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CHAPTER 8.3
INCLUSION OF COMPONENT UNITS & OTHER ENTITIES IN THE CSU
CONSOLIDATED FINANCIAL STATEMENTS
OVERVIEW
Beginning with the 1996/97 fiscal year, component units were required to provide information
for inclusion in the combined financial statements of the California State University (CSU).
Beginning with the year ending June 30, 2002, the CSU adopted Governmental Accounting
Standards Board (GASB) Statement No. 35, Basic Financial Statements-and Management's
Discussion and Analysis-for Public Colleges and Universities. With minor exceptions, this
statement provides that public colleges and universities are subject to the financial reporting
requirements of GASB Statement No. 34, applicable to state and local governments.
Subsequently issued were GASB Statement No. 37, Basic Financial Statements-and
Management's Discussion and Analysis-for State and Local Governments: Omnibus, and GASB
Statement No. 38, Certain Financial Statement Note Disclosures.
These changes, commonly referred to as "GASB Nos. 34/35," have in turn impacted the
component units and other related entities identified as 'component units' per GASB Statement
No. 14, The Financial Reporting Entity, and GASB Statement No. 39, Determining Whether
Certain Organizations are Component Units, an amendment of GASB Statement No. 14, and
have therefore defined the financial reporting entity to be the CSU and the listed organizations.
In November 2010, the Governmental Accounting Standards Board (GASB) issued Statement
No. 61, The Financial Reporting Entity: Omnibus to improve financial reporting for a
governmental financial reporting entity. This Statement addresses reporting entity issues that
have arisen since the issuance of GASB Statement No. 14, The Financial Reporting Entity, and
the related financial reporting requirements of GASB Statement No. 34, Basic Financial
Statements—and Management’s Discussion and Analysis – for State and Local Governments.
Therefore, in the component units’ separately issued financial statements, each named
organization must provide the supplementary information in the form shown in Chapter
8.03.01, accompanied by an "in relation to" independent auditors’ report.
The adoption of GASB Statement Nos. 34/35 and 61 has not changed the following current
practices:
1. As appropriate, component units must report as either FASB (Financial Accounting
Standards Board) or GASB-subject organizations. GASB Nos. 34/35 does not require that the
component units change to the basis of accounting used by the primary government, i.e., the
CSU and its campuses. As noted above, the component units must provide the required
information in the form shown in Chapter 8.03.01 via audited supplementary
information in their separately issued financial statements. The proforma electronic
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template must be used in preparing the supplementary information schedules.
2. All component units are required to classify certain information in the supplementary
information schedules in order to conform to the campus’ required line item reporting
categories.
3. All component units are required to provide additional supplementary information for
inclusion in the notes to the financial statements of the CSU consolidated issued financial
statements.
AUDIT FIRM QUALIFICATIONS
Beginning FY 2011/2012, the Office of the Chancellor (CO) reviews the selection of external
auditors by the discretely presented component units and their auditors’ qualifications. The new
policy was established in the Integrated CSU Administrative Manual (ICSUAM) 13175 under
policy title “Auxiliary Organization External Auditor Firms Qualifications.” The objective is to
facilitate discretely presented component units’ audit firm selection process by developing
standards to ensure that the discretely presented component units are contracting with audit firms
that possess industry-specific proficiencies and experience to best evaluate management’s
assertions in the financial statements.
Both the California State University and each discretely presented component unit’s governing
board have the responsibility to ensure that audits are performed professionally and by qualified
accounting firms as described in Education Code Section 89900 and California Code of
Regulations Title 5 Section 42408.
Discretely presented component unit’s auditors must meet the following minimum proficiencies
and experience:
 Demonstrated experience in auditing 501(c)3 Not-for-Profit Organizations;
 Demonstrated proficiency in both the FASB and GASB accounting and reporting
requirements related to both Not-for-Profit Organizations and Public Universities;
 Demonstrated experience and proficiency in performing OMB Circular A-133 Audits
(“Single Audits”), including federal and state grants and contracts, if applicable to the
discretely presented component unit;
 Possess the qualifications and training to perform the discretely presented component unit
audits in accordance with Governmental Auditing Standards, issued by the Comptroller
General of the United States; and
 Demonstrated track record of providing quality financial statement audits for not-for-profit
organizations.
In order to evaluate potential external auditors’ qualifications for performing the audits,
discretely presented component units’ managements must minimally gather information set forth
in this policy. Additionally, the Campus’ Chief Financial Officer must submit the qualifications
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review questionnaire for proposed audit form for the external audit firm selected by the
discretely presented component unit to the CO. Please refer to the “Master Audit and Reporting
Timeline” for more details regarding deadline and submission process.
The
most
recent
form
can
be
downloaded
in
the
following
URL:
https://csyou.calstate.edu/Policies/icsuam/Pages/13175-00.aspx
REVIEW OF COMPONENT UNITS’ FINANCIAL STATEMENTS BY THE CAMPUS PRESIDENT
This is a reminder of the existing policy and practice regarding the annual review of the campus
component units’ financial statements. Each campus president is responsible for reviewing and
accepting the complete audited financial report of each campus component unit to ensure each
audit is conducted according to the accounting and reporting instructions described below.
The campus President and Chief Financial Officer (CFO) are responsible for promptly notifying
the Executive Vice Chancellor/CFO and CO of changes to the list of component units and other
component units.
The campus President, subsequent to receiving and reviewing the component unit annual audit
reports, shall provide a summary letter to the CO. The letter should be addressed to the Executive
