which should follow GASB 67 and 74, respectively, for financial reporting) should be recognized in a fiduciary fund when an event has occurred that compels the government to disburse fiduciary resources. Events that compel a government to disburse fiduciary resources to a beneficiary 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. Therefore, the custodial funds may present net position for the first time. - The Statement of Changes in Fiduciary Net Position will also see significant changes. Pension, OPEB, and other trust funds will continue to present activity similarly as they have in the past; however, custodial funds will also report additions and deductions within the Statement of Changes in Fiduciary Net Position. This was not a requirement under the prior “Agency Fund” designation, but requires a change in accounting methodology for these types of funds.
The standard requires additions and deductions reported on the Statement of Changes in Fiduciary Net Position to be disaggregated by source and type, respectively, with certain exceptions, which are discussed further below. For all fiduciary funds, a separate display of investment earnings, investment costs, and net investment earnings is required, as well as a separate display of administrative costs. Pension and OPEB plans should continue reporting in accordance with both GASB 67 and 74. The standard provides the exception that for assets expected to be held for three months or less, a government may report a single aggregated total for additions and a single aggregated total for deductions. An example of this would be property taxes collected for other governments. In this case, a single line “property taxes collected for other governments” and “property taxes distributed to other governments” is sufficient.
It’s important to note that this standard is required to be applied retroactively for all periods presented, if practicable; therefore, a restatement of prior-year net position will be required in many instances. This will present certain challenges, especially in situations where an activity is being reported on the financial statements for the first time. Auditors will need to test the beginning of year balances in order to test the restatement.
GASB 84: Action items
This standard will have considerable impact on governmental financial statements. The time to prepare for implementation is now. The following items will help you ensure a smooth implementation.
- Review activities previously reported in the financial statements as fiduciary and apply the criteria of GASB 84 to identify any changes.
- Review activities previously reported in the financial statements as governmental or business-type and apply the criteria of GASB 84 to identify any changes.
- Review activities not reported in the prior-year financial statements and determine whether they need to be reported (e.g. defined contribution plans, 457 plans, 403b plans, and others similar to it with employer contributions).
- Consider financial applications, general ledger accounts, and the need to change the current tracking system of additions and deductions.
- Special-purpose governments that report only business-type activities may need new fund structures to report fiduciary activities.
- Consider budgetary impacts as some activities may shift from fiduciary funds to governmental funds.
- Calculate restatements of beginning-of-year net position/fund balance related to any activity that is moving to a different fund type or related to any new activity coming on to the financial statements for the first time.
- Consider the need for additional audits of activities previously reported in the financial statements that no longer will get reported (potentially certain pension or OPEB plans without majority board appointment by the employer).
