1. October 13, 2004 © Campus Strategies 1 West Virginia Higher Education Policy Commission GASB Statement No. 39 October 13, 2004 Larry Goldstein, President Campus Strategies

2. October 13, 2004 © Campus Strategies 2 Agenda Background and Basic Requirements Implications for Organizations Implications for Component Units (CU) Potential Undesirable Outcomes Strategies for Compliance Questions, Comments, and Reactions

3. October 13, 2004 © Campus Strategies 3 The “Standard” Officially known as Governmental Accounting Standards Board Statement No. 39, Determining Whether Certain Organizations Are Component Units, an amendment of GASB Statement 14 Commonly referred to as Affiliated Organizations

4. October 13, 2004 © Campus Strategies 4 History 1990—Project began 1991—GASB Statement No. 14 – Paragraph 41—future guidance 1994—First exposure draft 2001—Second exposure draft – NACUBO position 2002—Final standard

5. October 13, 2004 © Campus Strategies 5 Overview New standard amends GASB 14 to define legally separate, tax-exempt fund-raising organizations as component units –Basis is “misleading to exclude” Other organizations –Clarified how organizations should be evaluated

6. October 13, 2004 © Campus Strategies 6 Three Criteria Must meet three criteria –Holds resources (almost) entirely for direct benefit of institution, its component units, or its constituents –Institution or its component units are entitled to access majority of resources –Individual affiliated organization resources are significant

7. October 13, 2004 © Campus Strategies 7 Exclusive Benefit First criterion –Intended to exclude federated fundraising organizations with ability to direct resources to multiple beneficiaries Example: United Way

8. October 13, 2004 © Campus Strategies 8 Access to Resources Second criterion –Institution is entitled to or has the “ability to otherwise access” the majority of affiliated organization resources Past trend of providing resources Affiliated organization honors requests from reporting organization Financially interrelated per FASB 136

9. October 13, 2004 © Campus Strategies 9 Significant Third criterion –Resources held by individual affiliated organization must be significant to reporting organization –If affiliated organization’s resources not significant, fails test (and not reported) Consider as other organization –Excludes most PTOs or booster clubs supporting public school districts

10. October 13, 2004 © Campus Strategies 10 Other Organizations Evaluate based on professional judgment –Nature and closeness of relationship –Financial integration Research foundations Athletics organizations Alumni associations Student housing entities Medical practice plans

11. October 13, 2004 © Campus Strategies 11 Presentation Part of organization’s financial report –Discrete display required Separate column for each component unit or Single column for all component units with additional detail in notes…

12. October 13, 2004 © Campus Strategies 12 Presentation (contd.) FASB entities –Option to present on separate page immediately following each GASB statement –Can adapt FASB classifications to present on same page using GASB classifications

13. October 13, 2004 © Campus Strategies 13 Disclosures Footnotes –Description of the component unit –Criteria for inclusion –How to obtain financial statements –Nature and amount of significant transactions Explanation of differences due to different reporting periods…

14. October 13, 2004 © Campus Strategies 14 Disclosures (contd.) Footnotes –Other disclosures essential for fair presentation—a matter of professional judgment Investments (e.g., endowment information such as return, portfolio composition, spending policy) Debt –Basis is FASB model; not GASB

15. October 13, 2004 © Campus Strategies 15 Timing Effective date –Fiscal years beginning after June 15, 2003 For most governmental organizations, fiscal year ended June 30, 2004 –Earlier adoption was encouraged Failure to implement could result in qualified financial statement opinion for organization

16. October 13, 2004 © Campus Strategies 16 Organizational Implications Direct implications –Review each potential component unit –Resolve display issues –Assess impact on audit schedule –Assess impact on audit fees –Develop communication strategy…

17. October 13, 2004 © Campus Strategies 17 Organizational Implications (contd.) Reporting to higher level of government –Organization as component unit Organization and its component unit(s) combined at next reporting level –Organization as agency / department Option to ignore technical aspects of relationship –Treat as component unit –Combine organization and component unit(s)…

18. October 13, 2004 © Campus Strategies 18 Organizational Implications (contd.) Potential implications –Varies based on audit environment –Status as department of state government or component unit State involvement –Establishment of inclusion criteria –Display decisions –Component unit audit issues

19. October 13, 2004 © Campus Strategies 19 CU Implications Direct implications –Consultation with organizations –Potential changes to financial statement presentation –Assess impact on audit schedule –Assess impact on audit fees –Develop communication strategy

20. October 13, 2004 © Campus Strategies 20 Potential Adverse Results Strained relationship between entities Intrusion of auditors in component unit’s activities Future resources diverted to unaffiliated entities Reduced private giving Reduced public support

21. October 13, 2004 © Campus Strategies 21 Compliance Strategies Component unit –Cooperate during reviews –Develop coordinated communication strategy –Provide assurances to donors –Participate in dialogue with organization’s auditors –Consider changing fiscal year-end –Decide on preferred display…

22. October 13, 2004 © Campus Strategies 22 Compliance Strategies (contd.) Display options –Organization / sole component unit in separate columns on same page –Component unit on succeeding page –Organization / multiple component units in separate columns on same page –Multiple component units in separate columns on succeeding page…

23. October 13, 2004 © Campus Strategies 23 Compliance Strategies (contd.) Display options –Combined totals for component units in a single column Same page as organization Succeeding page –Both require separate component unit condensed financial statements in notes

24. October 13, 2004 © Campus Strategies 24 Compliance Strategies (contd.) Overlook an entity’s insignificance to include it with another component unit in a combined presentation Create new component unit to enable combined presentation Parse existing component unit into multiple entities so that no single entity is significant…

25. October 13, 2004 © Campus Strategies 25 Compliance Strategies (contd.) Enhanced disclosures –Go beyond minimal requirements— elaborate on component unit’s role and responsibilities with respect to financial resources –Highlight restrictions Caution: exercise care depending on restricted / unrestricted split

26. October 13, 2004 © Campus Strategies 26 GASB Statement No. 39 Questions, Comments, and Reactions Larry.Goldstein@Campus-Strategies.com (540) 942-9146