Vice Chancellor/ CFO (electronic copy to Systemwide Financial Standards and Review) by the
due date stated in the Master Timeline. See example format of summary letter in Chapter
8.03.02. The summary letter shall:
1. Indicate that the campus President or designee has reviewed the audit report(s), or shall state
the reason(s) why any audit report has not been reviewed, and what action is being taken to
remedy the situation.
2. List the campus component units and the type of opinion ("unmodified" previously
“unqualified”, "qualified", or "adverse") issued for each entity.
3. For audit report(s) with qualified or adverse opinion(s), and for any other audit report(s) that
are not acceptable as to form and content, indicate what actions are being taken regarding
those that are deficient.
REVIEW OF COMPONENT UNIT FINANCIAL STATEMENTS, AUDIT FINDINGS, AND AUDITOR
SELECTION BY THE CO
In addition to the campus president’s review, the CO will selectively review certain campus
component units’ audited financial statements.
The CO will also review component unit’s audit findings, especially material weaknesses and
significant deficiencies and monitor the completion of the remediation plans. As applicable, the
discretely presented component units need to submit their A133 Single Audit report to the CO.
For those that do not issue A133 Single Audit report, they need to submit a summary of audit
findings with management responses and corrective actions to the CO. Please refer to the Master
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Timeline in the overview section for the due date.
SUPPLEMENTARY INFORMATION IN THE COMPONENT UNITS’ FINANCIAL STATEMENTS
Proforma electronic templates for the component units’ supplementary information required for
inclusion in the CSU financial statements are included. The component unit/other entity must
forward these templates to its external audit firm as soon as possible, with the following
information regarding each set of financial statements. Ensure to use the most recent attached
template as updates are made annually.
The independent auditors’ report on the supplementary information included in the financial
statements of the discretely presented component unit need not be a full scope opinion.
Independent auditors’ report that refer to the supplementary information required for inclusion in
the CSU consolidated financial statements may be an “in relation to” report.
NOTE: If the basic financial statements of the component unit utilize, and therefore fulfill the
CSU template reporting requirements exactly, inclusion of the supplementary information
schedules are not necessary. Please note that the CO is NOT prescribing the format of the
component unit’s primary financial statements or notes to the financial statements. The
component unit MUST follow the relevant accounting literature for their entity.
In fiscal year 2012-2013, the CSU has implemented the requirements of the following GASB
pronouncements:
a. GASB Statement No. 63, Financial Reporting of Deferred Outflows of Resources, Deferred
Inflows of Resources, and Net Position, Issued June 2011. Effective for periods beginning
after December 15, 2011.
This Statement provides financial reporting guidance for deferred outflows of resources and
deferred inflows of resources. Concepts Statement No. 4, Elements of Financial Statements,
introduced and defined those elements as a consumption of net assets by the government that
is applicable to a future reporting period, and an acquisition of net assets by the government
that is applicable to a future reporting period, respectively. Previous financial reporting
standards do not include guidance for reporting those financial statement elements, which are
distinct from assets and liabilities.
Concepts Statement 4 also identifies net position as the residual of all other elements
presented in a statement of financial position. This Statement amends the net asset reporting
requirements in Statement No. 34, Basic Financial Statements—and Management's
Discussion and Analysis—for State and Local Governments, and other pronouncements by
incorporating deferred outflows of resources and deferred inflows of resources into the
definitions of the required components of the residual measure and by renaming that measure
as net position, rather than net assets. Much of the changes made on this GAAP Manual are a
result of the implementation of this new GASB standard. Additional guidance can be found
in Chapter 14, Chapter 4.02.1.
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b. GASB Statement No. 65, Items Previously Reported as Assets and Liabilities, Issued March
2012. This is effective for periods beginning after December 15, 2012 (for CSU, effective for
fiscal year ending 2014; CSU elected early implementation in fiscal year ending June 30,
2013).
This Statement establishes accounting and financial reporting standards that reclassify, as
deferred outflows of resources or deferred inflows of resources, certain items that were
previously reported as assets and liabilities and recognizes, as outflows of resources or
inflows of resources, certain items that were previously reported as assets and liabilities. This
Statement also provides other financial reporting guidance related to the impact of the
financial statement elements deferred outflows of resources and deferred inflows of
resources, such as changes in the determination of the major fund calculations and limiting
the use of the term deferred in financial statement presentations. Additional guidance can be
found in Chapter 4.03.6 of this GAAP Manual.
SCHEDULE OF NET POSITION
The Schedule of Net Position is classified, i.e., broken down into current and non-current. As a
result, there are reporting categories, such as short-term investments, restricted cash and cash
equivalents and short-term and long-term accrued compensated absences.
While the component unit is not required to change its basis of accounting, it will be required to
classify balance sheet items in conformance with the templates for the supplementary
information. In consultation with its independent auditor, the component unit should refer to the
relevant accounting literature for guidance. As examples, generally accepted accounting
principles (GAAP) concerning current assets and current liabilities are found, among other
sources, in ARB No. 43 and APB No. 10; compensated absences are addressed in SFAS No. 43
(pre-FASB codification) and GASB Statement No. 16. Therefore, the following comments are
meant to provide guidance only when the accounting literature is not definitive to the CSU
financial statements:
Assets
 Cash and cash equivalents: Includes demand deposits and all highly liquid investments with
an original maturity date of three months or less.

