The American Institute of CPAs’ (AICPA) State and Local Government Expert Panel and Private Companies Practice Section Technical Issues Committee submitted comment letters to the Governmental Accounting Standards Board (GASB) that identify flaws in the Board’s Preliminary Views (PV) document, Financial Reporting for Fiduciary Responsibilities.
The State and Local Government Expert Panel wrote in its April 6 letter that it disagreed with “the overall tenet of the PV that fiduciary activities continue to be reported in funds. Instead, we believe such activities are best reflected in the notes to the financial statements.”
The panel’s letter stated, “Our experience is that reporting fiduciary activities in separate fund financial statements can be misleading and may cause users to erroneously conclude that the net position of fiduciary funds are resources available to the government. Therefore, we recommend the government’s accountability for assets held in a fiduciary capacity be communicated in the notes to the financial statements. This recommendation is more consistent with the treatment of fiduciary activities in the government-wide financial statements and would simplify the basic financial statements.”
Both AICPA letters expressed concerns as to whether the control criteria concepts in the PV can be consistently applied.
The PCPS Technical Issues Committee wrote in its March 19 letter that “TIC believes some significant changes will be needed to the PV to make it understandable and internally consistent. As written, the PV does not provide a definition of fiduciary responsibilities that can be applied easily and consistently. TIC also believes additional examples are required within the standard and the Implementation Guide. Ultimately, the guidance needs to be clear enough so that governments can analogize from the general guidance and the examples to specific scenarios encountered in practice and decide whether a reportable fiduciary responsibility exists.”
TIC’s letter also stated, “TIC believes that some of the requirements in the PV should be reduced, especially if there are a limited number of users of fiduciary fund information. TIC believes some of the proposed presentation requirements could lead to misinterpretation of information by financial statement users. The benefits for a limited number of users do not outweigh the risks of an expectation gap between what the users are getting and what the users think they are getting.”