Question

P12-7 (Research Problem) Obtain copies of the Trust and Agency Fund financial statements of a state or local government. (Use the same CAFR you utilized for the prior three research problems -P7-7, P8-8, & P9-8/9)

1. Study the Trust and Agency Fund financial statements and compare them with those discussed and illustrated in this chapter, noting the following:

   1. Similarities

   2. Differences

   3. Other matters that come to your attention

2. Study the authoritative literature to determine the following:

   1. What is an investment pool?

   2. What is meant by the “internal portion” of an investment pool?

   3. What is meant by the “external portion” of an investment pool?

   4. How are the assets of the investment pool reported in the financial statements of the government that operates the pool?

3. Prepare a brief report on requirements a and b.

Answer 1

Comparitive Financial data required to provide the similarites and differences.

Questions on invetsment pool answered as below :

What is an investment pool?

Ans :

Pooled investment funds – also known as collective investment schemes – are a way of putting sums of money from many people into a large fund spread across many investments and managed by professionals. Investing this way can be easier and less risky than buying shares in individual companies direct, and there are lots of funds to choose from.

Local government investment pools (LGIP) are mutual funds set up by governments for investing excess money. LGIPs are sponsored and organized by the state treasurer of a state or a governing body like a county commission. They're set up to invest excess cash.

What is meant by the “internal portion” of an investment pool?

Ans :

Internal Investment Pool	External Investment Pool
Participating funds are all within the same government • Agency fund • All funds must report their own share of pooled investments as fund assets rather than including them as investment pool assets	May include governments or organizations other than the government administering the pool • Investment trust fund • Assets, liabilities, net position, and changes in net position interests of external participants are reported but the administering government’s interests are considered internal and not included in trust fund financial statements

What is meant by the “external portion” of an investment pool?

Ans :

Internal Investment Pool	External Investment Pool
Participating funds are all within the same government • Agency fund • All funds must report their own share of pooled investments as fund assets rather than including them as investment pool assets	May include governments or organizations other than the government administering the pool • Investment trust fund • Assets, liabilities, net position, and changes in net position interests of external participants are reported but the administering government’s interests are considered internal and not included in trust fund financial statements

For governments, external investment pools function much like money market funds do in the private sector. Government investment funds pool the resources of participating governments and invest in short-term, high-quality securities permitted under state law. By pooling their cash together, participating governments benefit in a variety of ways, including from economies of scale and professional fund management.

How are the assets of the investment pool reported in the financial statements of the government that operates the pool?

Ans : Governmental external investment pools that are 2a7-like pools are permitted to report their investments at amortized cost. A 2a7-like pool is not registered with the Securities and Exchange Commission (SEC) as an investment company, but nevertheless has a policy that it will, and does, operate in a manner consistent with the SEC's Rule 2a7 of the Investment Company Act of 1940. Rule 2a7 allows money market mutual funds to use amortized cost to report net assets