Question 1

Public employee retirement systems should label the difference between assets and liabilities on the statement of plan net assets as "fund balance available for member benefits."

Accepted Answer

The GASB requires a statement of plan net assets in which the difference between assets and liabilities is labeled "net assets held in trust for pension benefits." This form is shown in the text as Illustration 8-9.

Question 2

Pension plans are required to report two schedules,a schedule of funding progress and a schedule of employer contributions as required supplementary information (RSI)in their stand-alone financial reports and in pension plan financial information reported in the CAFR of sponsoring government.

Accepted Answer

Reporting these two schedules as RSI, along with two basic financial statements, a statement of plan net assets and a statement of changes in plan net assets, are the requirements discussed

Question 3

Public Employee Retirement Systems should utilize the modified accrual basis of accounting.

Accepted Answer

GASB standards provide that public employee retirement systems (PERS) use the accrual basis of accounting.

Question 4

Public employee retirement systems should utilize budgetary accounts in the same manner that General Funds and special revenue funds should.

Accepted Answer

No authoritative organization recommends that public employee retirement systems (PERS) use budgetary accounts.

Question 5

An agency fund accounts for assets held by a government for the long-term in the capacity of a trustee for an individual,organization,other fund,or other government.

Accepted Answer

Agency funds are used when the government holds assets temporarily as an agent for an individual, organization, or other government, not for a long period of time.

Question 6

Which of the following is the most reliable means of distinguishing a trust relationship from an agency relationship for purposes of deciding which type of fiduciary fund should be used?

Accepted Answer

The most reliable means of distinguishing a trust relationship from an agency relationship is to examine the aggregate of factors, such as the enactment that brought the relationship into existence, statutes, regulations, etc. These factors help define the nature of the relationship and can determine whether it is a trust or agency relationship, regardless of the amount of money involved or the length of time assets will be held. The wording of agreements can also be helpful, but it is not the most reliable means of distinguishing between the two types of relationships.

Question 7

If a state or local government is a party to an agency relationship,it must automatically create an agency fund in order to be in conformity with generally accepted accounting principles.

Accepted Answer

An agency fund must be created only if required by law or GASB standards. In other instances an agency fund may be created by administrative decision. If not required by law or administrative decision, an agency relationship may be accounted for by the General Fund (or other fund) if the agency relationship is incidental to the primary purposes of the General Fund (or other fund), the amounts tend to be small in relation to total expenditures of the General Fund, and the agency relationship is ordinarily discharged on a rather current basis.

Question 8

An agency fund should be used to account for special assessment billing and collection,and related debt service of special assessment debt,if the government has no responsibility for the debt.

Accepted Answer

An agency fund is used only for those special assessments financed by debt for which the government is not obligated in any manner. If the government is obligated in some manner (e.g., as a guarantor), billing and collection of special assessments is recorded in a debt service fund and the debt is reported in the governmental activities accounts.

Question 9

If a state or local government acts as an intermediary between the federal government and beneficiary recipients in processing grant or entitlement resources,those resources should be accounted for in an agency fund.

Accepted Answer

A "pass-through" agency fund should be used by the intermediary government only if the government has no administrative or direct financial involvement in determining to whom, how, and/or for what purposes the monies are to be used. If there is administrative or direct financial involvement, a special revenue fund must be used.

Question 10

It is common for an agency fund to have relatively small net asset balances.

Accepted Answer

Since all of the assets of an agency fund are offset by liabilities there are no net assets.

Question 11

Fiduciary funds are sometimes identified in the annual reports of state and local governments as "Trust and Agency Funds."

Accepted Answer

Fiduciary funds account for assets held by a government under a trust relationship or an agency relationship.

Question 12

Employer (and employee,if applicable)contributions to public employee retirement systems should be based on actuarial computations.

Accepted Answer

Actuarial computations should be made annually to determine proper contributions by employers (and employees, if applicable) to public employee retirement systems (PERS).

Question 13

Which of the following activities would most appropriately be recorded by an agency fund?

Accepted Answer

Agency funds are used to account for assets held by a government in a purely custodial capacity. Option A involves assets held for employees' withholding taxes, which are held temporarily and passed on to the appropriate authorities, fitting the definition of an agency fund.

Question 14

All fiduciary funds report transactions between the fund and both internal and external parties.

Accepted Answer

Fiduciary funds report only transactions in which the government is involved with parties external to the government.

Question 15

Effective management of cash and investments of individual funds may be enhanced by placing the cash and investments in a pool under the control of the treasurer of the government or other official.

Accepted Answer

The objective of pool creation is to professionalize the management of cash and investments and thereby improve both the safety of the principal and the earnings on the investments.

Question 16

If the fair value of stock received by a private-purpose trust fund differs from the par value of the stock,the premium or discount should be amortized over the remaining life of the stock.

Accepted Answer

Stock has no maturity date and its par value, if any, is only a nominal amount; not the amount the trustees ever expect to receive. As such there is no premium or discount to amortize. At any rate, there is no premium or discount under fair value accounting, even for debt securities.

Question 17

When a cash and investments pool is created,the assets of each fund entering the pool should be transferred to the pool at their fair value at the date of the transfer.

Accepted Answer

Assets such as investments should be revalued to fair value (market value) as of the date the fund enters the pool, and any investments already in the pool should be revalued to fair value as of the same date, so that earnings, gains, and losses on pooled investments may be distributed equitably.

Question 18

Tax agency funds assume liability for gross levies,not for the amounts the levying funds or units expect to collect.

Accepted Answer

Tax agency funds should attempt to collect all taxes billed, and should charge back to the levying fund or unit only taxes billed in error, or taxes that, after all legal and reasonable means of collection have been exhausted, cannot be collected.

Question 19

An agency relationship that usually necessitates the creation of an agency fund is the collection of revenues by one government for several of its funds and/or for other governments and their funds.

Accepted Answer

Agency funds of this nature, particularly for assessment and collection of property taxes, are commonly found at the county level.

Question 20

Investment trust funds and pension trust funds should be accounted for in the same manner as permanent funds.

Accepted Answer

Fiduciary funds focus on the measurement of economic resources using the accrual basis of accounting because their objective is to measure net income on a going-concern basis. A permanent fund is a governmental fund, and as such, focuses on the measurement of current financial resources using the modified accrual basis of accounting.

Quiz 8: Accounting for Fiduciary Activities Agency and Trust Funds