Short-term investments: Investments that are used for current operations should be classified
as short-term investments. This includes investment accounts that may be accessed on a
short-term basis (i.e. within the next 12 months) even if the underlying pool is invested in
long-term securities. However, if its use is 1) restricted for withdrawal or use for other than
current operations (i.e. endowments or Perkins loans), 2) designated or restricted for the
acquisition or construction of noncurrent assets, 3) designated or restricted for the liquidation
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of the noncurrent portion of long-term debt, or 4) restricted as to the liquidity of the
investments, it should be classified as other long-term investments.
Amounts held in split interest agreements can be classified in other long-term investments.
Net Position
Net Position: In order to conform to the GASB-required net position categories, FASB
organizations will be required in the supplementary schedules to (1) break out net position, net
investment in capital assets1, then (2) classify the balance of permanently restricted net position
to Restricted: nonexpendable net position, (3) classify the balance of temporarily restricted net
position to Restricted: expendable net position, reporting uncollected pledges under “other” and
(4) classify the balance of unrestricted net position as Unrestricted.
SCHEDULE OF REVENUES, EXPENSES AND CHANGES IN NET POSITION
The Schedule of Revenues, Expenses and Changes in Net Position requires major classification
categories, i.e., Operating Revenues, Operating Expenses and Non-operating
Revenues/Expenses. Again, the component unit is encouraged to consult with its independent
auditor and utilize the relevant accounting literature for their entity. However, in order to ensure
consistent classification, the following definitions are provided:
Revenues
 Student tuition and fees: Includes mandatory fees paid by students to attend the CSU or a
particular class. Voluntary user fees and penalty fees should not be included in this category.
Tuition and fees are to be shown net of scholarship allowances and bad debt allowances, with
parenthetical disclosure of the scholarship allowances. Scholarship allowances are defined as
the difference between the stated fees and the amount that is billed to the student and/or third
parties making payments on behalf of the students.
 Grants and contracts, noncapital [Federal, State, Local and Non-governmental]: Includes all
unrestricted amounts received or made available by grants and contracts for current
operations and all amounts received or made available through restricted grants and contracts
to the extent expended for current operations, except financial aid grants. Financial aid grants
are reported in separate lines item within the nonoperating revenues (expenses) section. This
line item does not include gifts.
1
‘Net position, net investment in capital assets’ becomes the first line in the ‘Net Position’ section. The portion of the debt
related to unspent bond proceeds should not be included in the calculation of netinvestment in capital assets. Rather, that
portion of the debt should be included in the same net position category as the unspent bond proceeds (for example, restricted
for capital projects).
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
Sales and services of educational activities: Includes revenues related to the conduct of
instruction, research and public service and that incidentally create goods and services that
may be sold. Examples of revenues of educational activities are intercollegiate athletic
revenues, sales of academic publications, testing services, and sales of products and services
of agricultural and other food programs. If sales, rather than training or instruction, is the
primary purpose of an activity, the revenue should be classified as sales and services of
auxiliary enterprises, as described below. The amount is shown net of bad debt allowances.

