Essentials of Accounting for Governmental and Not-for-Profit Organizations Chapter 9: Accounting for Special Purpose Entities, Including Public Colleges and Universities McGraw-Hill/Irwin ©2007, The McGraw-Hill Companies, All Rights Reserved 9-2 Special Purpose Entities • General Purpose Governments include: States, counties, cities, towns, and villages. • Special Purpose Entities include: Fire protection districts, park districts, and public authorities. • A SPE may be a component unit of a General Purpose government. 9-3 Special Purpose Entity Reporting • If engaged in governmental and business type activities – Use general GASB 34 reporting model and report both fund basis and government-wide financial statements • If engaged in multiple governmental activities – Use general GASB 34 model, just omit enterprise funds statements which are not applicable 9-4 Special Purpose Entity Reporting • If engaged in single governmental activity – Can prepare governmental fund, government-wide statements, and reconciliation effects all on one statement • If engaged only in business-type activities – Can prepare enterprise fund financial statements (no need for government-wide) • If engaged only in fiduciary type activities – Can prepare fiduciary fund financial statements 9-5 PUBLIC Colleges and Universities • Public College financial reporting is covered by GASB. • Private Colleges come under FASB guidance -- covered in chapter 11. • Although there are more private than public colleges, roughly 3/4 of the students attend public institutions. 9-6 Public College Financial Reports • Public Colleges may have governmental type activities, business type activities, or both. • Most public colleges, with the exception of some community colleges that have power to levy property taxes, will report as governmental units with “business activities only”. – Therefore they will prepare enterprise fund statements 9-7 Public Colleges and Universities – GASB 35 – GASB 35 requires statements similar to those of special purpose governments under GASB 34. – The effect is to require colleges to use the accrual basis and record long-term assets, including infrastructure, along with depreciation. 9-8 Public College Statement of Net Assets • Assets and Liabilities – Classified as current and noncurrent. • Net Assets Classified as • 1) Invested in capital assets, net of debt, • 2) Restricted -- Nonexpendable and Expendable • 3) Unrestricted • Note: Deficits in unrestricted assets may be common because – Colleges are not accustomed to setting aside funds for depreciation. – States seldom fund compensated absences in advance. 9-9 Public College Statement of Revenues, Expenses and Changes in Net Assets • Operating Revenues: – Student Tuition net of scholarship allowances – Federal and State Grants – Auxiliary • - Operating Expenses including depreciation • + or - Nonoperating Revenues and Expenses – Includes state appropriations, gifts, investment income, interest on capital debt • + or - Capital appropriations, gift, endowment additions • = Increase in net assets • + Beginning net assets • = Ending net assets 9-10 Public College Statement of Cash Flows • Must be on direct format • Operating: Excludes interest and dividend revenues and expenses • Noncapital Financing: Includes state appropriations and gifts including endowments • Capital Financing: Purchase of long-term assets and related gifts, appropriations and debt repayment including interest • Investing: Includes interest revenues, endowment and other investments kept separate • Reconciliation of Operating income to cash flows from operations • Could also have noncash financing and investing section