McGraw-Hill/Irwin Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved.

Accounting for Colleges and Universities

Chapter

15

15-2

Learning Objectives

After studying Chapter 15, you should be able to: Distinguish between GAAP for public and private

colleges and universities (C&Us) Describe financial reporting for public and private

C&Us

15-3

Learning Objectives (Cont’d)

Discuss accounting and reporting issues for all C&Us, such as accounting for:

Assets, liabilities, and net assets/net position

Revenues and expenses

Cash flows

Journalize transactions for private C&Us

Prepare financial statements for public and private C&Us

15-4

Learning Objectives (Cont’d)

Discuss issues related to C&Us, such as:Planned givingAuditingFederal financial assistance

15-5

GAAP for Colleges & Universities

Private colleges and universitiesThe FASB Accounting Standards Codification is the

source of GAAPNon-GAAP guidance is provided by the AICPA Auditing

and Accounting Guide, Not-for-Profit Entities, and the National Association of College and University Business Officials (NACUBO)

Public colleges and universitiesThe GASB serves as the source of GAAPNon-GAAP guidance is provided by the AICPA Auditing

and Accounting Guide, State and Local Governments, and NACUBO

15-6

Statement of net position (see Ill. 15-1), classifying net position into:

Net investment in capital assets

Restricted

Unrestricted

Statement of revenues, expenses and changes in net position (see Ill. 15-2)

Statement of cash flows (see Ill. 15-3)

Financial Statements for a Public C&U

15-7

Statement of financial position (see Ill.15-4), classifying net assets into:

Unrestricted

Temporarily restricted

Permanently restricted

Statement of activities (see Ill. 15-5)

Statement of cash flows (see Ill. 15-6)

Financial Statements for a Private C&U

15-8

Assets loaned to students, faculty, and staff

Provided by gifts, grants, investment income, and transfers from other funds – classify according to any restrictions imposed by contributors

When a loan is made (e.g., $1,000 loan)

DebitCredit

Loan Receivable 1,000

Cash 1,000

When the loan is paid reverse the prior entry and record interest income received on the loan

Loan Assets

15-9

Recording and reporting of capital assets for C&Us is similar to that of for-profit businesses

FASB and GASB standards are similar

GASB standards require public C&Us to report two capital asset categories not found in private C&Us reporting using FASB standards Infrastructure, which allows for use of the

“modified approach”

Intangible assets (reported as a separate asset class under FASB standards)

Assets—Capital

15-10

Liabilities

If a C&U is required to return some or all of student deposits that are received for housing, equipment, or services, a short-term liability is recorded

For example, a $100 refundable deposit was received

DebitCredit

Cash 100

Deposits Held in Custody for Others 100

15-11

Operating Statements

Differences exist in the reporting format for privateC&Us and public C&Us using a business-type model

Private C&Us must report the amount of net assets released from restrictions, public C&Us do not

Public C&Us must separate operating activity from nonoperating activity on the face of the financial statements, private C&Us do not

15-12

Tuition and fees Federal, state, and local appropriations Federal, state, and local grants and contracts Private gifts Investment income Auxiliary services

NACUBO Revenue Classifications

15-13

Revenues—Tuition & Fees

Record Tuition & Fees (T&F) at gross amountTuition & Fees should also be reported net of tuition

discounts and scholarships using a contra account

For example – gross T&F was $5,000, with $250 given in scholarships

Debit Credit

T&F Receivable 4,750

T&F Discounts and Allowances 250

T&F—Unrestricted 5,000

15-14

Revenues—Tuition & Fees (Cont’d)

Refunds of T&F are direct adjustments to the T&F—Unrestricted account

At FYE report T&F net of estimated uncollectible amounts

For public C&Us a contra-revenue account is allowable for recording and reporting estimated uncollectible amounts

For private C&Us revenue should be directly adjusted for uncollectible amounts – for example

T&F—Unrestricted

Allowance for Doubtful Accounts

15-15

Support Revenue(Non-exchange Transactions)

C&Us receive contributions similar to other NFP organizations (see Chapter 13)

These gifts are considered increases to

Temporarily restricted net assets for a private C&U

Restricted net position for a public C&U

Public and private C&Us record any estimates for uncollectible support revenues in the same manner as estimated uncollectible T&F

15-16

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

Grants considered exchange transactions are recorded as unrestricted net assets/position; whereas, non-exchange transactions are recorded as temporarily restricted net assets (private) or restricted net position (public)

Support Revenue—Grants

15-17

Recognized on the accrual basis NACUBO recommended classifications:

Instruction Research Public service Academic support Student services Institutional support Student aid Auxiliary enterprises

Operating Expenses

15-18

Private C&Us must identify program and support expenses on the face of the statement of activities or in the notes to the statement

Private and public C&Us record expenses in the same manner

Operating Expenses (Cont’d)

15-19

Statements of Cash Flows

Private C&Us prepare the statement of cash flows similar to for-profit entities

Public C&Us prepare the statement of cash flows following the GASB standard:

Direct method of presentation must be used

Four categories are identified – operating, noncapital financing, capital and related financing, and investing activities

15-20

Endowment—the donor has stipulated that theprincipal of his/her gift is not expendable as of thereporting date (permanently restricted). However

thegift can be invested for the purpose of producingincome. Generally, there are two forms ofendowment:

Permanent—the principal must remain intact for perpetuity

Term—the principal remains intact for a period of time

Planned Giving—Endowments

15-21

The C&U shares the interest and/or investment with the donor or another beneficiary

There are four widely used types of split-interest agreements Charitable lead trusts Charitable remainder trusts Charitable gift annuities Pooled (life) income funds

Planned Giving—Split-interest Agreements

15-22

Restricted Net Assets/Position—

Split-interest Agreements (Cont’d)

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., death) the C&U owns the assets and income

Pooled (life) income agreements require that total income earned on the donor’s pro rata share of donated assets be returned to the donor or other beneficiary

15-23

UPMIFA

UPMIFA is the Uniform Prudent Management of Institutional Funds Act implemented by at least 47 states

The act provides guidance on the management of funds received for charitable purposes in the absence of donor stipulations

Three primary areas of importance are related to investment of funds, expenditures, and release or modification of restrictions on assets provided through donation

15-24

C&Us are encouraged to provide qualitative measures that help assess accomplishments:

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

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

Nonfinancial Performance Measures

15-25

C&Us that expend more than $500,000 of federal awards a year are subject to a Single Audit

Auditors will use generally accepted auditing standards, government auditing standards (yellow book), and OMB Circular A-133

Auditors must be sure the C&U has complied with the cost principles in OMB Circular A-21 and the cost and administrative principles in OMB Circular A-110

Auditing Issues in C&Us

15-26

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

In general, C&Us report related entities in the same manner as other not-for-profit entities (private C&Us) or business-type governmental entities (public C&Us)

Related Entities

15-27

Public colleges and universities follow GASB standards

Private colleges and universities follow FASB standards

Colleges and universities receive a substantial amount of federal funds leading to additional compliance requirements and Single Audits

END

Concluding Comments