CPA Exam - FAR (Financial Accounting and Reporting)State and Local GovernmentsMedium
A county government maintains a pension trust fund for its employees. The fund holds investments, receives employer and employee contributions, and pays out benefits to retirees. What measurement focus and basis of accounting should be used for this pension trust fund?
- AEconomic resources measurement focus and full accrual basis of accounting.
- BCurrent financial resources measurement focus and modified accrual basis of accounting.
- CCurrent financial resources measurement focus and full accrual basis of accounting.
- DEconomic resources measurement focus and modified accrual basis of accounting.
Show answer & explanationAnswer & explanation
Correct answer: A. Economic resources measurement focus and full accrual basis of accounting.
Fiduciary funds, including pension trust funds, use the economic resources measurement focus and the full accrual basis of accounting. This approach provides a comprehensive view of the fund's assets, liabilities, and net position, which is essential for managing long-term obligations like pensions.
Why the other options are wrong
- B. This combination is used by governmental funds, not fiduciary funds.
- C. This combination is incorrect; governmental funds use current financial resources and modified accrual, but fiduciary funds use full accrual.
- D. Fiduciary funds use economic resources focus, but they use full accrual, not modified accrual.
Fiduciary Funds Accounting
Fiduciary funds (e.g., pension trust funds, private-purpose trust funds, agency funds) account for resources held by the government in a trustee or agency capacity for others. They use the economic resources measurement focus and the full accrual basis of accounting.
- Accounts for resources held for external parties.
- Uses full accrual accounting.
- Uses economic resources measurement focus.
- Not included in government-wide statements.
Memory trick: Fiduciary: Full Accrual, Economic Resources for Others' Money.