Intermediate Accounting
and Reporting for
Colleges and Universities
1
Financial Reporting for
Institutions of Higher Ed
FASB Institutions
2
1
Learning Objectives
 Introduce
the accounting standards that are
significant to private Colleges and Universities
 Identify the primary financial statements and
information included in private College &
University financial reports
 Describe the characteristics and purposes of
private College & University financial
statements and related information
3
What makes us different?
 Why
do NFP’s need a different reporting
framework than a for-profit entity?
 How
is an NFP different from a for-profit
entity?
4
2
FASB - Key Pronouncements
 SFAS
No. 116 Accounting for Contributions Received
and Contributions Made
 SFAS No. 117 Financial Statements of Not for Profit
Organizations and FSP FAS 117-1 Endowments of
Not-for-Profit Organizations
 SFAS No. 124 Accounting for Certain Investments
Held by Not-for-Profit Organizations
 SFAS #157 Fair Value Measurements (not specific to
not-for-profits)
 SFAS No. 163 Not-for-Profit Entities: Mergers and
Acquisitions
 AICPA Audit and Accounting Guide Not-for-Profit
Organizations
1996 in response to 116/117
5

SFAS 168 The FASB Standards Codification
– The Codification organizes thousands of
pronouncements comprising U.S. generally
accepted accounting principles (GAAP) into a
single, easily accessible source. These include the
pronouncements of the FASB, the AICPA’s
Accounting Standards Executive Committee and the
Emerging Issues Task Force.
– Referred to as the Accounting Standards Code
(ASC)
6
3
SFAS to ASC Crosswalk
 SFAS
116 = ASC 958-605
 SFAS 117 = ASC 958-205
 SFAS 124 = ASC 958-320
 SFAS 157 = ASC 820
 SFAS 164 = ASC 958-805
7
Revenue Recognition
ASC 958-205 establishes standards For...
 Financial
accounting and reporting for
CONTRIBUTIONS RECEIVED and contributions
made including PLEDGES.
 Recognizing EXPIRATION OF RESTRICTIONS on
contributions received.
 Accounting for COLLECTIONS of works of art and
historical treasurers.
 Accounting for DONATED SERVICES.
8
4
Definition of a Contribution
 “A
contribution is an unconditional
transfer of cash or other assets...a voluntary
nonreciprocal transfer by another entity
acting other than as an owner. Other assets
include securities, land, buildings,...and
unconditional promises to give those items
in the future.”
 Common term for “Promises” ?
Pledges
9
Conditional Versus Unconditional

Promises to give must be UNCONDITIONAL

Donor imposed conditions = future uncertain events that give
the promisor a right to a return of the assets given.

Conditional examples (not recorded):
– “if my circumstances allow”
– “if you raise $$ I will give $$”

Conditional $$ received in advance of condition being met =
refundable advance
10
5
Nonreciprocal Versus Exchange
 The
College Psychology Department
receives $10,000 from a drug company to
conduct a clinical trial of an experimental
love potion. The drug company specified
the protocol for testing and requires a
detailed report within six months....Is the
$10,000 a contribution ?? No…but why ?
 How do you account for the $$?
Debit: Cash $10,000
Credit: Def. Rev.
$10,000
11
Restrictions
Restrictions
do not equal
conditions....Examples ???
Contributions
with donor-imposed
restrictions reported as permanently or
temporarily restricted net assets.
12
6
What about Pledges?




Pledges = Unconditional promise to give in the future
Must be measured at “fair value”, which is the…“Present
value of estimated future cash flows using a discount rate
commensurate with the risks involved is an appropriate
measure of fair value of unconditional promises to give
cash.”
Also need to factor in a provision for amounts you don’t
expect to collect.
Disclosures =
– Promises receivable in less than one year, one to five years, and
over five years
– The allowance for uncollectibles
13
Pledges Measured at “FAIR VALUE”
You receive a pledge from Mr. Simpson with the following details...
Pledge = $100,000
Period = 5 years at $20,000 per year
Discount rate = 4%
Present value = $90,000
Discount by year = $3,000 ; $2,500 ; $2,000 ; $1,500 ; $1,000
YEAR # 1...ENTRY TO RECORD PLEDGE:
Pledge Receivable
$90,000
DR
Gift
$90,000
CR
YEAR # 2...ENTRY TO RECORD 1ST PAYMENT
Cash
$20,000
DR
Pledge Receivable
$17,000
CR
Gift
$3,000
CR
14
7
Contribution Examples

