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 giving Auditing Federal financial assistance

15-5 GAAP for Colleges & Universities  Private colleges and universities The FASB Accounting Standards Codification is the source of GAAP Non-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 universities The GASB serves as the source of GAAP Non-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 Cash1,000  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 private C&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 amount  Tuition & 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 DebitCredit T&F Receivable 4,750 T&F Discounts and Allowances 250 T&F—Unrestricted5,000

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 the principal of his/her gift is not expendable as of the reporting date (permanently restricted). However the gift can be invested for the purpose of producing income. Generally, there are two forms of endowment:  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