Presentation is loading. Please wait.

Presentation is loading. Please wait.

Chapter 13 Colleges and Universities Granof & Khumawala-6e Chapter 13 1.

Similar presentations


Presentation on theme: "Chapter 13 Colleges and Universities Granof & Khumawala-6e Chapter 13 1."— Presentation transcript:

1 Chapter 13 Colleges and Universities Granof & Khumawala-6e Chapter 13 1

2 2 Thoughts to Ponder: Chapter 13 When we make college more affordable, we make the American dream more achievable. William J. Clinton Education is simply the soul of a society as it passes from one generation to another. G. K. Chesterson

3 Learning Objectives Understand the reporting options available to government C&U and the differences in financial reporting for government C&U and not-for-profit C&U. Discuss accounting and reporting issues for all C&U, such as accounting for o Revenues and expenses o Tuition and fees o Grants o Student Loans o Special concerns related to auxiliary enterprises Journalize transactions and prepare financial statements for governmentally owned C&U following GASB Statement No. 35. Prepare financial statements for private colleges and universities following SFAS Statement No Granof & Khumawala-6e Chapter 13 3

4 Overview Two types Public (1,672 public institutions in 2011) o GASB Reporting Standards o Example: Univ. of Houston, Univ. of Texas, Univ. of California, Univ. of Michigan o Main sources of revenues are state appropriations and grants Private (2,823 private institutions in 2011) o FASB Reporting Standards o Example: Rice University, Harvard, Yale, Princeton, Duke, Univ. of Chicago o Main sources of revenues are student tuition, investments and fees. Granof & Khumawala-6e Chapter 13 4

5 Basic Issues Public C&Us have much in common with their NFP counterparts, so comparability is desirable Most C&Us have used the AICPA reporting model. o However, some institutions (e.g. community colleges) use standard governmental model. C&Us differ from other governments in how they are funded and managed. o E.g. While auxiliary enterprises exist at universities (e.g. bookstore), the school does not budget by fund. o Therefore, fund accounting is sometimes undesirable. o According to GASB Stmt. No. 34, public C&U may report as special purpose entities engaged: 1) Only in business-type activities 2) Only in governmental activities 3) In both Granof & Khumawala-6e Chapter 13 5

6 GAAP for Colleges and Universities Granof & Khumawala-6e Chapter 13 Public C&U Private C&U GASB FASB Stmt. No. 35 Codified as (1999) ASC 958 GASB Stmt. No. 34 as special-purpose governments AICPA AAG State and FARM (industry Local Governments guidance maintained by NACUBO ) Granof & Khumawala-6e Chapter 13 6

7 Granof & Khumawala-6e Chapter 13 7 Used for: o Internal Purposes ONLY The fund structure prescribed by the AICPA 1973 Audit and Accounting Guide for Colleges and Universities (no longer authoritative for external financial reporting purposes): o Current funds (unrestricted and restricted) o Loan funds o Endowment and similar funds o Annuity and life income funds o Plant funds (4 sub-funds) o Agency funds Fund Accounting

8 Granof & Khumawala-6e Chapter 13 8 Reporting as a special purpose government engaged in business-type activities only under GASB Statement Nos. 34 and 35. Statement of Net Position, classifying net assets into: o Unrestricted o Restricted o Net Investment in Capital Assets (net of related debt) Statement of Revenues, Expenses, and Changes in Net Position Statement of Cash Flows For Public C&Us

9 Granof & Khumawala-6e Chapter 13 9 Reporting under SFAS Nos. 116 and 117 Statement of Financial Position classifying net assets into: o unrestricted o temporarily restricted o permanently restricted Statement of Activities Statement of Cash Flows Example: Brown University, Stanford, Dartmouth College, Northwestern University For Private C&Us

10 Granof & Khumawala-6e Chapter Both governmental and private universities classify revenues by SOURCE. Common categories of revenue include: o Tuition and fees o Federal, state, and local appropriations o Private gifts o Grants and contracts o Endowment income o Sales and services of educational activities o Sales and services of auxiliary activities o Gain/loss on sales of investments Revenue Classifications

11 Granof & Khumawala-6e Chapter Both governmental and private universities classify expenses by FUNCTION (see next slide). Recognized on the accrual basis. May be also classified by (i.e. matrix form): o program functions o organizational units o projects o object classes. Current Operating Expenses

12 Granof & Khumawala-6e Chapter Instruction Research Public service Academic support Student services Institutional support Operation and maintenance of plant Scholarships and fellowships Functional Classification of Expenses

13 Granof & Khumawala-6e Chapter Colleges and universities reporting under GASB are supposed to provide something along these lines, although it is rarely equivalent to the FASB statement of functional expenses (which is NOT required for private C&Us) - Rice University only reports functional expenses - University of Houston reports a more detailed breakdown. Natural v/s Functional Expenses

14 Scholarship allowances are the difference between the stated tuition charges and the actual amount billed to the student. If the tuition reduction is an employee benefit, the reduction is treated as compensation expense. - For example, tuition waivers for work-study programs and graduate assistantships are compensated expenses. However, scholarships that do not require service to the university or college are allowances and treated as reductions in revenue. - Example: athletic or academic excellence scholarships Granof & Khumawala-6e Chapter Scholarships