In 2005 Ms. Bulin notifies the College she has remembered
the College in her will and provides a copy of the will. In
2010 Ms. Bulin dies. In 2011 the will is declared valid by the
probate court and the executor informs the College it will
receive 10% of the residual value of the estate...$10,000. The
executor expects distribution in 2012.
– Would you record an unconditional promise to give ??
– If so, when ???
15
Contribution Examples

In 2009 Mr. Surges promised to give the College $400,000
if they raise an additional $600,000 towards construction
of a new dormitory. Mr. Surges gives the $400,000 to the
College in advance of the solicitation drive to raise the
$600,000.
– Is the $400,000 a contribution ??
– How would you record the $400,000...DR and CR ??
Debit:
Credit:
16
8
Works of Art
 Need
not be capitalized if...
– They are held for public education, research, etc., rather than
for financial gain.
– Are protected and cared for.
– If sold, proceeds used for other collection items.
 If
–
–
–
–
don’t capitalize, certain disclosures required...
Description of the works of art.
$$’s purchased
$$’s sold
$$’s recovered from insurance loss
17
Contributed Services
 Recognized
as an expense if...
– Useful (creates or enhances an asset).
– Requires specialized skill.
– Would need to purchase if not donated.
Debit: Expense
Credit:
Gift Revenue
 Disclosure required:
– Nature and extent of contributed services
– Amount recognized
– Services received not recorded
18
9
EITF Issue No. 12-B
 Donated
Services Received from Employees of
an Affiliated Entity
– Final ASU issued in April 2013 (ASU 2013-06)
– Personnel services received from an affiliate for
which the affiliate doesn’t charge the recipient NFP
should be recognized in the recipient NFP’s
financial statements, measured at actual costs
incurred by affiliate
– Effective fiscal years beginning after 6-15-2014
19
Financial Statements Presentation
ASC 958-205 establishes standards for...
 general-purpose
external financial statements provided
by a not-for-profit organization
ASC 958-205 requires...
 all
not-for-profit organizations provide a statement of
financial position, a statement of activities, and a
statement of cash flows
 classification of an organization's net assets and its
revenues, expenses, gains, and losses based on the
existence or absence of donor-imposed restrictions.
20
10
Reporting Framework
 Three
Net asset classifications
– Unrestricted
– Temporarily Restricted
– Permanently Restricted
 Three
–
–
–
–
required statements
Balance sheet
Income Statement
Cash Flow
And of course the footnote disclosures
 Expenses
reported as unrestricted
 Release of restrictions
21
Net Asset Categories
Permanently Restricted Net Assets (PRNA):
Net assets resulting from contributions and other inflows of assets whose use by
the organization is limited by donor-imposed stipulations that neither expire by
passage of time nor can be fulfilled or otherwise removed by actions of the
organization.
22
11
Net Asset Categories
Temporarily Restricted Net Assets (TRNA):
Net assets resulting from contributions and other inflows whose use by the
organization is limited by donor-imposed stipulations that either expire by
passage of time or can be fulfilled and removed by actions of the organization.
23
Net Asset Categories
Unrestricted Net Assets (UNRA):
Net assets that are neither permanently restricted or temporarily restricted by donorimposed stipulations.
24
12
Fund Accounting
 Fund
–
–
–
–
–
–
–
balance categories:
Current funds restricted
Current funds unrestricted
Loan
Quasi endowment
True endowment
Annuity and life income
Plant
25
Fund Balance vs. Net Asset Reporting
U n re s tr ic te d
T e m p o ra rily
R e s tric te d
C u rr e n t
U n r e s tr ic te d
X
C u rr e n t
R e str ic te d
X
X
P la n t
X
X
???
L oan
A n n u ity a n d L ife
Inco m e
E ndo w m ent
X
X
X
P e r m a n e n tly
R e str ic te d
???
X
X
X
26
13
Observations
 Reporting
model does not change institution’s
financial management
 Only changes reporting of results
Conclusion… Fund accounting is alive and well
27
STATEMENT OF FINANCIAL POSITION
 Offers
a picture of the organization’s assets and
its outstanding obligations
 Helps stakeholders assess the organization’s
ability to continue to provide services, the
institution’s liquidity and financial flexibility,
and the institution’s ability to meets its
obligations and its needs for external financing
28
14
STATEMENT OF FINANCIAL POSITION
 Provides
information about liquidity
– Current Assets/Current Liabilities
 Provides
information about financial flexibility
