FUNDAMENTAL CONCEPTS-ACCTG/REPORT`G B005

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U NIVERSITY OF M IAMI
FINANCIAL POLICIES & PROCEDURES
FINANCIAL STATEMENTS
B005
Revised 2/03
Reviewed 11/06
PURPOSE
The purpose of this policy is to establish principles for the preparation and issuance of
financial statements.
The University publishes annual audited financial statements as well as internal financial
statements.
The annual audited financial statements provide donors, bondholders,
governmental agencies, creditors, and others who provide resources to the University with
relevant and timely information that can be used to assess the financial health of the
University. Internal financial statements presented to the Finance Committees of the Board
of Trustees provide a measurement as to the effectiveness of the University’s management
in achieving organizational objectives.
POLICY
Responsibility for accounting and reporting
The Associate VP and University Controller has primary responsibility for the University
accounting system and is responsible for the development, promulgation and maintenance
of accounting policies and procedures and for the retention and safety of the accounting
records and files.
The Associate VP & University Controller is responsible for the preparation of the
University's basic monthly, quarterly, and annual financial statements and certain other
internal and external financial statements and accounting reports.
Reports of a financial nature are prepared for both internal and external consumption by
many areas throughout the University. All such reports are to be submitted to the University
Controller for approval prior to release.
Financial statements
The annual audited financial statements are prepared at the end of the University’s fiscal
year (May) by the Controller’s Office in accordance with Generally Accepted Accounting
Principles (GAAP) and incorporate applicable accounting standards promulgated by the
Financial Accounting Standards Board (FASB), particularly Statement of Financial
Accounting Standard (SFAS) No. 117 “Financial Statements of Not-for-Profit Organizations”
and SFAS No. 116 “Accounting for Contributions Received and Contributions Made”.
The annual financial statements are audited by independent certified public accountants. In
addition to the 3 basic financial statements discussed below, and the footnotes, the auditor’s
opinion letter is incorporated and published in the annual financial statements.
The annual audited financial statements are presented to the Finance Committee of the
Board of Trustees at their first meeting following the completion of the external audit.
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All other financial statements prepared by departments and/or schools are to be submitted to
the Controller for review and approval prior to release for any external use.
Internal financial statements based on the modified accrual basis, are issued quarterly
(August, November, February) by the Controller’s Office and presented to the Finance
Committee of the Board of Trustees. Accounts payable invoices and payroll expense are
not accrued for these internal statements. All other transactions are incorporated in these
reports. The statements are presented with explanations of fluctuations from the prior period
and the end of the prior fiscal year.
Basic financial statements
As required under SFAS No. 117, the University of Miami prepares three basic financial
statements: a statement of financial position, a statement of activities, and a statement of
cash flows. The annual audited statements include footnotes that are either required by
SFAS pronouncements or are provided to better inform the reader of the statements.
Each individual financial statement provides different information, which generally
complements the information provided in the other statements.
Basic financial statements, basis of presentation
Statement of Financial Position - presents information about the University’s assets,
liabilities, and net assets, and their relationships to each other as of the date of the
statement. Specific categories and elements of the Statement of Financial Positions follow:
Assets
 Cash presented at fair value.
 Accounts and Loans Receivables including:
 Patient care: presented net of contractual allowances and reserve for doubtful
accounts
 Students: presented net of reserve for doubtful accounts
 Sponsored programs: presented net of reserve for doubtful accounts and excluding
credit balances which are reflected as deferred revenue
 Student loan receivables: presented net of reserve for doubtful accounts
 Investments are reported at fair market value or, if no readily determined market value is
available, at the amount reflected by the investment manager.
 Contributions receivable are reported during the period promised (pledged) at their net
realizable value (at discounted present value and reserved for uncollectible amounts).
