UNCF ICB 2015 CFO Institute
Financial Statements &
Financial Responsibility
Financial Statements &
Financial Responsibility
The
Wesley
Peachtree
Group, CPAs
____________
wpg-inc.com
Session Objectives
 Financial Statements
 GAAP
 Examples
 USDE Composite Score
 Formula/Example
 Composite Financial Index (CFI) and Core Ratios
 Formula/Example
 UNCF Financial Indicators
Financial Statements
The
Wesley
Peachtree
Group, CPAs
____________
wpg-inc.com
 Complete Set of Financial Statements (FASB ASC 958-205-45-4)




Statement of Financial Position(FASB ASC 958-210-45)
Statement of Activities (FASB ASC 958-225-45)
Statement of Cash Flows(FASB ASC 958-230-45)
Notes to Financial Statements (FASB ASC 958-205-50)
Online: fasb.org
Financial Statements
The
Wesley
Peachtree
Group, CPAs
____________
wpg-inc.com
Statement of Financial Position – Disclosures
(ASC 958-210-45&50)
 Liquidity of assets and liabilities by sequencing or by presenting
classified statement
 Totals should be presented for current assets and current liabilities
when presenting classified statement
 Assets/liabilities aggregated into homogeneous groups
 Info. about donor restrictions resulting in temp./perm. restricted net
assets
Financial Statements
The
Wesley
Peachtree
Group, CPAs
____________
wpg-inc.com
Statement of Financial Position – Disclosures
(ASC 958-210-45&50)
 Categories of receivables shown separately, such as A/R, pledge
receivables, student receivables
 Assets (e.g. cash) with donor imposed restrictions limiting use to
long-term purposes shown separately from similar assets available
for current use.
 Separate line item for “Cash” or “Cash equivalents.”
Financial Statements
The
Wesley
Peachtree
Group, CPAs
____________
wpg-inc.com
Statement of Activities – Disclosures
(ASC 958-225-45&50; 958-720-45)
 The amount of unrestricted revenue/support by major category
 The amount of temporarily restricted revenue/support by major
source
 The amount of permanently restricted revenue/support by major
source
 Report expenses as decreases in unrestricted net assets
Financial Statements
The
Wesley
Peachtree
Group, CPAs
____________
wpg-inc.com
Statement of Activities – Disclosures
(ASC 958-225-45&50; 958-720-45)
 Report expenses by functional or natural classification
 Change in net assets by class and in total
Financial Statements
The
Wesley
Peachtree
Group, CPAs
____________
wpg-inc.com
Statement of Cash Flows – Disclosures
(ASC 958-230-55)
 Accounting policy for determining items treated as cash/cash
equivalent should be disclosed
 Cash receipts/payments must be classified as operating,
investing and financing activities and reported separately.
 The net effect of cash flows and cash equivalents should be
shown to allow a reader to reconcile beginning and ending
cash/cash equivalents.
Financial Statements
The
Wesley
Peachtree
Group, CPAs
____________
wpg-inc.com
Statement of Cash Flows – Disclosures
(ASC 958-230-55)
 Separate disclosure of noncash investing and financing activities
 If indirect method is used, the amounts of interest paid,
excluding capitalized amounts, should be disclosed
 Items reconciling change in net assets to cash flows from
operating activities should include separately all major classes of
operating items
Financial Statements
The
Wesley
Peachtree
Group, CPAs
____________
wpg-inc.com
Pending Changes
FASB Exposure Draft—Comment Deadline: Aug. 20, 2015
 Proposed Accounting Standards Update would
significantly change existing financial reporting model.




Net asset classification
Liquidity information
Statement of activities
Presentation of operating cash flows
Financial Statements
Examples
 Berea College
 Barnard College
 North Central College
The
Wesley
Peachtree
Group, CPAs
____________
wpg-inc.com
Financial Statements
 Example #1
The
Wesley
Peachtree
Group, CPAs
____________
wpg-inc.com
Financial Statements
 Example #2
The
Wesley
Peachtree
Group, CPAs
____________
wpg-inc.com
Financial Statements
 Example #3
The
Wesley
Peachtree
Group, CPAs
____________
wpg-inc.com
Financial Statements
 Best Practices
Sample College
The
Wesley
Peachtree
Group, CPAs
____________
wpg-inc.com
USDE Composite Score
The
Wesley
Peachtree
Group, CPAs
____________
wpg-inc.com
 Financial Responsibility Composite Scores
 Section 498(c) of the Higher Education Act of 1965
 Requires institutions to annually submit audited financial statements
to the USDE to demonstrate financial responsibility necessary to
participate in the Title IV programs.
 A composite of three ratios derived from the audited financial
statements is used to gauge the institution’s financial responsibility.
 primary reserve ratio
 equity ratio
 net income ratio
USDE Composite Score
The
Wesley
Peachtree
Group, CPAs
____________
wpg-inc.com
 Reflects the overall relative financial health of institutions on a
scale from -1.0 to 3.0.
 A score greater than or equal to 1.5 indicates the institution is
considered financially responsible.