– (Cash + Investments)/Debt
29
STATEMENT OF FINANCIAL POSITION
 Challenge
– not all amounts are recorded on
same basis
– Historical Cost
– Net Realizable Value
– Fair Value
30
15
Minimum Requirements
 Total
amount of assets, liabilities, and net assets
 Total
amount of each class of nets assets –
URNA, TRNA, PRNA
 Information
about restrictions on net assets
 Information
on liquidity
31
Liquidity
3
methods to present information about
liquidity
– Sequencing assets according to their nearness to conversion
to cash and sequencing liabilities according to the nearness
of their maturity and resulting use of cash
– Classifying assets and liabilities as current or noncurrent
– Disclosing in notes relevant information about the liquidity
or maturity of assets and liabilities, including restrictions on
the use of particular assets
32
16
STATEMENT OF FINANCIAL POSITION
Current Year
*
*
**
**
Assets
Cash and cash equivalents
Student accounts receivable
Other receivables
Contributions receivable
Prepaid expenses
Investments
Notes receivable
Property, plant and equipment
Total assets
$
Liabilities and Net Assets
Liabilities:
Accounts payable
Deferred revenues
Student deposits
Accrued postretirement benefits
Notes and bonds payable
U.S. government grants refundable
Total liabilities
Net assets:
Unrestricted
Temporarily restricted
Permanently restricted
Total net assets
Total liabilities and net assets
$
20,693
1,203
1,175
1,295
1,040
45,062
9,513
77,900
157,881
Prior Year
$
19,605
1,071
1,453
1,215
1,071
40,905
9,230
79,305
153,855
962
5,286
1,438
1,806
39,476
8,293
57,261
1,250
4,810
1,510
1,806
40,387
8,062
57,825
86,014
2,954
11,652
100,620
157,881
83,724
2,357
9,949
96,030
153,855
$
33
SEE MORE EXAMPLES IN
APPENDIX
34
17
STATEMENT OF ACTIVITIES
 Primary
purpose is to provide information to
stakeholders about
– the effects of transactions and other events that
change the amount and nature of net assets,
– how the institution's resources are used in providing
programs and services,
– the types of programs and services provided,
– and the relationship of the transactions and events to
each other.
35
STATEMENT OF ACTIVITIES
 What
about an intermediate measure of
operations?
36
18
Measure of Operations
 SFAS
117“…neither requires nor precludes a not-forprofit organization from classifying its revenues,
expenses, gains, and losses as operating or nonoperating within its statement of activities.”
37
Minimum Requirements
 Change
in total net assets
 Change in each class of net assets
– URNA, TRNA, PRNA
 Revenues
 Expenses
 Gains
& Losses
 Amount of expired donor-imposed restrictions
38
19
Expenses Reported as Unrestricted
FASB “...a statement of activities shall report
expenses as decreases in unrestricted net assets.”
FASB
39
Release of Restrictions
According to ASC 958-605, “a not-for-profit
organization shall recognize the expiration of a
donor-imposed restriction on a contribution in
the period in which the restriction expires...If an
expense is incurred for a purpose for which
both unrestricted and temporarily restricted net
assets are available, a donor-imposed restriction
is fulfilled to the extent of the expense
incurred.”
40
20
Deemed Spent Rule
 When
has an institution met the donor’s
restriction?
– Deemed spent – if you could have spent it, you did
Or
– Specific Identification – tracks each gift and
expenditure for fulfillment of restriction
41
Release of Restrictions (continued)
“...expiration of donor-imposed restrictions that
simultaneously increase one class of net assets
and decrease another (reclassifications) shall be
reported as separate items.”
Said another way: Restricted $’s come in as TR
or PR, are expensed as UR, and net asset
categories are made “whole” via a transfer
called release from restriction.
42
21
Release of Restrictions (continued)
“...donor-restricted contributions whose restrictions are
met in the same reporting period may be reported as
unrestricted support provided that an organization
reports consistently from period to period and discloses
its accounting policy.”
43
STATEMENT OF ACTIVITIES
Changes in unrestricted net assets:
Revenues
Education and general:
Tuition and fees
Government grants and contracts
Private gifts, grants and contracts
Investment income
Investment gains (losses)
Other sources
Auxiliary enterprises
Total revenues and gains
Net assets released from restrictions
Total revenues, gains, and other support
$
Expenses
Education and general
Instruction
Research
Public support
Academic support
Student services
Institutional support
Operation and maintenance
