CPA Exam - FAR (Financial Accounting and Reporting)State and Local GovernmentsMedium
A municipal government maintains an investment pool for its various departments and component units, where each participant has an undivided interest in the pool. The government acts as a fiduciary for these investments and is responsible for managing them. Which type of fund would most appropriately account for this investment pool?
- APrivate-Purpose Trust Fund
- BAgency Fund
- CInvestment Trust Fund
- DPension Trust Fund
Show answer & explanationAnswer & explanation
Correct answer: C. Investment Trust Fund
Investment Trust Funds are used to account for the external portion of an investment pool, where the primary government acts as a sponsor and fiduciary for the resources contributed by other governments, organizations, or individuals. The scenario describes exactly this function.
Why the other options are wrong
- A. Private-Purpose Trust Funds account for trust arrangements in which the principal and/or income benefit specific individuals, private organizations, or other governments.
- B. Agency Funds are purely custodial and account for assets held by a government as an agent for other governmental units, individuals, or private organizations.
- D. Pension Trust Funds account for resources that are required to be held in trust for the members and beneficiaries of defined benefit pension plans or defined contribution plans.
Investment Trust Fund
A fiduciary fund used to account for the external portion of an investment pool, where the sponsoring government acts as a fiduciary for resources contributed by other governments, organizations, or individuals.
- Fiduciary fund type
- Accounts for external investment pools
- Government acts as a fiduciary for other entities
- Participants have undivided interests
Memory trick: PAPI (Pension, Agency, Private-Purpose, Investment)