 Property, plant and equipment are reported at historical cost net of accumulated
depreciation for each class of asset and includes, land and land improvements, buildings
and fixed equipment, construction in progress, moveable equipment, leasehold
improvements, library books purchased by the four main University libraries and art
objects purchased or received as a gift by the Lowe Art Museum. Construction in
Progress and Art Objects are not subject to depreciation. Buildings are componetized
prior to capitalization.
 Receivables in connection with Trusts Held Outside are reported at their fair value or
based on a discounted cash flow when such information can be ascertained from
external sources, i.e. trustee bank statement, and when they are deemed to be
irrevocable.
 Assets arising from certain gift annuities, charitable lead and remainder annuity trust
agreements are valued at either their fair market value or the present value of the
expected cash flows and are included in Trusts Held by Others. Assets in
connection with gift annuities are included in Investments.
 Assets in connection with perpetual trusts are included in Trusts Held by Others and
valued at the present value of the estimated future cash receipts from the trusts or
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the fair market value of the assets held in the trust as of the date the University is
notified of the trust and assuming there is external supporting evidence of the value
of the assets or estimated future cash receipts. Assets are adjusted by distributions
from the trust.
 Other assets includes the cost of bond issuance amortized over the life of the bond,
prepaid pension costs, etc.
Liabilities
 Accounts Payable represents the amounts owed to a creditor/vendor for delivered goods
or completed services
 Accrued Expenses reflects expenses incurred as of the date of the statement but not yet
paid.
 Deferred revenues and other deposits include revenue recorded but not earned as of the
date of the statement.
 Bonds Payable represents a long-term obligation from debt issued by the University for
acquisition, construction, and renovation of land and buildings. Information regarding
maturity, terms, etc. is included in the footnotes.
 Annuities payable represent the amounts due to beneficiaries. Annuities payable are
recorded at the present value of the estimated future payments to donors and/or
beneficiaries. The liabilities are adjusted during the term of the annuity agreement for
changes in the value of the assets, accretion of the discount and other changes in the
estimates of future benefits.
Net Assets
 Net assets, computed as the difference between assets and liabilities, are classified by
categories in the statement to better inform the reader as to its designations and
restrictions. These categories include: operations, funding for plant expansion (gifts
received for construction and funds set aside for future programs), invested in plant
facilities (net cost value of property, plant and equipment), contributions pledged and
trusts, life income & annuity funds, and endowment and similar funds.
Statement of Activities - portrays all the transactions (revenues and expenses) that cause
a change in net assets, the relationships of those transactions to each other, and the
resources used in providing various programs and services, relationships of those
transactions to each other, and the resources used in providing various programs and
services.
In the statement of activities, transactions are reported as unrestricted, temporarily
restricted, and permanently restricted in accordance with donor’s intent and/or restrictions.
 Unrestricted transactions are free of donor-imposed restrictions and include amounts
designated by management for support of operations and plant expansion. For external
reporting purposes, any donor-imposed restriction for current or developing programs
and activities is generally deemed to have been met within the normal operating cycle of
the University. Therefore, the University’s policy is to record these transactions and their
resulting net assets as unrestricted. This category includes all revenues, expenses,
gains, and losses that are not permanently or temporarily restricted. This category also
includes realized and unrealized gains on endowment and other long-term investments,
even though the University’s policy is to reinvest such earnings for future growth and to
use these earnings in accordance with donor stipulations as to the original gift corpus.
 Temporarily Restricted transactions are limited by donor-imposed stipulations that either
expire with the passage of time or that can be fulfilled or removed by actions of the
University pursuant to those stipulations.
 Permanently Restricted transactions are limited by donor-imposed stipulations that
neither expire with the passage of time nor can be fulfilled or otherwise removed by
actions of the University.
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In addition, the statement of activities reflects the results of operations by grouping
transactions as either operating or non-operating:
 Operating activities reflect transactions of a current nature and are reported as either
operating revenues or operating expenses and the difference as the net result from
operations.
 Operating Revenues are reported by source: tuition, gifts, grants and contracts,
patient care, auxiliary enterprises.