Scholarships and fellowships
Total educational expenses
Auxiliary enterprises
Total expenses
23,532
57
42
6,809
9,017
11,183
5,457
14,538
70,635
12,372
83,007
2,290
Increase in unrestricted net assets
Changes in temporarily restricted net assets
Private gifts, grants and contracts
Investment income
Investment gains (losses)
Net assets released from restrictions
Increase in temporarily restricted net assets
Changes in permanently restricted net assets
Private gifts, grants and contracts
Investment income
Investment gains (losses)
Increase in permanently restricted net assets
Increase in net assets
Net assets beginning of year
Net assets end of year
60,374
2,661
2,598
1,128
1,022
665
14,800
83,248
2,049
85,297
1,553
913
180
(2,049)
597
$
1,645
31
27
1,703
4,590
96,030
100,620
44
22
STATEMENT OF ACTIVITIES
CURRENT YEAR
Temporarily
Permanently
Restricted
Restricted
Unrestricted
Revenues
Educational and general:
Tuition and fees
Government grants and contracts
Private gifts, grants, and contracts
Investment income
Investment gains (losses)
Other sources
Auxiliary enterprises
Total revenues and gains
Net assets released from restrictions
Total revenues, gains, and other support
$
Expenses
Educational and general
Instruction
Research
Public support
Academic support
Student services
Institutional support
Operation and maintenance of plant
Scholarships and fellowships
Total educational expenses
Auxiliary enterprises
Total expenses
$
$
1,553
913
180
$
2,646
(2,049)
597
1,703
60,374
2,661
5,796
2,072
1,229
665
14,800
87,597
1,703
87,597
1,645
31
27
23,532
57
42
6,809
9,017
11,183
5,457
14,538
70,635
12,372
83,007
Increase in net assets
Net assets at beginning of year
Net assets at end of year
60,374
2,661
2,598
1,128
1,022
665
14,800
83,248
2,049
85,297
Total
$
23,532
57
42
6,809
9,017
11,183
5,457
14,538
70,635
12,372
83,007
2,290
597
1,703
4,590
83,724
86,014
2,357
2,954
9,949
11,652
96,030
100,620
$
$
$
45
Expenses Reported as Unrestricted
Unrestricted
Revenues
Educational and general:
Tuition and fees
Government grants and contracts
Private gifts, grants, and contracts
Investment income
Investment gains (losses)
Other sources
Auxiliary enterprises
Total revenues and gains
Net assets released from restrictions
Total revenues, gains, and other support
$
Expenses
Educational and general
Instruction
Research
Public support
Academic support
Student services
Institutional support
Operation and maintenance of plant
Scholarships and fellowships
Total educational expenses
Auxiliary enterprises
Total expenses
Total
$
$
1,553
913
180
$
2,646
(2,049)
597
1,703
60,374
2,661
5,796
2,072
1,229
665
14,800
87,597
1,703
87,597
1,645
31
27
23,532
57
42
6,809
9,017
11,183
5,457
14,538
70,635
12,372
83,007
Increase in net assets
Net assets at beginning of year
Net assets at end of year
60,374
2,661
2,598
1,128
1,022
665
14,800
83,248
2,049
85,297
CURRENT YEAR
Temporarily
Permanently
Restricted
Restricted
$
23,532
57
42
6,809
9,017
11,183
5,457
14,538
70,635
12,372
83,007
2,290
597
1,703
4,590
83,724
86,014
2,357
2,954
9,949
11,652
96,030
100,620
$
$
$
46
23
Release of Restrictions (continued)
Unrestricted
Revenues
Educational and general:
Tuition and fees
Government grants and contracts
Private gifts, grants, and contracts
Investment income
Investment gains (losses)
Other sources
Auxiliary enterprises
Total revenues and gains
Net assets released from restrictions
Total revenues, gains, and other support
$
Expenses
Educational and general
Instruction
Research
Public support
Academic support
Student services
Institutional support
Operation and maintenance of plant
Scholarships and fellowships
Total educational expenses
Auxiliary enterprises
Total expenses
Total
$
$
1,553
913
180
$
2,646
(2,049)
597
1,703
60,374
2,661
5,796
2,072
1,229
665
14,800
87,597
1,703
87,597
1,645
31
27
23,532
57
42
6,809
9,017
11,183
5,457
14,538
70,635
12,372
83,007
Increase in net assets
Net assets at beginning of year
Net assets at end of year
60,374
2,661
2,598
1,128
1,022
665
14,800
83,248
2,049
85,297
CURRENT YEAR
Temporarily
Permanently
Restricted
Restricted
$
23,532
57
42
6,809
9,017
11,183
5,457
14,538
70,635
12,372
83,007
2,290
597
1,703
4,590
83,724
86,014
2,357
2,954
9,949
11,652
96,030
100,620
$
$
$
47
SEE MORE EXAMPLES IN
APPENDIX
48
24
Gains and Losses on Endowment
ASC 958-205…
“A statement of activities shall report gains
and losses on investments...in unrestricted
net assets unless their use is temporarily
or permanently restricted by explicit
donor stipulation or by law.”
49
Example
Endowed Professorship
1924 original endowment gift
