1
UNDERSTANDING COLLEGE AND UNIVERSITY
ACCOUNTING
AN INTRODUCTION FOR
NON-ACCOUNTANTS
2016
Joyce Lopes
Vice President of Administration
Humboldt State University
1
Learning Objectives
• After completing this course, you will be able to
– Identify the various fund types utilized by
colleges and universities
– Understand the purpose and function of these funds
– Recognize the basic financial statements
– Describe basic differences in financial reporting for private and public institutions
– Hold your own at the next board meeting
MAJOR TOPICS
• Fund accounting concepts
• Chart of accounts
• Fund accounting groups
– Current/Non-current/Other funds
• Differences in public and private financial
statements
• Review of financial statements
3
2
CONCEPTS AND DEFINITIONS
4
CHARACTERISTICS OF Not For Profit ORGANIZATIONS
5
BUSINESS NOT FOR PROFIT
Individuals own it YES NO
People give money and YES NOexpect products andservices in return
Profit is primary YES NOpurpose
Business NFP
Individuals own it YES NO
Customers give money; YES NOexpect products andservices in return
Profit is primary YES NOpurpose
Profit
Profit = Net Income
Net Income = Revenues – Expenses
Can a NFP make a profit (have positive net income)?
3
College/University:7
Resources Received
Resources Used
Revenues –Expenses =
Change in Net Assets (aka Fund Balance)
ACCOUNTABILITY
For Profit: Bottom line
University: Efficient and effective use of resources and monies for
stated purposes
8
FUND ACCOUNTING
Classify financial resources for
accounting and financial
reporting purposes in
accordance with their intended
use or purpose.
9
4
FUND ACCOUNTING
• Although no longer required by GAAP, fund accounting:
– Can assist with financial reporting
– Is an effective way to manage an institutions
resources
– Will probably be around for a while
10
FUND
• Fiscal and accounting entity
• Self-balancing set of accounts
• Defined by
– specific activities, or
– certain objectives, or
– special regulations, restrictions,
limitations
11
Self-balancing
12
AssetsLiabilitiesNet Assets
5
ASSETS - LIABILITIES = NET ASSETS
• Assets
– Cash and Cash Equivalents
– Accounts Receivable
– Inventory
– Investments
– Plant, i.e. buildings, equipment
– Other
• Liabilities
– Accounts Payable
– Deferred Revenue
– Notes Payable
– Bonds Payable
13
What are Net Assets?
• Funds retained by the organization for reinvestment into the enterprise
15
Restrictions on use
Resources Received
Resources Used
LIMITATIONS
6
LIMITATIONS ON USE
Donor Federal Institution
& State
16
$$$
LIMITATIONS ON USE
RESTRICTED DonorExternal entityFederal & state
UNRESTRICTED Institution
17
$$$
WHAT IS “RESTRICTED”Public Colleges & Universities
LIMITED BY RESTRICTED
Donor YES
External entity YES
Federal, state YES
Institution NO, but may
designate or allocate
18
7
19
WHAT IS “RESTRICTED”Private Colleges & Universities
Limited by DONOR only Restricted
In perpetuity Yes-permanently restricted
Until passage of time or Yes-temporarily restricted
occurrence of event
No donor limitation No-unrestricted
QUICK SUMMARY
• Fund Accounting for NPO’s
• Resources-based model
• Funds may have limitations on use
20
FUND ACCOUNTING
21
8
CHART OF ACCOUNTS
• Blueprint of financial structure
• Used to classify financial transactions
• Identifies fund group, function, organizational unit, ledger, etc.
• Important to internal management and external
reporting
22
Typical Account String
• Fund-Department-Account-Program-Activity-Location
• This is one example…
110000-521001-69010-1600
How does your campus’ differ?
23
What is Fund Accounting?
Fund accounting is the procedure by which resources for various purposes are classified by accounting and reporting purposes in accordance with activities or objectives as specified by donors, in accordance with regulations, restrictions, or limitations imposed by sources outside the institution, or in accordance with directions issued by the governing board.
AICPA Audits of Colleges and Universities Industry Audit Guide
24
9
What does that mean?
