Agency funds utilized to account for the assets held solely in the custodial capacity. As a result, assets in agency are always matched by liabilities to the owners of the assets. The accounting for agency funds is the same before and after implementation of GASBS 34. The accounting and financial reporting for agency funds are unique and do not really follow those of government funds or proprietary funds. Agency funds use the modified accrual basis of accounting for purposes of recognizing assets and liabilities such as receivable and payables. However, agency funds do not have or report operations and accordingly are said to not have a measurement focus.
In determining whether an agency fund or a trust fund is used to account for various types of transactions, here are no clear-cut distinctions for selecting the proper fund to account for a particular transaction. The degree of the government’s management involvement and discretion over assets is generally much greater over trust funds assets than over agency funds assets. Private purpose trust funds, for example, may require that a government’s management identify eligible recipients, invest funds long or short term , or monitor compliance with regulations. Agency funds, on the other hand, typically involve only the receipt, temporary investment, and remittance of assets to their respective owners.
Agency funds are often used by school districts to account for student activity funds that are held by the school district but whose assets legally belong to the students. Another common use of agency funds is to account for taxes collected by one government on behalf of other governments. The collecting government has virtually no discretion on how the funds in the agency fund are to be spent. They are simply collected and then remitted to the government on whose behalf they were collected.