Realized capital gains
6/30/09 book value
$10,000
$ 15,000
$25,000
Historic dollar value can’t touch ?? $10,000 or
some other amount
Appreciation ?? $15,000 or some other amount
How classify corpus??
How classify gains ??
U TR PR
U TR PR
50
25
Capital Construction Gifts
ASC 958-605 states “...gifts of long-lived assets
received without stipulations about how long the
donated asset must be used shall be reported as
restricted support if it is an organization’s accounting
policy to imply a time restriction that expires over the
useful life of the donated assets...In the absence of
that policy and other donor-imposed restrictions on
use of the asset, gifts of long-lived assets shall be
reported as unrestricted support.”
51
Capital Construction Gifts
Unrestricted
Revenues
Educational and general:
Tuition and fees
Government grants and contracts
Private gifts, grants, and contracts
Investment income
Investment gains (losses)
Other sources
Auxiliary enterprises
Total revenues and gains
Net assets released from restrictions
Total revenues, gains, and other support
$
Expenses
Educational and general
Instruction
Research
Public support
Academic support
Student services
Institutional support
Operation and maintenance of plant
Scholarships and fellowships
Total educational expenses
Auxiliary enterprises
Total expenses
Total
$
$
1,553
913
180
$
2,646
(2,049)
597
1,703
60,374
2,661
5,796
2,072
1,229
665
14,800
87,597
1,703
87,597
1,645
31
27
23,532
57
42
6,809
9,017
11,183
5,457
14,538
70,635
12,372
83,007
Increase in net assets
Net assets at beginning of year
Net assets at end of year
60,374
2,661
2,598
1,128
1,022
665
14,800
83,248
2,049
85,297
CURRENT YEAR
Temporarily
Permanently
Restricted
Restricted
$
23,532
57
42
6,809
9,017
11,183
5,457
14,538
70,635
12,372
83,007
2,290
597
1,703
4,590
83,724
86,014
2,357
2,954
9,949
11,652
96,030
100,620
$
$
$
52
26
Grants and Contracts:
Exchange Transactions or Contributions
FASB “...a resource provider may sponsor research and development activities
at a research university and retain proprietary rights...Similarly, a resource
provider may sponsor research and development activities and specify the
protocol of the testing...Those transactions are not contributions.”
FASB “the Board believes that whether a grant is from a government agency,
private foundation, or corporation, the difficulties in determining whether a
transfer is an exchange transaction or a contribution...requires a careful
assessment...excluding all governmental transfers is neither necessary nor
desirable...”
The best approach …
Analyze each grant and contract to determine
if exchange transaction or contribution.
53
Reporting Classification
 “...to
fund the research of Dr. Stanley Livingston in
the field of African Studies.”
 “...to
underwrite the regular budget of the English
Department for fiscal 2011-12.”
whose net income is to be used “for the
support of the Homer Professorship.” The
endowment produces $60,000 per year in income and
has a cumulative unspent balance of $47,000.
 Endowment
54
27
Reporting Classification
 In
2011 the Trustees established an
endowment with a bequest from Joe Donor the
purpose of which is “to support the College.”
 “...to establish a revolving loan fund to make
loans to deserving students pursuing a law
degree.”
 “...$500,000 towards the new pool.”
55
Accounting for Investments
 “Investments
in equity securities with
readily determinable fair values and all
investments in debt securities shall be
measured at fair value in the statement of
financial position.”
 What about other types of investments
like...venture capital, real estate, natural
resources, options, etc...???
ASC 820 Fair Value Measurements
56
28
Fair Value
 This
valuation method has been the subject of
numerous accounting rule changes over the last
several years.
 Measurement basis went from entrance price to
exit price
Exit price = the amount an organization would receive
to sell and asset or pay to transfer a liability.
57
Exit Price
3
techniques to determine exit price
– Market approach uses prices involving identical or
comparable assets or liabilities
– Income approach uses future income or cash
streams to arrive at values using discounted cash
flows
– Cost approach uses the amount that would be
required to replace the asset and still receive the
same output or perform same function
58
29
Disclosure
 Fair
Value Hierarchy
Level 1. Quoted prices in active markets for identical assets or
liabilities
Level 2. Significant other observable inputs
Level 3. Significant unobservable inputs
59
Disclosure Con’t