Fund Accounting is a convenient way to organize/compartmentalize various resources to facilitate
(1) the management of those resources, and
(2) the required reporting for those resources
Ok…
So what does it look like?
FUND GROUPS
• A way to organize funds within the chart of accounts based upon classification and restrictions
27
10
Audit Guide Fund Groups
• Unrestricted Current Funds
• Restricted Current Funds
• Loan Funds
• Endowment and Similar Funds
• Plant Funds
• Other Funds
28
FUND CLASSIFICATIONS
• Ownership vs. agency
• Restricted vs. unrestricted
• Expendable vs. non-expendable
29
Fund Groups
30
General Funds
Designated Funds
Restricted Funds*
Auxiliary Enterprises
Current Funds
Financial Aid
Internal Agency*
External Agency*
Other Funds
Loan Funds
Endowment Funds
Plant Funds
Noncurrent Funds
*Indicates fund classifications
11
Unrestricted Current Funds
31
Fund Groups
32
General FundsGeneral Funds
Designated FundsDesignated Funds
Restricted Funds
Auxiliary EnterprisesAuxiliary Enterprises
Current Funds
Financial Aid
Internal Agency
External Agency
Other Funds
Loan Funds
Endowment Funds
Plant Funds
Noncurrent Funds
Unrestricted Current Funds
Economic resources of the institution which are expendable for any purpose in performing the primary objectives of the institution
33
12
Unrestricted Current Funds
Typically include instruction, research, and public service;
And those funds which have been designated by the governing board for other purposes.
34
Unrestricted Current Funds
• General Funds
• Designated Funds– Continuing Education
– Public Service
– Internal Research
– Other
– Unrestricted Scholarships
• Auxiliary Enterprise Funds– Auxiliary
– Recharge Centers
– Hospitals
35
What is an Auxiliary?
An enterprise that furnishes goods or services to students, faculty, or staff and charged a fee directly related to, although not necessarily equal to, the cost of the goods or services. Basically, an entity managed as a self-supporting activity.
36
13
What is a Recharge Center Fund?
An operation that furnishes goods or services to other internal university departments and charges a fee directly related to, and equal to, the cost of the goods or services. Basically, an activity managed as a self-supporting operation that is not intended to make a profit.
37
Examples of Auxiliary and Recharge Activities• Athletics
• Residence halls
• Student unions
• Parking and transportation
• Bookstores
• Copy center
38
Unrestricted Current Funds –Sources
• State Appropriations
• Student Fees
• Sales and Services
– Academic, Auxiliary & Service
• Recovery of Indirect
Cost
• Interest Gifts
• Rent, Dividends & Royalties
• Endowment Income – if unrestricted
• Transfers In
39
14
Unrestricted Current Funds –Uses
– Salaries, Wages & Benefits
– Supplies & Expense
– Travel
– Capital Expenditures
– Note Payments (lease purchases)
– Interest Expense (lease purchases)
– Transfers Out
40
Unrestricted Current Funds –Assets
• Cash
• Investments
• Accounts Receivable
• Inventories
• Prepaid Expenses
• Due from Other Funds
• Notes Receivable
41
Unrestricted Current Funds –Liabilities
• Accounts Payable
• Salaries Payable
• Accrued Vacation Liability
• Deferred Revenue
• Due to Other Funds
• Notes Payable
42
15
Restricted Current Funds
43
Fund Groups
44
General Funds
Designated Funds
Restricted Funds
Auxiliary Enterprises
Current Funds
Financial Aid
Internal Agency
External Agency
Other Funds
Loan Funds
Endowment Funds
Plant Funds
Noncurrent Funds
Restricted Current Funds
Those funds expendable for operating purposes but restricted by donors or other outside agencies as to the specific purpose for which they may be expended.
45
16
RESTRICTED REVENUE
46
$100 $40$60
Cash Received Spent
TemporarilyRestricted Revenue
UnrestrictedExpenses
Temporarily RestrictedUntil Expended
Not Yet Spent
Restricted Current Funds
• Other Restricted
– Fellowships
– Scholarships
– Special State Appropriations
• Contract and Grants
– By agency type, I.e. federal, state, foundations,
etc.
