October 13, 2004 © Campus Strategies 1 West Virginia Higher Education Policy Commission FASB-GASB Differences October Larry Goldstein, President Campus Strategies

October 13, 2004 © Campus Strategies 2 Agenda Background Philosophy Nature of Differences Specific Differences Commentary Questions

October 13, 2004 © Campus Strategies 3 Background AICPA College & University Audit Guide (1973) FASB’s not-for-profit agenda –FASB 93 Depreciation (1987 / 1991) –FASB 116 Contributions (1993 / 1997) –FASB 117 Reporting model (1993 / 1997) –FASB 124 Investments (1995 / 1997) –Combinations (?)…

October 13, 2004 © Campus Strategies 4 Background (contd.) AICPA Not-for-Profit Audit Guide (1997) GASB college and university agenda –1984 Jurisdiction agreement –GASB 3 Deposits (1986 / 1987) –GASB 8 Depreciation (1988 / 1988) –GASB 14 Reporting entity (1991 / 1994) –GASB 15 Reporting model (1991 / 1993) –GASB 19 Pell (1993 / 1994)…

October 13, 2004 © Campus Strategies 5 Background (contd.) GASB college and university agenda –GASB 33 Nonexchange transactions (1998 / 2001) –GASB 35 Separate reporting model (1999 / 2002) –GASB 39 Affiliated organizations (2002 / 2004) AICPA State & Local Audit Guide (2002 / varied, based on GASB 34 implementation)

October 13, 2004 © Campus Strategies 6 Philosophy FASB – Overall focus is decision utility – Conceptual framework Objectives for business (1—1978) and NFP (4—1980) Qualitative characteristics (2—1980) Recognition and measurement (5—1984) Definition of elements (6—1985) Cash flow and present value (7—2000)

October 13, 2004 © Campus Strategies 7 Philosophy (contd.) GASB – Overall focus is accountability – Conceptual framework Objectives (1—1987) Service efforts and accomplishments (2—1994) Current agenda includes concept projects

October 13, 2004 © Campus Strategies 8 Areas of Potential Differences Recognition Measurement Display Disclosure

October 13, 2004 © Campus Strategies 9 Contributed Services FASB – Specific recognition criteria GASB – No recognition criteria Effect – Gift revenues – Expenses – No impact on net revenues

October 13, 2004 © Campus Strategies 10 Restricted Cash Contributions FASB – Recognize either as temporarily or permanently restricted GASB – Recognize as deferred revenue if use restricted to future period Effect – Liabilities – Gift revenues – Net assets

October 13, 2004 © Campus Strategies 11 Endowment Pledges FASB – Recognize as permanently restricted GASB – Prohibits recognition of endowment pledges Effect – Assets – Gift revenues – Net assets

October 13, 2004 © Campus Strategies 12 Restricted Non-endowment Pledges FASB – Recognize as temporarily restricted revenue GASB – Prohibits recognition if for future period use Effect – Assets – Gift revenues – Net assets

October 13, 2004 © Campus Strategies 13 Discounting of Pledges FASB – Requires discounting if collectible beyond one year GASB – Allows, but does not require, discounting Effect – Gift revenues – Assets – Net assets

October 13, 2004 © Campus Strategies 14 Investment Income GASB – Investment income and realized investment gains / losses must be reported as single net amount Net unrealized gains and losses can be displayed separately using a prescribed label – Net increase (decrease) in the fair value of investments

October 13, 2004 © Campus Strategies 15 Investment Income (contd.) GASB – Investment income cannot be operating revenue Exception for interest on program loans Exception for pooled-investment entities FASB – No similar requirements related to investment income display

October 13, 2004 © Campus Strategies 16 Pell Grants FASB – Balance sheet transaction GASB – Activities statement transaction Effect – Grants and contracts revenue – Net tuition and auxiliaries revenue – Liabilities and net assets

October 13, 2004 © Campus Strategies 17 Perkins Loan FASB – Balance sheet transaction GASB – Balance sheet or activities statement Effect – If activities statement Grants and contracts revenue Liabilities Net assets