Entities must disclose the amounts of, and reasons for, significant transfers between
Level 1 and Level 2, as well as those into and out of Level 3, of the fair value
hierarchy.

Entities must separately present gross information about purchases, sales, issuances,
and settlements in the reconciliation disclosure of Level 3 measurements, which are
measurements requiring the use of significant unobservable inputs.

For Level 2 and Level 3 measurements, an entity must disclose information about
inputs and valuation techniques used in both recurring and nonrecurring fair value
measurements

Fair value measurement disclosures must be presented by class of assets and
liabilities.
See ASC 820-10-50 for more details
60
30
ASU 2011 – 04
 Fair
Value Measurement (Topic 820),
Amendments to Achieve Common Fair Value
Measurement and Disclosure Requirements
– Effective for interim and annual periods beginning
after 12/15/2011 for public entities and 12/15/2012
for non-public
61
ASU 2011 – 04
– Additional disclosures for Level 3 investments
NOT using the practical expedient
» Quantitative info about unobservable inputs
» Description of valuation process
» Qualitative discussion about sensitivity of measurement
to changes in inputs *
* For public entities only
– Examples available in the ASU
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31
ASU 2011 – 04
– Entities that issue debt or are conduit debt obligors
must disclose:
» Transfers between Level 1 and Level 2 on a gross basis
and the reasons for the transfers
» The categorization by level for items not presented in F/S
at fair value but are disclosed (ie: fair value of bonds)
» Use of nonfinancial assets in a way that differs from
highest and best use
» For Level 2, a description of the valuation methodology
and inputs
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Natural Classification
 Salaries
and Wages
 Benefits
 Utilities
 Supplies
and Other Services
 Depreciation
 Interest
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32
Functional Expenses










Instruction
Research
Public Service
Academic Support
Student Services
Institutional Support
Operations and Maintenance of Plant
Auxiliary
Hospital
Independent Operation
65
Functional Expenses



If Natural on Face – Function In Notes
If Function On Face – Natural Classification Not Required In
Notes
Allocate To Functions (DIP)
– Depreciation
– Interest Expense
– Operation and Maintenance of Plant
66
33
67
34