Chapter 8 - Answers to Questions 8-1. Although in law there...

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Unformatted text preview: Answers to Questions 8-1. Although in law there is a clear distinction between an agency relationship and a trust relationship, in practice the legal distinctions are not sufficient to classify funds as agency funds or trust funds . As the introduction to Chapter 8 explains, the name given the fund is not a reliable criterion for identifying the types of transactions in which the fund may engage. All factors, such as the enactment that created the fund and pertinent regulations, must be examined to determine the nature of the fund and the transactions in which it may engage. Generally, trust funds are more complicated than agency funds, requiring greater representation and development of the beneficiarys interest. 8-2. There are many different types of trust funds. For reporting purposes GASB classifies trust funds as investment trusts, private-purpose trusts and pension trusts (also referred to as pension and other employee benefit trusts). An investment trust fund is used to account for and report the fund equity held by fund participants who are external to the government operating the fund. Private-purpose trust funds record and report principal and/or interest managed by a government for the benefit of an individual, private organization or another government. The distinguishing characteristic is that the party benefiting from the trust must be external to the government operating the trust. In pension and other employee benefits trusts a government is managing benefits that belong to government employees. As can be seen, in each case the government is acting as a fiduciary, or in the best interest of parties outside the government....
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Chapter 8 - Answers to Questions 8-1. Although in law there...

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