Recent GASB Standards and Higher Education

1. Recent GASB Standards and Higher Education Sue Menditto Senior Manager Accounting and Finance Programs NACUBO

2. GASB 35Projects and Resources • IPEDS • Survey considerations • Listserv • UNC Chapel Hill • NACUBO • Training • Implementation Guide • Web links to F/S • GASAC • NASACT • Task force with higher education participation

3. GASB 39Introduction • 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. GASB 39Project History • 1990—Project began • 1991—GASB Statement No. 14 • Paragraph 41 – future guidance • 1994—First exposure draft • 2001—Second exposure draft • NACUBO’s position • www.nacubo.org • 2002—Final Standard

5. GASB 39GASB 14 – The Genesis • Financial reporting entity • Primary government • Organizations for which the primary government is financially accountable • Other organizations for which the nature and significance of their relationship with the primary government are such that exclusion would cause the reporting entity's financial statements to be misleading or incomplete.

6. GASB 39Misleading to Exclude • Why GASB 39 was issued • New standard amends GASB 14 to define legally separate, tax-exempt fund-raising organizations as component units • Basis is “misleading to exclude”

7. GASB 39Misleading to Exclude • Matter of professional judgment to determine whether the nature and the significance of relationship with the primary government warrants inclusion. • Organizations affiliated with governmental units, agencies, colleges, universities, hospitals, and other entities may warrant inclusion. • An example of an affiliated organization that may be evaluated for inclusion is a nonprofit corporation whose purpose is to benefit a governmental university by soliciting contributions and managing those funds.

8. GASB 39Criteria • 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

9. GASB 39Criteria • First criterion • Intended to exclude federated fundraising organizations with ability to direct resources to multiple beneficiaries • Example: United Way

10. GASB 39Criteria • 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 institution • Financially interrelated per FASB 136

11. GASB 39Criteria • Third criterion • Resources held by individual affiliated organization must be significant to institution • If affiliated organization’s resources not significant, fails test (and not reported) • Excludes most Parent Teacher Organizations or booster clubs supporting public school districts

12. GASB 39Reporting Requirement • Affiliated Organizations that meet the criteria must be included in an institution’s financial statements • Discrete presentation is required • Statement of Net Assets • Statement of Revenues, Expenses and Changes in Net Assets • Statement of Cash Flows not required • Unless no affiliated organization audit • Institution prepares the cash flow statement

13. GASB 39Display Options • Institution and sole component unit in separate columns on same page • Component unit on succeeding page • Institution and multiple component units in separate columns on same page • Multiple component units in separate columns on succeeding page

14. GASB 39Display Considerations • 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 • GASB entities • Rare • One institution out of 160 in a NACUBO training

15. GASB 39Display Considerations • Combined totals for multiple component units • Requires detail in footnote disclosure • Compatibility • Compatibility of terms • Program expenses • Natural expenses • Management’s Discussion and Analysis

16. GASB 39Footnote Disclosures • Required disclosures • Description of the component unit • Nature and amount of significant transactions • Explanation of transaction differences due to different reporting periods • Other disclosures essential for fair presentation—a matter of professional judgment

17. GASB 39Effective Date • Fiscal years beginning after June 15, 2003 • For most colleges and universities, fiscal year ending June 30, 2004 • Earlier adoption encouraged • Failure to implement could result in adverse financial statement opinion for institution

18. GASB 39Implementation Issues • Review each potential component unit • Resolve display issues • Assess impact on audit schedule • Assess impact on audit fees • Develop communication strategy • Primary Government • Board / Executive Management • Affiliated Organizations

19. GASB 39Foundation Issues • Work with the Institution • Compliance by institution is mandatory, if applicable • Better to cooperate than have decisions made without foundation’s input

20. GASB 39Foundation Issues Consequences of Non-cooperation • Direct • None—unless special state statutes apply • Indirect • Strained relationship with institution • Rescission of authority to use institution’s name in fundraising

21. GASB 39Conclusion • GASB desire for increased disclosure and transparency • Began with GASB 34/35 reporting changes • Also seen in current Performance Measurement Project • NACUBO web-cast: www.nacubo.org