– Cost Share
47
Restricted Current Funds -Sources
• Sales & Services (Program
Income)
• Interest & Gains
• Gifts
• Grants & Contracts
• Endowment Income
• Other Income (program income)
• Transfers In
48
17
Restricted Current Funds –Uses
• Matching Expenditures
– Salaries, Wages & Benefits
– Supplies & Expense
– Travel
– Indirect Cost Recovery
– Capital Expenditures
– Note Payments (lease purchases)
– Interest Expense (lease purchases)
– Transfers Out
49
Restricted Current Funds –Assets
• Cash
• Investments
• Accounts Receivable
• Inventories
• Prepaid Expenses
• Due from Other Funds
• Notes Receivable
50
Restricted Current Funds –Liabilities
• Accounts Payable
• Salaries Payable
• Deferred Revenue
• Due to Other Funds
• Notes Payable
51
18
Loan Funds
52
Fund Groups
53
General Funds
Designated Funds
Restricted Funds
Auxiliary Enterprises
Current Funds
Financial Aid
Internal Agency
External Agency
Other Funds
Loan Funds
Endowment Funds
Plant Funds
Noncurrent Funds
Loan Funds
The loan funds group consists of loans to students, faculty, or staff, and of resources available for such purposes.
54
19
Loan Funds
• Gift Agreements specify revolving
• Many are temporary and require repayment of principal & interest
• Some specify forgiveness of repayment under certain conditions
• Specific restrictions can exist
– Geographic
– Financial status
55
Loan Funds – Sources
• Interest
• Gifts
• Endowment Income
• Other Sources
– Government advances
• Transfers In
56
Loan Funds – Uses
• Student Loan Expenditures
– Collection fees
– Write-offs of loans
– Administrative collection costs
– Refunds to grantors
• Transfers Out
57
20
Loan Funds - Assets
• Cash
• Investments – temporary
• Due from other Funds
• Notes Receivable
– Face value
– Allowance for doubtful loans
58
Loan Funds - Liabilities
• Accounts Payable
– amounts due collection agencies for fees
– Refundable loan amounts
59
Endowment and Similar Funds
60
21
Fund Groups
61
General Funds
Designated Funds
Restricted Funds
Auxiliary Enterprises
Current Funds
Financial Aid
Internal Agency
External Agency
Other Funds
Loan Funds
Endowment FundsEndowment Funds
Plant Funds
Noncurrent Funds
Endowment and Similar Funds
• Endowment Funds
• Term Endowment Funds
• Quasi-endowment Funds
• Annuity and Life Income Funds
62
Endowment Funds
Endowment funds are funds to which donors or other outside agencies have stipulated, as a condition of the gift instrument, that the principal is to be maintained inviolate and in perpetuity and invested for the purpose of producing present and future income which may either be expended or added to principal.
63
22
Term Endowment Funds
Term endowment funds are similar to endowment funds except that, upon the passage of a stated prior of time or the happening of a particular event, all or a part of the principal may be expended.
64
Quasi-endowment Funds
Sometimes called funds functioning as endowments, quasi-endowments are funds which the governing board of an institution, rather than a donor or other outside agency, has determined are to be retained and invested. Because they are internally designated, the governing board has the right to decide at any time to expend the principal.
65
Annuity and Life Income Funds
Funds contributed to an institution subject to the requirement that the institution periodically pay the income earned on the assets to designed beneficiaries.
66
23
Annuity and Life Income Funds
• Received under deferred giving agreements
• Income to donor or designee
– lifetime or fixed period
• When contract expires, funds used as
designated by donor
67
WHAT CAN BE SPENT?
Created
by
Principal
Spent
Income
Spent
Endowment Donor No Yes
Term
Endowment
Donor Yes-after period of
time or event
Yes
Quasi-endowment
Board Yes Yes
68
Endowments and Similar Funds –Sources
• Interest & Gains
– Losses
• Gifts
• Other Income
– Income from Asset – Farm Activity, Rental,
etc.
• Transfers In
69
24
Endowments and Similar Funds –Uses
• Supplies & Expense
– Payouts on life income funds
• Transfers Out
70
Endowments and Similar Funds –Assets
• Cash
• Investments
71
Endowments and Similar Funds - Liabilities
• NONE
The mission of these funds is to make money, not spend it. Therefore, there tends to be no
liabilities since there are no deductions.
