Chapter 12BAccounting for

Colleges and Universities

GAAP for Colleges and Universities

Public C&U Private C&U

GASBS 35 SFAS Nos. (1999) 116 and 117

(1993)

GASBS 34

as special-purpose governments

AICPA AAG-Audits of State and AICPA AAG -Local Governmental Units Not-for-Profit

Organizations

o Statement of net assets classifying net assets into:

Invested in capital assets, net of related debt

Restricted

Unrestricted

o Statement of revenues, expenses and changes in net assets

o Statement of cash flows (4 sections)

Financial Statements for a Public C&U

o Statement of financial position classifying net assets into:

unrestricted

temporarily restricted

permanently restricted

o Statement of activities

o Statement of cash flows (3 sections)

Financial Statements for a Private C&U

Assets

o Assets available for all purposes of the C&U at the discretion of the governing board are unrestricted, and arise from

instructional, research, and public service programs

auxiliary activities; such as residence halls, food service, athletic programs, and stores

Assets (Cont’d)

o Assets available for operations, but subject to limitations placed on them by resource providers are restricted and can arise from

federal and other sponsored research grants, scholarship gifts and other expendable restricted monies.

o Long-lived assets, such as land, buildings, equipment, and infrastructure, are carried at cost or fair value for donated assets.

o Public C&U engaged in business-type activities capitalize long-lived assets, and depreciate all but inexhaustible assets, such as land.

o Public C&U can use the “modified approach” for certain eligible infrastructure assets.

o Private C&U also depreciate their capital assets.

Capital Assets

o Resources to acquire capital assets include: Funds from external agencies Student fees and assessments Transfers from other fund groups Borrowings from external sources Income and gains from investments Gifts restricted for the plant.

o Net assets invested in capital assets, are shown net of the related debt used to acquire those assets.

Capital Assets (Cont’d)

Collections held by museums and libraries of colleges and universities do not have to be recognized as assets (and consequently depreciated) if they are

Held for public exhibition

Protected and preserved.

Subject to a policy that requires proceeds from sales to be used to acquire other similar assets.

Assets - Collections

o Assets may be loaned to students, faculty, and staff. o Provided by gifts, grants, investment income, and

transfers from other funds.o Loan activities are on a self-sustaining basis -

revolving basis, i.e., repayment of loans and interest received are available for lending to others.

o Interest income on loans and temporary investments is expected to offset the cost of administration of loan activities and the loss from uncollectible loans.

Loan Activities

o Funds in which the donor has stipulated that the principal is nonexpendable and must remain intact in perpetuity, but that investment earnings may be spent.

o Similar funds include those in which the C&U governing board has designated the funds to function as endowments.

o Similar funds also include term endowment funds in which the principal remains intact for a period of time.

Endowment and Similar Activities

Endowment income may be unrestricted or restricted depending upon the donor’s conditions. Endowment income is only added to the principal of the

endowment if the provisions of the gift require it.

Investments must be reported at fair value

Endowment funds can be huge like that of Harvard University which is approximately $20 Billion.

Endowment and Similar Activities (Cont’d)

Used to account for split interest agreements

Annuity agreements are gifts in which donors require a stipulated amount of money returned to them or other beneficiary each year. At some point in time (e.g., their death or death of their spouse) the C&U owns the assets and income.

Life income agreements are different in that they require that total income earned on the donated assets be returned to the donor or other beneficiary)

Split-interest Agreements

Donors should define: income in accrual terms equitable allocation of administrative expenses treatment of gains and losses on the investment assets in the

agreement

Split-interest Agreements (Cont’d)

Tuition and fees (Non-refundable dorm fees)

Federal, state, and local appropriations

Private gifts

Grants and contracts

Investment income

Sales and services of educational activities (books)

Sales and services of auxiliary activities (FB tickets)

Other miscellaneous sources

College & University Revenue Classifications

Recognized on the accrual basis.

May be classified by: program functions – (research, academic support,

student services, instruction) organizational units (business, nursing) projects other object classes

Current Operating Expenses

Grants may be exchange transactions if the grantor receives direct benefits in the form of something of value in exchange for the grant. e.g., if a university tests a product under a federal contract,

but the government retains the patent (or rights) to use the product

Many C&U treat research grants as exchange transactions because the grantor expects performance and a report on how the funds were used.

Exchange Transactions

Nonexchange Transactions

Nonreciprocal transactions in which the donor does not receive “quid pro quo” are called nonexchange transactions.

These gifts are considered increases to “temporarily restricted” net assets for a private

C&U “restricted net assets” in a public C&U.

Contributed services are reported as contributions and expenses if they would need to be purchased by the organization

require specialized skills

are provided by professionals with those skills

can be measured and are material

Contributed Services

o Tuition revenue should be reported net of tuition discounts and scholarships.

Tuition Revenue and Scholarships

Decision makers monitor the performance of C&U

internal management (administrators)

oversight bodies (governing boards, accrediting agencies)

funding sources (governments, donors, grantors, investors)

constituents (students, faculty, alumni)

Performance Measures

Qualitative measures used to assess accomplishments:

Outputs, e.g., faculty productivity, number of graduates, job placements

Outcomes, e.g., increased knowledge of students, satisfaction of alumni, value added to students in the areas of skills and knowledge

Nonfinancial Performance Measures

Financial measures used to evaluate viability, return and leverage: expendable resources to debt

unrestricted resources to operations

expendable resources to total net assets

total resources per full-time equivalent student

maximum debt service coverage

Financial Performance Measures

C&U may have institutionally related foundations for fund-raising, alumni relations, or management of assets.

In general, related entities should either be disclosed in the notes to the financial statements or reported as component entities, depending on the degree of control and economic interest.

Related Entities