 A score of less than 1.5 but greater than or equal to 1.0 is
considered financially responsible, but requires additional
oversight of the institution.
 A score less than 1.0 is considered not financially responsible.
However, an institution with a score less than 1.0 may continue to
participate in the Title IV programs under provisional certification.
The institution is also subject to cash monitoring requirements and
must post a letter of credit .
USDE Composite Score
The
Wesley
Peachtree
Group, CPAs
____________
wpg-inc.com
Primary Reserve Ratio =
Expendable Net Assets
Total Expenses
Equity Ratio =
Modified Net Assets
Modified Assets
Net Income Ratio =
Change in Unrestricted Net Assets
Total Unrestricted Revenue
USDE Composite Score
Primary Reserve Ratio =
The
Wesley
Peachtree
Group, CPAs
____________
wpg-inc.com
Expendable Net Assets
Total Expenses
BARNARD COLLEGE
Expendable Net Assets = 184,480
+ Unrestricted Net Assets 86,499
+ Temporarily Restricted Net Assets 145,718
– Annuities, term endowments, life income funds (temp. restr.) 0
– Intangible assets 0
– Property, plant and equipment net of depreciation 142,781
+ Post-employment and retirement liabilities 18,045
+ All debt obtained for long-term purposes 76,999 (PPE > LTD)
– Unsecured related-party receivables 0
USDE Composite Score
Primary Reserve Ratio =
Expendable Net Assets
Total Expenses
BARNARD COLLEGE
Primary Reserve Ratio = 1.311
Expendable Net Assets = 184,480
Total Expenses = 140,684
The
Wesley
Peachtree
Group, CPAs
____________
wpg-inc.com
USDE Composite Score
Equity Ratio =
Modified Net Assets
Modified Assets
BARNARD COLLEGE
Modified Net Assets = 378,909
+ Unrestricted Net Assets 86,499
+ Temporarily Restricted Net Assets 145,718
+ Permanently Restricted Net Assets 146,692
– Intangible assets 0
– Unsecured related-party receivables 0
The
Wesley
Peachtree
Group, CPAs
____________
wpg-inc.com
USDE Composite Score
Equity Ratio =
Modified Net Assets
Modified Assets
BARNARD COLLEGE
Modified Assets = 500,765
+ Total Assets 500,765
– Intangible assets 0
– Unsecured related-party receivables 0
The
Wesley
Peachtree
Group, CPAs
____________
wpg-inc.com
USDE Composite Score
Equity Ratio =
BARNARD COLLEGE
Equity Ratio = 0.756
Modified Net Assets = 378,911
Modified Assets = 500,765
Modified Net Assets
Modified Assets
The
Wesley
Peachtree
Group, CPAs
____________
wpg-inc.com
USDE Composite Score
Net Income Ratio =
The
Wesley
Peachtree
Group, CPAs
____________
wpg-inc.com
Change in Unrestricted Net Assets
Total Unrestricted Revenue
BARNARD COLLEGE
Net Income Ratio = 0.010
Change in UR Net Assets = 1,453
Unrestricted Revenue = 139,195
USDE Composite Score
The
Wesley
Peachtree
Group, CPAs
____________
wpg-inc.com
BARNARD COLLEGE
Ratio
Result
Primary Reserve Ratio = 1.311
Equity Ratio =
0.756
Net Income Ratio =
0.010
x Strength Factor
10
6
(1+ (50 x Result)
(Min -1 *Max 3)
Ratio
SF Score
Primary Reserve Ratio = *3.00
*3.00
Equity Ratio =
Net Income Ratio =
1.52
SF Score
13.11
4.54
1.52
Weighted
Weight
Score
40%
1.20
40%
1.20
20%
0.30
Composite Score = 2.70
USDE Composite Score
The
Wesley
Peachtree
Group, CPAs
____________
wpg-inc.com
BARNARD COLLEGE
Ratio
Result
Primary Reserve Ratio = 1.311
Equity Ratio =
0.756
Net Income Ratio =
0.010
x Strength Factor
10
6
(1+ (50 x Result)
(Min -1 *Max 3)
Ratio
SF Score
Primary Reserve Ratio = *3.00
*3.00
Equity Ratio =
Net Income Ratio =
1.52
SF Score
13.11
4.54
1.52
Weighted
Weight
Score
40%
1.20
40%
1.20
20%
0.30
Composite Score = 2.70
Financial Responsibility Composite Score Scale:
1.5 – 3.0 Institution demonstrates overall financial health
1.0 – 1.4 Institution demonstrates minimal financial health; additional monitoring is needed in the areas
of viability, liquidity and/or profitability.
-1.0 - .9 Institution demonstrates relative weakness in fundamental elements of financial health
(viability, liquidity and/or profitability).
Composite Financial Index
and Core Ratios
The
Wesley
Peachtree
Group, CPAs
____________
wpg-inc.com
 Financial Component of an Institution's Well-being
 Developed by KPMG/Prager, McCarthy & Sealy to measure
financial performance.
 Used to assist institutions:
 understand the affordability of strategies
 monitor financial results of implemented initiatives
 Combines four core ratios in a manner similar to the Composite
Score (i.e. applies strength factor and weight).