72
25
Endowments and Similar Funds
• Governed by Uniform Prudent Management of Institutional Funds Act (UPMIFA)
• Spending Policy
• Investment Policy
73
Plant Funds
74
Fund Groups
75
General Funds
Designated Funds
Restricted Funds
Auxiliary Enterprises
Current Funds
Financial Aid
Internal Agency
External Agency
Other Funds
Loan FundsLoan Funds
Endowment Funds
Plant FundsPlant Funds
Noncurrent Funds
26
Plant Funds
• Unexpended
• Retirement of Indebtedness
• Renewal and Replacement
• Investment in Plant
76
Plant Fund Definitions
• Unexpended Plant
– Funds for acquisition of physical plant
– Sometimes called Construction
• Retirement of Indebtedness
– Indebtedness incurred for plant expansion
77
Plant Fund Definitions -continued
• Renewal & Replacement
– Funds set aside for replacement of renewable property
• Investment in Plant
– Location of all assets that have been capitalized, construction in progress
and related debt
78
27
Construction - Sources
• Additions
– State Appropriations
– Interest & Gains
• Losses
– Gifts
– Grants – federal and state
– Bond Revenue
– Transfers In
79
Construction - Uses
• Supplies & Expenditures
• Expendable equipment
• Capital Expenditures
• Predominantly building
capitalization
• Transfers Out
80
Construction – Assets
• Cash
• Investments
• Accounts Receivable
• Prepaid Expense
• Due from other Funds
81
28
Construction – Liabilities
• Accounts Payable
• Due to other Funds
• Notes Payable
• Bonds Payable
82
Retirement of Indebtedness –Sources
• Interest and gains
– Losses
• Gifts
• Grants
• Transfers In
83
Retirement of Indebtedness -Uses
• Supplies & Expense
– Trustee’s fees and expenses
• Note Payments
• Bond Payments
• Interest Payments
84
29
Retirement of Indebtedness -Assets
• Cash
• Investments
• Funds on deposit
• Accounts Receivable
• Due from other funds
• Notes receivable
85
Retirement of Indebtedness -Liabilities
• NONE
Retirement of Indebtedness usually does not have any liabilities. Predominantly this is true
because there are no operating expenditures involved in the fund group, nor any long term
debt.
86
Renewal and Replacement Funds – Sources
• Interest and gains
– Losses
• Gifts
• Grants
• Transfers In
– Mandatory
– Voluntary
87
30
Renewal and Replacement Funds - Uses
• Supplies and Expense
– Expendable Equipment
– Maintenance of R&R Items
• Capital Expenditures
• Transfers Out – very seldom
88
Renewal and Replacement Funds - Assets
• Cash
• Investments
• Funds on Deposit
• Accounts Receivable
• Due from other Funds
89
Renewal and Replacement Funds – Liabilities
• Accounts Payable
• Due to other Funds
90
31
Investment in Plant – Sources
• NONE
There is no revenue in Investment in Plant because there is no cash activity. Only the
recognition of new plant capitalized occurs in the balance sheet assets.
91
Investment in Plant – Uses
• NONE
There is typically no expenditure in Investment in Plant. The only exception
is depreciation expense when it is recognized in plant funds.
92
Investment in Plant - Assets
• Capital Assets
– Land
– Buildings
– Moveable Equipment
– Cataloged Library Acquisitions
– Improvements to Land
– Infrastructure
• Accumulated Depreciation
93
32
Investment in Plant – Liabilities
• Notes Payable
• Bonds Payable
Only debt that relates to (matches) the
capital asset items
94
Other Funds
95
Fund Groups
96
General Funds
Designated Funds
Restricted Funds
Auxiliary Enterprises
Current Funds
Financial Aid
Internal Agency
External Agency
Other Funds
Loan FundsLoan Funds
Endowment Funds
Plant FundsPlant Funds
Noncurrent Funds
33
Other Funds
• External Agency
• Internal Agency
• 3rd party financial aid (private only)
97
Agency Funds
Funds held by an institution as custodian or fiscal agent for others such as student organizations, individual students, or faculty members.
