Essentials of Accounting for Governmental and Not-for-Profit Organizations

1. Essentials of Accounting for Governmental and Not-for-Profit Organizations Chapter 11: College and University -- Private Institutions

2. Overview of Chapter 11 • Who has standard setting authority? • Overview of Financial Statements and General Accounting Principles • Split-Interest Agreements

3. Standard setting authority • GASB • Authority over government related colleges • GASB35 for Public Colleges and Universities • FASB • NACUBO - National Association of College and University Business Officers wrote guidelines before FASB addressed college issues • Private colleges and universities • Major FASBs 93, 116, 117, 124, 136

4. Required Statements • Required statements set forth in FASB 117 -- same as other nonprofits • Statement of Financial Position • Statement of Activities • Or, Statement of Unrestricted Revenues, Expenses and Other Changes in Unrestricted Net Assets plus • Statement of Changes in Net Assets • Statement of Cash Flows • Not required: Statement of Functional Expenses

5. Basic Principles 1. Accrual basis including depreciation 2. Restricted resources assumed used before unrestricted 3. FASB 116 applies for pledge and contributions of service 4. Plant assets may be initially recorded as unrestricted or temporarily restricted

6. Basic Principles continued 5. Investments at fair value 6. Option to record collections or not, plus note disclosure 7. Student aid, no services, net revenue; others as expense. 8. Foundations -- part of revenue may have to be disclosed in university statements 9. Fund-raising allocation issues based on purpose, audience and content

7. Statement of Unrestricted Revenue, Expenses and Other Changes in Unrestricted Net Assets • Illustrations 11-2 and 11-3 are an alternate approach to Statement of Activities • Revenues – Compared to Public Colleges • No distinction between operating and nonoperating revenues -- state appropriations treated like other revenues • State Colleges did not have category for release of restrictions • Expenses and Losses: • Education and General • Auxiliary

8. Residence halls Bookstores Auxiliary Enterprises -Activities of a college or university that furnish services on a user-charge basis.

9. Reporting of Tuition Revenues(NACUBO) • If tuition or fee reductions are an employee benefit (work study), the reduction is treated as an expense • Academic or athletic scholarships that do not require service to the college are treated as reductions in revenue • Estimates of uncollectible tuition and fees are treated as reductions in revenue

10. Because colleges and universities commonly use June 30 as fiscal year end, tuition for summer school frequently cover parts of two fiscal years. NACUBO requires both revenues and expenses for split sessions to be apportioned to the two fiscal years, following accrual accounting practices similar to those employed by commercial organizations. Academic terms encompassing more than one fiscal year

11. Statement of Changes in Net Assets • When Unrestricted Revenues only are shown in Statement of Revenues, Expenses, etc., this statement shows changes in temporarily restricted and permanently restricted. • Could have additional statements showing details of changes in temporarily restricted and permanently restricted assets if complex.

12. Statement of Fin. Position • Similar to statements illustrated in Chapter 10 • Board designation -- listed as unrestricted net assets on Statement of Financial Position

13. Comparison: Ownership Types and Equity Accounts • Private - • Net Assets: Unrestricted, Temporarily Restricted, and Permanently Restricted. • Public - • Net Assets: Unrestricted, Restricted, and Invested in Capital Assets Net of Related Debt • Investor Owned - • Paid in Capital and Retained Earnings

14. Statement of Cash Flows • 3 Categories on Statement of Cash Flows -- direct or indirect format • Increase in net assets is for all 3 net assets categories - unrestricted, temporarily, permanently restricted -- adjustments remove most temporary and permanent amounts • Investing section includes long-term investments, long-term asset activity and loan receivable activity • Interest payments and revenues in Operating section -- financing includes principal payments only -- the endowment is the amount of contributions received, purchase of investments shown in investing section

15. Split-Interest Agreements • Five types: • Charitable lead trust funds • Perpetual trusts held by third parties • Charitable remainder trusts • Charitable gift annuities • Pooled (life) income funds

16. Charitable lead trust funds • Fixed amount or fixed % of assets paid to NFP for certain term • Then remaining assets to another party • NFP may or may not hold the assets • When irrevocable trust begins • NFP recognizes a receivable and temporarily restricted revenue equal to present value of expected receipts • Additional assets and a liability recognized if NFP is the holder of the assets • Changes in present value or expected receipts affect temporarily restricted assets in future years.

17. Perpetual trusts held by third parties • Trust benefits NFP only (no remainder interest). • When established the NFP records the present value of anticipated receipts as an asset and as contribution revenue in the permanently restricted. • Receipt of the income each year treated as temporarily restricted or unrestricted income. • Changes in present value and/or fair value of assets to be received affects permanently restricted revenues.

18. Charitable remainder trusts • An fixed amount or specified % of the trust is paid to a beneficiary for a certain length of time • At end, NFP gets the remaining assets • When set up Assets are recorded at fair value, liability set up for present value of expected payments to the beneficiary, difference to unrestricted, temp. rest. or permanently restricted depending on terms.

19. Charitable gift annuities and Pooled life income funds • Charitable gift annuity accounting similar to charitable remainder trust • Life income funds -- • Pool in which donors or recipients of their choice get income for life, remainder to NFP • May require use of actuarial techniques to determine appropriate present value amounts