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Government And Nonprofit Accounting > SU 12: Fiduciary Funds > Flashcards

SU 12: Fiduciary Funds Flashcards

(58 cards)

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1
Q

Fiduciary funds

A

Account for assets that governments hold as trustees or agents for individuals, private organizations, or other parties.

Resources must be to benefit outside parties - not governments own programs

Fund accounts for both expendable and non-expendable resources

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2
Q

major types of fiduciary funds

A

Private purpose trust funds
Investment trust funds
Pension (and other employee benefit) trust funds

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3
Q

Trust fund

A

fund in which one party (trustee) holds resources for the benefit of another (usually under a formal agreement)

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4
Q

Are fiduciary funds reported in government-wide financial statements?

A

No

Resources are not available for government use so it would be misleading

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5
Q

Escheat fund

A

kind of private purpose fiduciary fund. holds abandoned money or assets that will revert to the state in the absence of legal heirs or claimants

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6
Q

Investment trust

A

investment pools where multiple governments / government agencies pool their money to get better rates

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7
Q

Risks associated with fiduciary funds

A
  • large amounts of highly-liquid (cash and investment) financial resources increases risk of loss from fraud or just decline in FMV (especially if government invests in risky assets)
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8
Q

Fiduciary assets

A
  • cash
  • ST & LT equity securities
  • ST & LT debt securities
  • tangible and intangible assets
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9
Q

Endowment trust fund

A

contribution where the donor requires that the principal is invested and remain intact (non-expendable) but income from the investment may be used (expended)

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10
Q

types of endowments

A

Perpetuity (principal/ corpus never used)
vs
Term endowment (principal is preserved for a specified period and then may be used)

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11
Q

Classifications of endowment trust income

A

Restricted (for a specific purpose transferred to Special Revenue fund or Capital Projects Fund)
vs
Unrestricted (any purpose - transferred to general fund)

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12
Q

Gains on unrestricted income

A

if unrestricted income is reinvested and earns gains the gains remain unrestricted

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13
Q

Revenue accounts for endowment income

A

Restricted (in special revenue fund/ capital products) - Revenue account

Unrestricted (general fund): investment income

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14
Q

General endowment fund

A

more relaxed rules about distributions

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15
Q

Addition

A

Anything that increases the fiduciary fund investment

(instead of revenue)

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16
Q

Deduction

A

Anything that comes out of the fiduciary fund investment

(instead of expense)

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17
Q

Types of gains in fiduciary funds

A

Realized (transaction related to something that has appreciated in value)
vs
Unrealized (change in FMV of assets)

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18
Q

Treatment of fiduciary fund gain

A

Donor may stipulate if gains are to be added to principal (non-expendable) or added to income (expendable)

unless specified otherwise GASB defaults to added to income

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19
Q

Spending rate

A

percentage of endowment money that can be taken out in the current year

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20
Q

Fixed rate of return approach to determine spending rate

A

Spending rate = % of principal = Annual ROI % - Annual inflation %

(Annual ROI% = interest + dividends + appreciation)

ROI factors = revenue, but only part is unrestricted. Discretionary restriction applied to inflation %

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21
Q

Accounting for pension trust fund

A

if maintained by government: full accrual accounting AND GOES INTO GOV-WIDE STATEMENTS

if maintained by outside institution: disclosure notes only

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22
Q

Pension assets

A

Cash
income producing investments

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23
Q

Pension “Normal cost”

A

Money that needs to be added to a pension fund for the benefits accrued by employees in the fiscal year based on analysis

calculated on annual % of PV of pension benefits found using entry age actuarial cost method

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24
Q

Pension costs

Study These Flashcards
A

Shares of benefits per period (calculated with actuarial cost method)