98
Financial Aid – FASB Schools
Note: For private institutions, Pell grants and 3rd party financial aid directed toward specific students are shown as Agency transactions.
99
34
Internal Agency Funds
• Temporary Holding Accounts
• Examples:
–FICA
–Federal Taxes
–State Taxes
• Reported as Unrestricted assets and liabilities at the end of the fiscal year (typically June 30)
100
External Agency Funds
• Relationship with University mission
• Usually there is an agreement to sponsor
• Reimbursement to university
• Never reported as university resources
101
External Agency Funds
• Enhance institution’s mission
– Federally-funded research labs
– Software production corporation
– Alumni associations
– Foundations
– University press
102
35
Higher Education Function Codes
103
What are function codes needed for ?
• IPEDS reporting
• Facilities and Administrative Rate
• Internal management of how dollars are spent
• Some states require reporting by function
• Institutions can report expenses in the operating statement by function instead of natural classification
104
Educational and General Function Codes
• Instruction• Research• Public Service• Academic Support• Student Services• Institutional Support• Operation and Maintenance of Plant• Scholarships and Fellowships
105
36
EDUCATIONAL AND GENERAL
INSTRUCTION
• General Academic
• Vocational/Technical
• Continuing Education
• Remedial
106
EDUCATIONAL AND GENERAL
RESEARCH
• Individual
• Project
• Institutes and research centers
NOT equivalent to sponsored research
107
EDUCATIONAL AND GENERAL
PUBLIC SERVICES
• Community service
• Cooperative extension services
• Public broadcasting services
–not primarily instructional
108
37
EDUCATIONAL AND GENERAL
ACADEMIC SUPPORT
• Libraries
• Museums and galleries
• Educational media
• Academic computing
Cont’d
109
EDUCATIONAL AND GENERAL
ACADEMIC SUPPORT Cont’d
• Ancillary support
• Academic administration
• Academic personnel development
• Course and curriculum development
110
EDUCATIONAL AND GENERAL
STUDENT SERVICES
• Student services administration
• Financial aid administration
• Student records
• Admissions
Cont’d111
38
EDUCATIONAL AND GENERAL
STUDENT SERVICES, con’t
• Counseling and career guidance
• Social and cultural development
• Student health services
112
EDUCATIONAL AND GENERAL
INSTITUTIONAL SUPPORT
• Executive management
• Fiscal and business operations
• General administration and logistical services
• Administrative computing
• Public relations/development113
EDUCATIONAL AND GENERAL
OPERATION AND MAINTENANCE OF PLANT
• Physical plant administration (and planning)
• Building maintenance
• Custodial services
• Utilities114
39
EDUCATIONAL AND GENERAL
OPERATION AND MAINTENANCE OF PLANT
• Landscape and grounds maintenance
• Major repairs and renovations
Note: Not an expenditure category for private, must allocate out to all other functions.
115
EDUCATIONAL AND GENERAL
SCHOLARSHIPS AND FELLOWSHIPS
• Grants
• Trainee stipends
• Prizes and awards
• Tuition and fee waivers
NO exchange of services, used as directed by donor
116
FINANCIAL REPORTING
117
40
Purpose
To provide financial information useful
for making rational decisions to
allocate resources.
118
Who are the users of financial statements?
• Federal Government
• State Government
• Private Sponsors
• Media
• Analysts
• Rating Agencies
• Colleges & Universities
What are the objectives?
