The changes resulting from Governmental Accounting Standards Board Statement No. 84, Fiduciary Activities (GASB-84) should now be implemented by governments. The pronouncement was initially proposed to be effective for reporting periods beginning after December 15, 2018, and much has happened since then.
Leading up to its issuance, guidance from GASB on how to report fiduciary funds was covered by GASB Statement 14 and NCGA Statement 1. Unfortunately, the guidance in those standards did not sufficiently outline the aspects that needed to be considered in determining whether an activity was a fiduciary activity.
This led to different interpretations from each individual government. GASB-84 was developed to provide consistency and comparability across all governmental units by establishing specific criteria to identify and report fiduciary activities. Additionally, GASB-84 reduces the likelihood of the same assets, liabilities and activities being reported across multiple governments when intergovernmental relationships are present.
The following are some of the issues affecting implementation:
The intent for GASB with the establishment of GASB-84 was not to simplify presentation, but to provide more consistency in the reporting of fiduciary activities by governments. The goal was to improve financial reporting by properly identifying all government’s fiduciary activities, determining the type of fiduciary fund used to report each fiduciary activity and presenting the financial statements of fiduciary funds applicably. In some cases, activities formerly reported in fiduciary funds must now be reported in either governmental or proprietary funds.
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Funds that are not with explicit reason to be separate, legal, or otherwise, should be merged as regular operating activities of government. GASB-84 also brings to point, that a government should not have simply combined former agency funds into a new discrete custodial fund. This was a common misunderstanding of many preparers as part of implementing GASB-84. The former agency funds that were used as clearing accounts for payments or receipts in transit are not custodial funds under GASB-84.
Governmental fund activities should have been remanded back to the originating (paying) fund or receiving fund, and agency funds previously presenting the recordkeeping of debt related activities on behalf of the government, simply put, should be presented in a debt service fund if allowed by the government’s laws, regulations, or policies, otherwise in the general fund or in a proprietary fund.
Smaller governments can make the argument that prior agency funds may not have been their own source revenues, or governmental activities, but many states and regional authorities cannot. The results of GASB-84 implementation are not unlike when governments implemented GASB-34, or GASB-68. The number of financial misstatements in entities prescribing to GASB went up compared to prior year.
A clear understanding of the standard being implemented and a partnership with your audit team are keys to success in implementation. Governments that were successful in implementing GASB-84 presented distinct, and discrete presentation of components, separate legal entities, or activities for which legal fiduciary responsibilities are present.
A financial statement reader of your government’s Annual Comprehensive Financial Report (ACFR) or annual financial report should be able to easily delineate between what the governing body has direct authority over and for which activities a government may have a fiduciary responsibility.
If you are reviewing your custodial or private-purpose trust fund activities and you are unclear if you’ve implemented GASB-84 correctly, it may make sense to request some professional assistance. A second set of eyes may shed some light on things that may be difficult to see. Should you have any questions on consultative services, assurance or reporting, be sure to contact your Eide Bailly Government industry advisor.
Your state, county, municipality or public agency can navigate these complex times with the help of an experienced government advisor. In addition to GASB implementation consulting, Eide Bailly offers training, internal audit, forensics, internal controls analysis and testing, audit finding resolution, GFOA review, performance analysis and other specialized engagements. We partner with you so your organization can stay on top of the many changes.
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