October 13, 2004 © Campus Strategies 18 Funds Held in Trust by Others FASB – Include as assets GASB – Only include via GASB 39 Effect – Assets – Revenues – Net assets

October 13, 2004 © Campus Strategies 19 Restrictions Definition FASB – Only donors can restrict GASB – Any external party Donors, creditors, legislation, constitution Effect – Categorization of net assets

October 13, 2004 © Campus Strategies 20 Use of Restricted Funds FASB – First dollar release mandated GASB – First dollar release optional Effect – Categorization of net assets

October 13, 2004 © Campus Strategies 21 OPEB & Pensions FASB – Expense and liability calculated consistently using FASB methodology GASB – Expense and liability calculated consistently using GASB methodology Effect – Measurement / recognition differences impact expense, liability, and net assets

October 13, 2004 © Campus Strategies 22 Software FASB – Requirement to capitalize GASB – No requirement to capitalize; intangible assets project pending Effect – Assets – Expenses – Net assets

October 13, 2004 © Campus Strategies 23 Impairment FASB – Requires cash flow approach GASB – Requires service utility approach Effect – Assets – Expenses and losses – Net assets

October 13, 2004 © Campus Strategies 24 MD&A FASB – No requirement related to MD&A GASB – Prescriptive requirement for MD&A Effect – No substantive effect, although potential concerns regarding financial transparency for private institutions

October 13, 2004 © Campus Strategies 25 Disaggregation FASB – Allows line of business (e.g., academic, auxiliaries, etc.) or net asset class (e.g., unrestricted, temporarily restricted, permanently restricted) disaggregation GASB – Line of business only; not net asset class

October 13, 2004 © Campus Strategies 26 Balance Sheet Display GASB requires classified balance sheet (i.e., current and noncurrent) FASB does not have a classification requirement FASB has three net asset classes – Unrestricted – Temporarily restricted – Permanently restricted…

October 13, 2004 © Campus Strategies 27 Balance Sheet Display (contd.) GASB has three net asset classes – Capital assets, net of related debt – Restricted Expendable Nonexpendable – Unrestricted…

October 13, 2004 © Campus Strategies 28 Balance Sheet Display (contd.) GASB prohibits display of net asset designations – Disclosure in notes is okay GASB requires disclosure of nondepreciable capital assets separate from depreciable capital assets FASB has no specific requirements related to display of capital assets

October 13, 2004 © Campus Strategies 29 Cash Flow Statement FASB – Indirect method allowed – Three categories Operating Investing Financing…

October 13, 2004 © Campus Strategies 30 Cash Flow Statement (contd.) GASB – Direct method mandated – Mandates reconciliation of operating cash to SRECNA operating loss – Four categories Operating Investing Capital and related financing Noncapital financing

October 13, 2004 © Campus Strategies 31 Activities Statement Reclassifications – FASB treats all expenses as unrestricted Forces reclassification of resources from temporarily restricted to unrestricted – GASB has no similar concept Expenses can be unrestricted, restricted, operating, nonoperating…

October 13, 2004 © Campus Strategies 32 Activities Statement (contd.) Operating measure – GASB requires (somewhat) prescriptive operating measure State appropriations, gifts, investment income – FASB allows self-defined operating measure Disclosure required if not obvious…

October 13, 2004 © Campus Strategies 33 Activities Statement (contd.) Expense categories – FASB allows natural but requires functional, either through display or in notes – GASB allows natural or functional NACUBO encourages a matrix reconciling functional and natural expenses in notes…

October 13, 2004 © Campus Strategies 34 Activities Statement (contd.) Specific expenses – FASB requires allocation of certain expenses O&M of plant Depreciation Interest GASB allows allocation of depreciation – GASB precludes recognition of bad debt expense Exception for loans…

October 13, 2004 © Campus Strategies 35 Activities Statement (contd.) Exception items – FASB Extraordinary (i.e., unusual and infrequent) – GASB Extraordinary (same as above) Special (i.e., unusual and infrequent but within management’s control)

October 13, 2004 © Campus Strategies 36 FASB-GASB Differences Questions ~ Thank You! (540)