• Assess financial condition and results of operation
• Assist in determining compliance with laws and regulations
• Assist in evaluating efficiency and effectiveness
120
41
GASB/FASB Comparability Challenges
• Display differences exist with the reporting
models established by GASB and FASB
• The Accounting Principles Council and academic researchers have initiated analysis of reporting
and standard inconsistencies
• The inconsistencies impact financial statement comparability between public and private
institutions
121
Prominent FASB/GASB Differences
• Pell Grants
– FASB – Agency recognition i.e., funds held for others
– GASB – Revenue
• Recognition of Pledges
– Discounting of operating pledges FASB yes GASB no
– Recognition of endowment pledges FASB yes GASB no
• Reporting of restricted revenues
– FASB – Mandates first dollar release method
– FASB – Only donors can restrict
– GASB – Any external party can restrict
122
Prominent FASB/GASB Differences
• Time Restrictions
– FASB – Time and purpose are restrictions
– GASB – Time is a condition, not a restriction (result is deferred revenue)
• OPEB
– FASB – Accrues a liability
– GASB – Also accrues liability but with different assumptions and funding not required
• Cash Flow
– FASB – Direct or indirect method, three categories
– GASB – Direct method mandatory, four categories
123
42
Prominent FASB/GASB Differences
• Split Interest Agreements– FASB – Current guidance in the Not-for-Profit
Audit Guide
– GASB – Single Q&A Answer
• Funds held in trust by others– FASB – Reported as an asset
– GASB – Not reported unless as a component
unit
124
Prominent FASB/GASB Differences
• Display– FASB – must allocate depreciation, three net
asset groups not consistent with GASB,
unclassified balance sheet, MD&A and operating measure are not required
– GASB – no requirements to allocate
depreciation, three net asset groups not consistent with FASB, classified balance sheet,
mandatory operating measure, mandatory
MD&A125
Consequences of GASB/FASB Differences
• Misinterpretation by statement users
• Comparisons between public and private statements difficult if not impossible
• Financial analysis significantly different
– Ratios, Vertical analysis, Horizontal Analysis,
etc.
• Debt rating agencies’ analysis and conclusions
126
43
BASICS OF ALL COLLEGES &
UNIVERSITIES FINANCIAL STATEMENTS
127
MEASUREMENT FOCUS AND BASIS OF ACCOUNTING
• Financial statements should be presented using the economic resources measurement and the accrual basis of accounting.
128
ECONOMIC RESOURCES
• Economic resources measurement focus, essentially full commercial accounting with depreciation of capital assets and utilization of the effective interest rate for the recognition of long-term debt obligations
129
44
BASIS OF ACCOUNTING
• “Basis of accounting” refers to when revenues, expenditures, expenses, and transfers--and the related assets and liabilities--are recognized in the accounts reported in the financial statements.
130
ACCRUAL BASIS
• Revenues should be recognized in the accounting period in which they are earned and become measurable; expenses should be recognized in the period incurred, if measurable.
Vs.
• Cash basis – revenues and expenses are recognized when cash is exchanged
131
FINANCIAL STATEMENTS FOR PUBLIC COLLEGES &
UNIVERSITIES (GASB)
132
45
BUSINESS TYPE ACTIVITIES FINANCIALS
• Present only those financial statements and RSI
required for enterprise funds (GASB 34 & 35)
– MD&A (RSI)
– Statement of Net Assets
– Statement of Revenues, Expenses, and Changes in Net Assets
– Cash Flow Statement
– Notes to the Financial Statements
– Other RSI
133
Statement of Net Assets (Balance Sheet)
134
STATEMENT OF NET ASSETS
• Assets and liabilities should be presented in a classified format to distinguish between current and long-term assets and liabilities
• May use either a net assets format-assets less liabilities equal net assets-or a balance sheet format-assets equal liabilities plus net assets
135
46
STATEMENT OF NET ASSETS
• Net assets should be displayed in three broad components—invested in capital assets, net of related debt; restricted (distinguishing between major categories of restrictions); and unrestricted.
136
STATEMENT OF NET ASSETS
• When permanent endowments or permanent fund principal amounts are included, “restricted net assets” should be displayed in two additional components—expendable and nonexpendable. Nonexpendable net assets are those that are required to be retained in perpetuity.
137
STATEMENT OF NET ASSETS
• Capital contributions should not be displayed as a separate component of net assets.
• Designations of net assets should not be reported on the face of the financial statements.