Sales and services of auxiliary enterprises: An auxiliary enterprise is an entity that exists to
furnish goods or services to students, faculty and staff and that charges a fee directly related
to, although not necessarily equal to, the cost of the goods or services. The general public
may be served incidentally by auxiliary enterprises. The distinguishing characteristic of
auxiliary enterprises is that they are managed as essentially self-supporting activities.
Included in the CSU basic financial statements in this category are residence halls, food
services, student unions, bookstores, and parking. The amount is shown net of scholarship
allowances and bad debt allowances, with parenthetical disclosure of the scholarship
allowances.

Other operating revenues: This category should include all sources of revenues not included
in other classifications that directly relate to the CSU’s current primary operations. Examples
would be subsidized childcare centers and other services that are not essentially
self-supporting and certain other activities that may be unique to a particular component unit.
Moreover, cost recovery from external parties or the university is also included in this
category. GASB Statement No. 34, ¶102 states “Governments should establish a policy that
defines operating revenues and expenses that are appropriate to the nature of the activity
being reported, disclose it in the summary of significant accounting policies, and use it
consistently from period to period. A consideration for defining a proprietary fund’s
operating revenues and expenses is how individual transactions would be categorized for
purposes of preparing a statement of cash flows using Statement 9. Transactions for which
cash flows are reported as capital and related financing activities, noncapital financing
activities, or investing activities normally would not be reported as components of operating
income. This includes most revenues considered to be nonexchange and exchange-like, such
as tax revenues and, in some cases, fees and charges (such as passenger facilities charges).”
Refer to GASB Statement No. 9, ¶16-19. GASB Statement No. 34 also clarifies that revenue
and expense transactions normally classified as other than operating cash flows from
operations in most proprietary funds may be classified as operating revenues and expenses if
those transactions constitute the reporting proprietary fund’s principal ongoing operations.
For example, interest revenue and expense transactions should be reported as operating
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revenue and expense by a proprietary fund established to provide loans to first-time
homeowners.
Expenses
 Instruction: This category should include expenses for all activities that are part of an
instruction program, with the exception of expenditures for remedial and tutorial instruction
(included as Student Services). Expenditures for departmental research and public service
that are not separately budgeted should be included in this classification. Expenditures in an
academic department which are primarily administrative in nature should not be included in
this category but in Academic Support.

Research: This category should include all expenses for activities specifically organized to
produce research outcomes. This category includes expenses for individual and/or project
research as well as that of institutes and research centers. This category does not include all
sponsored programs (e.g., training grants should be recorded in Public Service programs) and
it is not necessarily limited to sponsored research, since internally supported research
programs, if separately budgeted and if specifically organized to produce research outcomes,
might be included in this category.

Public service: This category should include expenses for activities that are established
primarily to provide non-instructional services beneficial to individuals and groups external
to the institution. These activities include community service programs, conferences,
institutes, general advisory services, reference bureaus, radio and television and similar noninstructional services to particular sectors of the community.

Academic support: This category should include expenses primarily to provide support
services for the institution’s primary missions. It includes: (1) retention, preservation and
display of educational materials, – e.g., libraries, museums and galleries; (2) the provision of
services that directly assist the academic function, such as demonstration schools; (3) media
and technology support (unless charged directly to an operating unit); (4) academic
administration; and (5) separately budgeted support for course and curriculum development.

Student services: This category should include expenses for offices providing enrollment
services and for those activities whose primary purpose is to contribute to the student’s
well-being and development outside the context of the formal instruction program. It
includes expenditures for student activities, cultural events, student newspapers, athletics,
student organizations, remedial instruction, counseling and career guidance and student aid
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administration, student health service, and enrollment management. Component units that
provide services to students should report expenses for activities that are not self-supporting
in this category. Expenses for self-supporting activities should be reported in auxiliary
enterprise expenses.

Institutional support: This category should include expenses for: (1) executive management;
(2) fiscal operations; (3) administrative data processing; (4) space management; (5) human
resources management (6) logistical support services such as procurement, storerooms,
printing and transportation services; (7) support services to faculty and staff that are not
operated as auxiliary enterprises; and (8) activities concerned with community and alumni
relations, including development and fundraising.
This category should be used only for those component units that provide administrative
support services to a variety of different types of activities within their organization and
where the administrative costs have not or cannot be allocated to the various other categories.

