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.

Question

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An agency fund must be created only if required by law or GASB standards. In other instances an agency fund may be created by an administrative decision. If not required by law or an 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.

If a State or Local Government Is a Party to an Agency