138
47
STATEMENT OF REVENUES, EXPENSES, AND CHANGES IN NET
ASSETS (SRECNA)
139
SRECNA
• Operating statement for proprietary funds/enterprise funds/business type activity
• Revenues should be reported by major source and should identify revenues used as security for revenue bonds
• Should distinguish between operating and nonoperating revenues and expenses
140
SRECNA
• Should present a separate subtotal for operating revenues, operating expenses, and operating income
• Nonoperating revenues and expenses should be reported after operating income
141
48
SRECNA
• Revenues from capital contributions and additions to the principal of permanent and term endowments, special and extraordinary items, and transfers should be reported separately, after nonoperating revenues and expenses
142
SRECNA
• Revenue recognition of capital contributions, additions to permanent and term endowments and all other nonexchange revenues should be based on the requirements of GASB33, Accounting and Financial Reporting for Nonexchange Transactions
• Restricted net assets should be separated into expendable and nonexpendable
143
EXPENSES
• May be displayed using either natural or functional classification
• Many schools voluntarily provide both, one on face of statements and the other in the notes
– This is not required
• Must distinguish between operating and nonoperating
144
49
CASH FLOW STATEMENT
145
CLASSIFICATIONS
• Operating Activities
• Noncapital Financing Activities
• Capital and Related Financing Activities
• Investing Activities
146
OPERATING ACTIVITIES
• Direct reporting method prescribed
• Accrual data must be converted into cash basis. A reconciliation [indirect method] of this conversion must be presented at the bottom of the statement
• Inflows reported by major type
• Outflows reported by payment type
147
50
NOTES TO THE FINANCIAL STATEMENTS
148
NOTES TO THE FINANCIAL STATEMENTS
• Integral part of the basic financial statements
• Communicates information that is essential for a fair presentation of the financial statements not displayed on the face of the financial statements (GASB 34, p.39, ¶113)
149
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
• Measurement focus basis of accounting used• Definition of cash equivalents• Codification of applicable FASB
pronouncements • Asset capitalization policy together with asset’s
useful lives• Defining operating and non operating revenues • Policy regarding the use of restricted or
unrestricted resources when an expense is incurred when both unrestricted and restricted net assets are available
150
51
NOTES TO THE FINANCIAL STATEMENTS
• Capital assets and long-term liabilities reported by major class
• Capital assets and long-term liabilities reported in SRECNA– Major classes
– Grouped by depreciable/non depreciable assets
• Capital acquisitions/dispositions
151
NOTES TO THE FINANCIAL STATEMENTS
• Beginning/end of the year balances with separate accumulated depreciation
• Current year depreciation with amounts allocated to each program, if any
• Provide description of collections• Explanation of the collection assets not
capitalized
152
LONG-TERM LIABILITIES
• Bonds, notes, loans, lease, payable and compensated absences, claims and judgements
• Beginning/end of the year balances
• Increases/decreases
• Current year obligation displayed as a separate column
153
52
ENDOWMENTS - DONOR RESTRICTED
• Amount of net appreciation available for expenditure
• How are these amounts reported in net assets
display
• Law regarding ability to spend net appreciation
• Policy for authorizing and spending investment
income (GASB 34, p.42, ¶121),
– Spending-rate
– Total-return policy
154
SEGMENT INFORMATION(only if data required by bond holder)
• Types of goods or services provided by the
segment
• Identifiable activity pledged for revenue bonds
by each segment
• Condensed statements (GASB 34, p.42, ¶122)
– SNA
– SRECNA
– Statement of Cash Flows
155
MANAGEMENT’S DISCUSSION AND ANALYSIS (MD&A)
156
53
MD&A
• The basic financial statements should be preceded by MD&A (RSI)
• MD&A is required supplementary information and therefore is subject to a lower level of audit than the financial statements and the notes
• MD&A should provide an objective and easily readable analysis of the financial activities based on currently known facts
157
COMPARATIVE ANALYSIS -FUTURE
• Comparison of current-year results to prior year
• Emphasis should be on current-year
• Both positive and negative results should be discussed
• Although not mandatory, graphs, charts and tables are encouraged.
