Which statement is true regarding agency funds in a CAFR?

In the context of the Comprehensive Annual Financial Report (CAFR), the requirement for a combining statement for agency funds is essential for clarity and transparency in financial reporting. Agency funds are a type of fiduciary fund that primarily serve to account for resources held by a governmental unit in a purely custodial capacity for individuals, private organizations, or other governments.

Including a combining statement for agency funds is vital because it provides detailed financial information about the funds' activities, balances, and their accountability. This level of detail helps users of the financial statements understand how resources are being managed and ensures compliance with accounting standards. It also contributes to a more comprehensive view of the entity’s financial position and operations compared to relying solely on the basic financial statements.

The integration of a combining statement allows stakeholders to gain insight into the specific purpose and flow of agency funds, enhancing the report's overall transparency and reliability. Thus, having a distinct combining statement dedicated to agency funds aligns with the principles of full disclosure and accountability that govern public financial reporting.