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Unformatted text preview: Chapter 08 - Accounting for Fiduciary ActivitiesAgency and Trust Funds CHAPTER 8: ACCOUNTING FOR FIDUCIARY ACTIVITIES AGENCY AND TRUST FUNDS 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. 8-3. No. Unless the use of an agency fund is mandated by law or by GASB standards, accounting for agency relationships may occur within the funds where the agency relationship arises. It is common practice, for example, to account for employee withholding taxes, retirement contributions, and social security taxes within the funds that account for the gross pay of the employees in this case, the General Fund. 8-4. When an agency fund is used to account for assets, the assets belong to the party or parties for whom the government acts as an agent, and not to the government itself. Thus, agency fund assets are offset by liabilities equal in amount and no fund equity exists. 8-5. A pass-through agency fund might be used when a government (such as the state) is passing through funds from one level of government (such as federal) to another level of government (such as local). For a pass-through agency fund to be appropriate the government acting as the conduit must have no administrative or direct financial involvement. If the pass-through government provides monitoring, is involved in determining eligibility of fund recipients or programs, has discretion in allocating funds, or finances some direct program costs a pass-through agency fund is inappropriate....
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This note was uploaded on 03/28/2012 for the course ACIS 4124 taught by Professor Dr.easterwood during the Spring '12 term at Virginia Tech.
- Spring '12