• GASB 34, p. 6, ¶9
158
MD&A REQUIREMENTS
• General rather than specific
• Report only the most relevant information
• Avoid “boilerplate” discussion
• A brief discussion of the basic financial statements
• How the financial statements relate to each other
• Significant differences in the data
• Data provided should reinforce analysis and results of operations
159
54
MD&A MINIMUM REQUIREMENTS
• Total assets, distinguishing between capital and other assets
• Total liabilities, distinguishing between long-term liabilities and other liabilities
• Total net assets, distinguishing
– Invested in capital assets, net of related debt
– Restricted amounts
– Unrestricted amounts160
MD&A MINIMUM REQUIREMENTS
General Revenues, by major source
• Total Revenues
• Total Expenses
• Excess before contributions to
– Term and permanent endowments
– Permanent fund principal
– Special and extraordinary items
– transfers
161
MD&A MINIMUM REQUIREMENTS
• Contributions
• Special & Extraordinary Items
• Transfers
• Change in Net Assets
• Ending Net Assets
162
55
MD&A MINIMUM REQUIREMENTS – FINANCIAL
POSITION• Overall financial position and results of
operations to assist in assessing whether financial position has improved or deteriorated
• Reasons for significant changes from prior years
• Important economic factors that significantly affected operating results
163
MD&A MINIMUM REQUIREMENTS – BALANCES
• Significant changes and reasons for changes in
net assets
• Significant changes and reasons for changes in
availability of funds
– Restriction changes
– Commitment changes
– Other limitations.
164
MD&A MINIMUM REQUIREMENTS – CAPITAL
• Significant Capital Asset Activity
• Significant Long-Term Debt Activity
• Capital Expenditure Commitments
• Changes in Credit Ratings
• Debt Limitations affecting Plans
165
56
MD&A ANALYSIS – KNOWN FACTS
A description of currently known facts, decisions, or conditions that are expected to have a significant effect on financial position (net assets) or results of operations (revenues, expenses, and other changes in net assets).
GASB 34, p. 8, ¶11.h
AGAIN, GASB 36, restricts MD&A to ¶11
166
Group DISCUSSION ON GASB STATEMENTS
167
Financial Statements for Private Colleges and Universities
(FASB)
• SFAS 116, 117, 124, 136 & 164
• Now part of codification
168
57
SFAS overview• SFAS #116 addresses issues of recognition &
measurement
• SFAS #117 establishes standards for general-purpose external financial statements
• SFAS # 124 established recognition for investment losses
• SFAS # 136 establishes recognition for funds held by others
• SFAS # 164 established guidance for NFP acquisitions and mergers
169
Types of StatementsStatement
Financial Position
Activities
Cash Flow
Purpose
Current Status (Balance Sheet)
Detailed Sources &Uses, Transactions
Cash Receipts & Cash
Payments
170
Statement of Financial Position
(Balance Sheet)
171
58
Minimum Requirements include
• Total amount of assets, liabilities, & net
assets
• Total amount of each class of net assets (unrestricted, temporarily restricted, permanently restricted) based on existence or absence of donor-imposed restrictions
172
Minimum Requirements include
• Information regarding types of restrictions
on net assets (usually in notes)
• Information regarding liquidity (e.g. by providing classified balance sheet)
173
Statement of Activities
174
59
Minimum Requirements include
• Amount of change in total net assets
• Amount of change in each of the 3 classes of net assets
• All revenues, expenses, gains, and losses for the period -classified by and reported in the class of net assets they affect
• Revenues reported as increases in unrestricted net assets unless their use is restricted by explicit donor stipulation or by law
175
Minimum Requirements include
• Expenses reported as decreases in unrestricted net assets
• Reporting expenses by function either in the statement or in the notes
• The amount of expired donor-imposed restrictions that increase one class of net assets and simultaneously decrease another class of net assets
176
Statement of Cash Flows
177
60
Minimum Requirements include
• Total changes in cash and cash equivalents
• Total amount of net cash provided by or used for
investing, financing, & operating activities
• Interest paid on indebtedness
• Significant non-cash financing and investing activities
• Reconciliation of change in total net assets to net cash provided by or used for operating activities
178
Notes to the Financial Statement
179
Footnotes required by SFAS 116 & SFAS 117 or
suggested as being informative:
• Summary of significant accounting policies
• Nature of restriction/limitations on net asset balances
• Net assets released from restrictions
• Expenses by classification
180
61
Footnotes required by SFAS 116 & SFAS 117 or
suggested as being informative:
• Unconditional and conditional promises to give
• Collections policies
• Appreciation of endowment investments
• Contributed services details
181
Group DISCUSSION ON FASB STATEMENTS
182
183
Hope this put the FUN into FUNd Accounting!