15 Grants may be exchange transactions if the grantor receives direct benefits in the form of something of value in exchange for the grant. o Example: 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. In these cases, restricted funds not yet spent are considered “Deferred Revenue.” Granof & Khumawala-6e Chapter Grants: as Exchange Transactions

16 Grants: as 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 and as restricted net assets in a public C&U. Granof & Khumawala-6e Chapter 13 16

17 C&U - Example 1 The fiscal year of a college ends July 31. In June 2013 a college collects $120 million in tuition and fees for its summer semester that begins on June 3 and ends on August 16. It also collects $180 million for the following fall semester, which begins on September 3rd. Faculty salaries applicable to summer session courses are $10 million. Of this amount, $8 million are applicable to June and July and $2 million to August. Granof & Khumawala-6e Chapter 13 17

18 C&U - Example 1(cont’d) Following the AICPA guidance, the entire summer semester’s tuition and fees, as well as the related faculty salaries, should be recognized in the fiscal year ending July 31, To record revenue for the summer semester (June 3, 2013): Cash $120 million Revenue from tuition/fees$120 million To record faculty salaries: Faculty salaries relating to summer semester (expense)$10 million Cash $8 million Deferred faculty salaries (liability)$2 million Granof & Khumawala-6e Chapter 13 18

19 C&U - Example 1 (cont’d) Following GASB (instead of AICPA): To recognize revenue: Cash $120 million Revenue from tuition/fees $96 million Deferred revenues from tuition/fees 24 million Faculty salaries would be divided between the 2 semesters. To record faculty salaries: Faculty salaries relating to summer semester (expense)$8 million Cash $8 million Granof & Khumawala-6e Chapter 13 19

20 C&U - Example 1(cont’d) Under both FASB and GASB the $180 million in tuition and fees applicable to the fall semester should be: recognized as revenue in the fiscal year ending July 31, 2014 and should be reported as deferred revenue when received in June To record tuition and fees applicable to fall semester (Sept 3, 2013): Cash $180 million Deferred revenue (liability) $180 million Granof & Khumawala-6e Chapter 13 20

21 C&U - Example 2 In 2013 a private university’s accounting department received a $300,000 federal grant to carry out research in government budgeting. Of this amount, $180,000 was to cover faculty salaries and $120,000 was to cover overhead. During 2013 the department began the research and paid faculty members $45,000. It was reimbursed by the federal government for $75,000. Granof & Khumawala-6e Chapter 13 21

22 C&U - Example 2 (cont’d) Entries: To record faculty salaries (unrestricted fund): Sponsored research—expense$45,000 Cash $45,000 To record amount due from federal government for reimbursement of direct/indirect costs: Due from federal government$75,000 Government grants and contracts— direct reimbursement (revenue) $45,000 Government grants/contracts— reimbursement for overhead (revenue) $30,000 To record collection of cash from federal government: Cash$75,000 Due from federal government $75,000 Granof & Khumawala-6e Chapter 13 22

23 Granof & Khumawala-6e Chapter C&U that expend more than $500,000 of federal awards a year need a Single Audit. Auditors will use government auditing standards (yellow book) and follow OMB Circular A-133 and AICPA SOP Auditors must be sure that the C&U has complied with the cost principles in OMB Circular A-21. Auditing Issues in C&U

24 Granof & Khumawala-6e Chapter C&U may have institutionally related foundations for fund-raising, alumni relations, or management of assets. 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. The FASB and GASB both have projects on affiliated organizations and consolidations. Related Entities

25 Granof & Khumawala-6e Chapter GASB Stmt. # 39 (2002) requires public universities* to report affiliated organizations as component units if these criteria are met: The economic resources received or held are almost entirely for the direct benefit of the university, The university is entitled to access those resources, The economic resources are significant to the university. Discrete presentation is required, i.e., a separate column on the face of the financial statements. *GASB # 39 is not exclusively for colleges and universities GASB Stmt. # 39 Affiliated Organizations

26 Granof & Khumawala-6e Chapter The Fiscal health of colleges and universities can be evaluated using the traditional analytical tools. However, to obtain a broader and longer-term perspective, the analysis also have to look to factors that are far afield from those associated with corporate financial analysis. -- Examples include: admissions selectivity, the percentage of faculty that are tenured, and the nature of course offerings. The fiscal health of colleges and universities, both government and private, is sensitive to unfavorable national economic conditions. Evaluation of colleges and universities

27 Summary Government colleges and universities have the option of reporting similarly to “full-service” governments or to other governments as business-type activities. Government C&U are required to distinguish between operating and nonoperating revenues and expenses. Not-for-profit colleges and universities must follow FASB’s reporting standards for not-for-profits. C&U also have unique revenues and expenses. Granof & Khumawala-6e Chapter 13 27


Download ppt "Chapter 13 Colleges and Universities Granof & Khumawala-6e Chapter 13 1."

Similar presentations


Ads by Google