Which statement best describes the appropriate use of an agency fund for pass-through grants?

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The use of an agency fund for pass-through grants is specifically applicable when there is no administrative involvement or discretion in the distribution of funds. An agency fund is typically used by government entities to account for resources held by one government entity for another. In the context of pass-through grants, it means that the government is simply acting as an intermediary, receiving funds and then distributing them to another organization without any obligation to manage or enforce the terms of the grant.

The statement indicating that some pass-through grants should be reported in an agency fund aligns with the principle that such funds are appropriate in instances where the government does not have direct control over how the grant funds are used, and the conditions or benefits are passed entirely to another entity. This approach ensures that resources are tracked appropriately and reflected accurately in financial statements.

In contrast, not all or most pass-through grants would qualify for reporting in an agency fund, particularly if the government entity has significant administrative responsibilities tied to the grants. Additionally, asserting that no pass-through grants may be reported in an agency fund overlooks scenarios where it is the correct accounting treatment based on the characteristics of those grants. Thus, recognizing that only some grants fit the criteria for agency fund reporting captures the nuance of how different grant agreements are structured and the

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