25
Pension expenditures
(Not sure when this would be used?) costs paid with current financial resources
26
Pension expenses
GASB defined pension costs GOV required annual pension contribution + GASB adjustment
27
Components of Defined benefit pension expense
Annual required contribution = normal cost + underfunded actuarial liability
28
Underfunded actuarial liability
= PV (project benefit payments) - Pension Assets FMV basically whatever of previously earned benefits (PV) is not covered by current assets
29
What affects underfunded actuarial liability?
- normal (service) cost - expected earnings on plan assets - interest on liability (time value of money interest) - actuarial gains and losses (changes in estimates) - changes in pension benefits (prior period costs)
30
Additions to pension trust
interest dividends gains on sales of investments increase in FMV of investments
31
Deductions from pension trust
Depreciation administrative costs investment costs losses on sales of investments payments of retirement benefits Decrease in FMV of investments
32
GASB 67 and 68 updates
- Amortization of unfunded liability only allowed if caused by employee changes (remaining service life of employees) or difference between actual vs projected earnings - Multi employer plans: each employer's liability = % of collective liability (determined by relative contribution percentage)
33
Employer liability in multiple-employer plans
% of collective liability to each employer determined by that employer's contributions / total contributions
34
Disclosures required for pension trusts
- financial statements focus on net assets with disclosures showing actuarial information - schedule of funding process - schedule of employer contributions essentially how they're doing and how they plan to adjust
35
Schedule of funding progress
Shows actuarial value of plan assets vs actuarial liability - 10 years of data Gives funded ratio
36
Funded ration
= plan assets / actuarial liability ideally 100%, less than 80% considered bad
37
Schedule of employer contributions
Shows if contributions were lower than necessary and how they changed the funded ratio
38
Pension plan structures
- single employer - agent multi-employer (one employer acts as agent) - Cost sharing plans (assets and liabilities pooled with % allocated)
39
what pension plan structure REQUIRES full annual required contribution
Cost-sharing plan
40
Legal restrictions on pension trust funds
- Government contributions are irrevocable (cannot be withdrawn) - assets are legally restricted to paying retirees - assets are legally protected from government's creditors
41
Annual defined benefit pension amount
Final average salary (average of 3 (or 5) highest paid years) x Years of service (years employed) x Benefit multiplier (% of salary guaranteed by pension) for monthly divide by 12!
42
Qualifying pension plan
standard pension funds that obey all federal rules for pensions
43
Effect if pension is accounted for in general fund
- ONLY pension contributions paid with current resources would be recognized - would not be a qualified pension fund - would not be compliant with to use fiduciary fund
44
Net pension liability
= total pension liability - Plan fiduciary net position aka = actuarial estimation of plan - FMV of assets Could be a net asset but that's unlikely
45
Defined contribution plan contribution
GOV contribution % of employee salary Employee contribution (varies, must often match GOV)
46
Defined contribution plan
Gov (and potentially employee) make regular contributions into a 401k- like investment account and at retirement the employee gets a monthly annuity based on the fun balance at requirement commonly held by a private financial instutution
47
Annual Pension liability (Defined contribution plan)
= Annual contribution - Required contribution
48
OPEB
Other post-employement benefit same accounting as pension trust complete with disclosures for schedule of funding progress and schedule of employer contributions
49
Criteria for investment trust fund
- Gov with fiduciary relationship controls assets - Assets do NOT come solely from government revenue or from government mandated/ voluntary non-exchange transactions - assets are held in a qualifying trust
50
GASB standard for investment trust funds
GASB 84
51
Allocation of income in an investment trust fund
based on proportionate investments (or per trust agreement)
52
Agency Funds
aka custodial Purpose to account for assets held by government acting as an agent for other entity (principal) basically a pass-through account
53
When are agency funds not appropriate
If government acting as agent has any responsibility for the outcomes (principal should have the responsibility)
54
When are agency funds required
- dollar amount of transaction is high (requires accountability) - use will improve financial management or accounting - mandated by law, regulation, GASB standards
55
Custodial funds
AKA Agency funds
56
Accounting equation for Agency (Custodial) funds
Assets = liabilities NO FUND BALANCE all assets belong to the principal so every asset creates a liability
57
Agency (custodial) fund journal entries
DR Asset CR Liability
58
Typical transactions for Agency fund
ST investments of money purchased and sold Gains and losses increase or decrease liability to principal

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