 Operating Expenses are reported by the following functional classification: instruction,
research, public service, patient care, auxiliary enterprises, academic support,
institutional support, and student services. In addition, Operations and maintenance
of facilities, depreciation, and interest on debt are allocated to functional expense
classifications based on the purpose/function and square feet by building and by
campus. See policy B015 for definitions.
 Non operating activities reflect transactions of a long-term investment or capital nature
including contributions to be invested by the University to generate a return that will
support future operations, contributions to be received in the future, and contributions to
be used for facilities and equipment. It also includes net realized and unrealized
investment gains not used to support current operations.
In the statement of activities, revenues and expenses are generally reported at their gross
amounts except for tuition revenue which is reported net of scholarship awards, and
investment revenue which is reported net of related investment expenses. Specific
categories and elements of the Statement of Activities follow:
 Tuition and other fees revenue are reported in the fiscal year in which the educational
programs are primarily conducted. The University conducts two summer sessions
annually. All revenues and expenditures relating to the first session are recorded in the
fiscal year in which the session begins. Revenues and expenditures related to the
second session are recorded in the subsequent fiscal year.
 Scholarships and fellowships are awarded to students for tuition, fees, books, and room
and board and are based on need and merit. These expenses are netted against tuition
and other fees revenue in the external financial statements. Scholarships and
fellowships awarded by the Athletics Department are netted against Auxiliary
Enterprises Revenue where the Athletics Department activities are included.
Information on gross tuition and other fees and scholarships and fellowships is included
in a footnote.
 Grants and contracts revenue is recognized as the related grant expenses are incurred.
Funding from grants and contracts that is received before it is earned is accounted for as
deferred revenue until the related expenses are incurred.
 Gifts:
 Cash, property and marketable securities are recorded as revenue when received.
 Unconditional pledges (promises to give) are recognized as revenue when the
commitment or pledge is received, and are based on the estimated present value of
their future cash flows, reduced by an allowance for uncollectible pledges. Pledges
are recorded in the appropriate net asset category: unrestricted, temporarily
restricted or permanently restricted. Pledges made and collected in the same
reporting period, are recorded as revenue when received.
 Conditional pledges are recorded as revenue only when donor stipulations have
been substantially met.
 Perpetual trusts distributions are recorded as gift and trust revenue.
 Gift annuities and trusts revenue is recognized at the date the agreements are
established. Gift annuity revenue is recognized only after recording liabilities for the
present value of the estimated future payments to donors and/or beneficiaries.
Revaluation of annuities is completed every two years.
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
Medical professional practice and hospitals and clinics – include all revenue and
expenses from activities conducted by the University of Miami Medical Group (UMMG)
arising from the practice of medicine by the faculty. Revenues are reported net of
contractual adjustments, discounts and allowances.
Expenses for the Medical
professional practice and hospitals and clinics are grouped and called Patient Care
Expenses in the statements.
Statement of Cash Flows - presents information about cash and cash equivalent
transactions.
Cash and cash equivalents are defined as all highly liquid cash investments with maturity of
three months or less when purchased. The information is presented in the statement
classified as follows:
 Cash used for or provided by investment activities, i.e. funds used to purchase stocks,
bonds and funds received from the sales of stocks, bonds, etc.
 Cash used for or provided by financing activities, i.e. purchase or acquisition of buildings
and equipment, payment of outstanding debt, and funds received from issuing new debt.
 Cash used for or provided by operating activities. The net change in the annual
operating activities is adjusted for transactions that have no effect on cash, i.e.
depreciation.
Transactions not meeting the definition of Cash used/provided by investing activities or
Cash used /provided by financing activities, are by default included in cash
used/provided by operating activities.
Footnotes - report on items required by FASB pronouncements and provide additional
information regarding accounting practices used in reporting different aspects of the
financial statements including, basis of presentation, recognition of revenues, estimates
used in the financial statements, pension disclosures, commitments incurred, etc.
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