Governmental Accounting
Chapter 16
College and University Accounting
I) Introduction
A) Who has jurisdiction -- GASB or FASB
1. GASB -- organizations that are governmentally owned
2. FASB -- business organizations and nongovernmental not-for-profit
organizations
B) Accounting and financial reporting is in a state of transition
1. Different reporting formats exist for governmentally owned vs. private
colleges and universities
a. 1997 Exposure Draft issued by GASB--proposes a dual perspective
reporting model.
II) Traditional AICPA model for colleges and universities (applies to
governmentally owned colleges and universities unless they choose to use
the governmental model.)
A) Typical Fund categories
1. Current funds - resources available for use in carrying out operations
directly related to the institution's educational objectives.
a. Must show restricted and unrestricted separately
I. Unrestricted funds -- accrual basis
ii. Restricted funds -- not revenue until restrictions are met. This is
generally when expended.
b. Technically, only the current funds show revenues and
expenditures. (Both unrestricted and restricted)
I. See illustration 18-3 on page 749 for common categories of
revenues and expenditures.
c. Revenues and related expenditures should be recognized totally
within the fiscal year in which the term is predominantly conducted.
d. Transfers
I. Mandatory -- required to comply with legally enforceable
agreements.
ii. Nonmandatory -- at discretion of governing board
2. Loan Funds -- account for assets loanable to students, faculty, and
staff
a. May be restricted or unrestricted
3. Endowment and similar funds
a. Key characteristic is that principal is nonexpendable
I. Maybe for a specified term -- term-endowment
ii. Maybe quasi-endowment (funds functioning as endowments)-board designated funds functioning as endowments.
b. Different fund balance designations should be disclosed.
4. Annuity and life income funds
a. Annuity funds --pay a stipulated amount to donor
I. Liability is recorded at present value of all expected annuity
payments using appropriate actuarial assumptions
ii. Annuity payments are debited against this liability
iii. At death of donor, the principal should be transferred to
unrestricted current fund (unless stipulated otherwise) and
properly disclosed as a transfer.
b. Life income funds -- income earned by the assets donated will be
paid to the donors over a specified period.
I. Important that "income" be defined
ii. Liability of funds only includes income payments currently due
beneficiary.
c. Each annuity fund and life income fund should be accounted for
separately, however all are combined for reporting purposes.
5. Agency funds
a. Assets and liabilities are reported in Balance Sheet.
b. Changes therein are not reported in any of the basic financial
statements.
6. Plant funds -- consists of four subgroups
a. Unexpended plant funds -- assets set aside for acquisition of
property plant and equipment
I. Assets may be from restricted sources, unrestricted sources or
borrowings.
ii. Sometimes construction-in-progress is accounted for in this
group. Alternatively may be accounted for in "Investment in
Plant" group.
iii. When assets are acquired the capital expenditure and related
liabilities and fund balances should be transferred to the
"Investment in Plant" group.
b. Funds for renewals and replacements -- assets set aside for
renewal/replacement of existing institutional properties.
c. Funds for retirement of indebtedness--assets restricted or
designated for the purposes of servicing plant fund indebtedness.
I. The liability is recording in the “Investment in Plant” subgroup.
ii. Expenditures reducing debt principal necessarily also
represents a reduction in the liability in the investment in plant
group and hence, an increase in the “net assets” (Net
Investment in Plant) of that group.
d. Investment in plant -- accounts for all property plant and equipment
utilized by a college or university, except when the property are
investments in endowment type funds or annuity and life income
funds.
I. Recorded at cost or FMV on date of contribution
ii. Government related colleges and universities are not required
to compute depreciation on plant assets.
iii. All liabilities related to the property, plant and equipment are
accounted for in this subgroup.
iv. Fund balance is titled "Net investment in plant"
B) Financial Reporting--Required Statements
1. Balance Sheet
2. Statement of Current Funds Revenues, Expenditures and Other
Changes
3. Statement of Changes in Fund Balances.
C) Special accounting issues
1. Many grants received allow overhead charges (including depreciation
to be considered as part of grant expenditures.
a. Essentially this makes restricted funds available for unrestricted
purposes. (restricted funds "reimburse" unrestricted)
2. Reporting of "Investments" on the Balance Sheet
a. GASB Statement No. 31 requires investments of funds to be
reported at fair value.
b. Total return concept -- the total return on investments consists not
only of interest and dividends and realized gains, but also
unrealized appreciation or shrinkage. Therefore, this may be
prudently considered by an institution in determining spending
for current operating purpose.
III) Private colleges and universities (subject to rules and guidelines we
discussed in Chapter 16.)
A) FASB # 93 requires the reporting of depreciation
B) FASB #116 -- guidance for recognition of contributions received and for
reporting such contributions in the financial statements.
1. Requires recognition of contributions received and unconditional
promises to give as income in period made.
2. Conditional promises to give are not recognized until the conditions on
which they depend are substantially met.
3. Contributions received and/or unconditional promises from donors are
reported as increases in one of three categories:
Unrestricted net assets
Temporarily restricted net assets
Permanently restricted net assets
a) FASB #117 also requires “net assets” (assets - liabilities) to be
reported in these three categories.
4. Historical treasures, valuable works of art, books, etc. must meet the
conditions of Statement 116 for “collections” in order to be
excluded from the Statement of Financial Position.
C) Tuition revenue is reported net of tuition discounts and scholarships.
D) FASB #117 -- provides guidance for financial reporting of not-for-profit
organizations.
1. See illustrations 18-5, 18-6, and 18-7 on pages 755-757
a. Provides display standards for required financial statements and
what should be recorded.