Operation and maintenance of plant: This category includes all expenses for the
administration, supervision, operation, maintenance, preservation and protection of physical
plant, net of amounts charged to auxiliary enterprises. It includes all expenditures for
operations established to provide services and maintenance related to grounds and facilities
such as janitorial and utility services; repairs and ordinary or normal alterations of buildings,
furniture, and equipment; care of grounds; maintenance and operations of buildings and other
plant facilities; security; earthquake and disaster preparedness; fire protection; safety;
hazardous waste disposal; pollution remediation; property, liability and all other insurance
relating to property; space and capital leasing; facility planning and management; central
receiving; and similar items. Interest expense on capital related debt and depreciation on
capital assets should not be recorded in this category. This category should only be used for
those component units that provide plant maintenance support services to a variety of
different types of activities within their organization and where these costs have not or cannot
be allocated to the various other categories.

Student grants and scholarships: This category should include expenses for direct payments
of grants or scholarships to students. It includes expenses for scholarships and fellowships
from restricted or unrestricted funds in the form of grants to students, resulting from selection
by the institution or from an entitlement program. This category also includes trainee
stipends, prizes, awards, and institutional loan cancellations.
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
Auxiliary enterprise expenses: This category includes all expenses relating to the operation of
auxiliary enterprises, including operation and maintenance of plant and institutional support
related to the auxiliary enterprise revenues; also included are other direct and indirect costs,
whether charged directly as expenditures or allocated as a proportionate share of costs of
other units. Component units that report their revenues as auxiliary enterprises should report
the related expenses in this category.

Depreciation and Amortization: This category includes depreciation and amortization on all
capital assets, tangible and intangible. Component units that have charged or allocated
depreciation or amortization to other expense categories must reclassify depreciation or
amortization to this category.
Nonoperating Revenues (Expenses)
 Other Federal nonoperating grants, noncapital – This category includes other Federal grants
received that are nonexchange and nonfinancial aid related. The major program recorded in
this line was federal subsidies which partially reimburse certain systemwide revenue bond’s
interest expenses provided by Build America Bonds program (BABs) under the American
Recovery and Reinvestment Act (ARRA).

Gifts, noncapital: This category includes all unrestricted gifts and bequests as well as all
restricted gifts for which the terms of the restriction have been met, and that are not for
capital purposes.

Investment income (loss): This category includes all revenues from non-endowment
investments, net of investment expenses (such as investment service charges paid to an
external entity). Investment expenses are to be disclosed parenthetically or in a note to the
financial statements. Interest, dividends and net realized and unrealized gains and losses
should be included in this category.

Endowment income (loss): This category includes all revenues from endowment
investments, net of investment expenses (such as investment service charges paid to an
external entity). Investment expenses are to be disclosed parenthetically or in a footnote to
the financial statements. Interest, dividends and net realized and unrealized gains and
losses on endowments should be included in this category.
Interest expense – This category includes all interest expense related to both noncapital and
capital related debts.

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
Other nonoperating revenues (expenses): Any revenues or expenses that do not directly relate
to the CSU’s primary purpose should be recorded here. This category includes items that do
not meet the definition of any of the other operating revenues (expenses) categories above.
Examples include gain (loss) on sales or disposal of assets, revenue from legal settlements
and construction administration, prior period corrections and other miscellaneous revenues or
expenses.

Grants and gifts, capital: This category includes all revenues for grants and gifts dedicated,
by external restriction only, towards capital purposes.

Additions (reductions) to permanent endowments: This category would include any private
contributions received by the component unit to increase or establish a permanent
endowment fund and any losses resulting from underwater endowments.
STATEMENT OF CASH FLOWS
With the CSU’s implementation of GASB Statement No. 39, effective July 1, 2003, the
Component Unit’s statement of cash flows is no longer required to be included in the campus’
financial statements. In accordance with GASB Statement No. 34, ¶125, the CSU’s financial
reporting requirements for component units are met by discrete presentation of the component
unit financial data in the statement of net position and the statement of activities.
OTHER INFORMATION
Other information will be required for the notes to the financial statements of the CSU
consolidated financial statements, as indicated earlier.
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REVISION CONTROL
Document Title:
CHAPTER 8.3 – INCLUSION OF COMPONENT UNITS & OTHER ENTITIES IN
THE CSU CONSOLIDATED FINANCIAL STATEMENTS
REVISION AND APPROVAL HISTORY
Section(s)
Revised
General
8.03-12
Summary of Revisions
Previously in Chapters 8.1 Attachment A and 8.3
Revision Date
April 2015
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