Net Operating Revenues Ratio
Return on Net Assets Ratio
Primary Reserve Ratio
Viability Ratio
Composite Financial Index
and Core Ratios
The
Wesley
Peachtree
Group, CPAs
____________
wpg-inc.com
 Reflects the overall relative financial health of institutions on a
scale from -4.0 to 10.0.
 CFI of 3 indicates that the institution is relatively financially
healthy. This may be attained by achieving the following targets
on core ratios (that yield each a Strength Factor of about 3):
 Net Operating Revenues of 2%
 Return on Net Assets of 6%
 Primary Reserve of 0.40x
 Viability of 1.25x
Composite Financial Index
and Core Ratios
The
Wesley
Peachtree
Group, CPAs
____________
wpg-inc.com
Reflects the overall relative financial health of institutions on a scale
from -4.0 to 10.0.
 CFI of 3 indicates that the institution is relatively financially
healthy. This may be attained by achieving the following targets
on core ratios (that yield each a Strength Factor of about 3):
 Net Operating Revenues of 2.00% ÷ 0.70% = 3* x 10% = 0.30
 Return on Net Assets of
6.00% ÷ 2.00% = 3 x 20% = 0.60
 Primary Reserve of
0.40x ÷ 0.133x = 3 x 35% = 1.05
 Viability of
*Rounded up
1.25x ÷ 0.417x = 3* x 35% = 1.05
Composite Financial Index
3.00
Composite Financial Index
and Core Ratios
CORE RATIOS
Net Operating Revenues =
The
Wesley
Peachtree
Group, CPAs
____________
wpg-inc.com
Excess of UR Operating Revenues
Unrestricted Operating Revenues
Return on Net Assets =
Change in Net Assets
.
Total Net Assets Beginning of Year
Primary Reserve Ratio =
Expendable Net Assets
Total Expenses
Viability Ratio =
Expendable Net Assets
Long Term Debt
The
Wesley
Peachtree
Group, CPAs
____________
wpg-inc.com
Composite Financial Index
and Core Ratios
Net Operating Revenues = Excess of UR Operating Revenues
Unrestricted Operating Revenues
BARNARD COLLEGE
Net Operating Revenues Ratio = -1.1%
Target 2%
Excess (Deficiency)of UR Operating Revenues = -1,489
Unrestricted Operating Revenues= 139,195
Composite Financial Index
and Core Ratios
Return on Net Assets =
The
Wesley
Peachtree
Group, CPAs
____________
wpg-inc.com
Change in Net Assets
Total Net Assets Beginning of Year
BARNARD COLLEGE
Return on Net Assets Ratio = 12.8%
Change Net Assets = 42,932
Total Net Assets Beginning of Year = 335,977
Target 6%
Composite Financial Index
and Core Ratios
Primary Reserve Ratio =
The
Wesley
Peachtree
Group, CPAs
____________
wpg-inc.com
Expendable Net Assets
Total Expenses
BARNARD COLLEGE
Primary Reserve Ratio = 1.2x
Expendable Net Assets = 166,435
Total Expenses = 140,684
Target 0.4x
Composite Financial Index
and Core Ratios
Viability Ratio =
The
Wesley
Peachtree
Group, CPAs
____________
wpg-inc.com
Expendable Net Assets
Long Term Debt
BARNARD COLLEGE
Viability Ratio = 2.2x
Expendable Net Assets = 166,435
Long Term Debt = 76,999
Target 1.25x
Composite Financial Index
and Core Ratios
BARNARD COLLEGE
Ratio
Result
Net Operating Revenues = -1.1%
Return on Net Assets =
12.8%
Primary Reserve Ratio =
1.2x
Viability Ratio =
2.2x
/
SF____
0.7%
2.0%
0.133x
0.417x
The
Wesley
Peachtree
Group, CPAs
____________
wpg-inc.com
SF Score_
-1.5
6.4
9.0
5.2
(Min -4 Max 10)
Weighted
Ratio
Score
x
Weight
Score .
Net Operating Revenues = -1.5
10%
-0.2
Return on Net Assets =
6.4
20%
1.3
Primary Reserve Ratio =
9.0
35%
3.2
Viability Ratio =
5.2
35%
1.8
Composite Financial Index = 6.1
The
Wesley
Peachtree
Group, CPAs
____________
wpg-inc.com
UNCF Financial Indicators
Report III A Study Conducted by WPG
The
Wesley
Peachtree
Group, CPAs
____________
wpg-inc.com
 Financial Ratios
 37 Member Institutions
 Five Years
 41 Ratios
 Sent Via Email July 13, 2015
 To Presidents & CFOs
Closing Comments
The
Wesley
Peachtree
Group, CPAs
____________
wpg-inc.com
QUESTIONS?
Contact:
(404) 874-0555
keith@wpg-inc.com
UNCF ICB 2015 CFO Institute
Financial Statements &
Financial Responsibility
THANK YOU
Keith X. Terrell, CPA
Cr.FA, FCPA, CGMA
Senior Vice President
The Wesley Peachtree Group, CPAs