chapter 13 · chapter 13 granof & khumawala 5e ... and accounting guide for colleges and...

Chapter 13

Chapter 13 Granof & Khumawala 5e 1

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Institution

Endow ment value as of June 30,

2007 (in billions of dollars)

Investment return, year ending June

30, 2007Spending rate for 2007 f iscal year

Harvard U. $34.90 23.00% 4.60%

Yale U. $22.50 28.00% 3.80%

Stanford U. $17.20 23.00% 4.40%

Princeton U. $15.80 24.70% 4.60%

U. of Texas $14.40 18.20% 4.40%Massachusetts Insti tute of Technology $10.00 22.10% 4.30%

Columbia U. $7.20 23.10% *

U. of Michigan $7.10 25.60% 3.80%

U. of Ca l i fornia $6.70 20.10% 4.20%Texas A&M U. System Foundations $6.60 18.90% 4.40%

These were the largest endowments at June 30, 2008

Chapter 13 Granof & Khumawala 5e

Source: 2008 NACUBO–Commonfund Endowment Study Follow-up Survey, January 2009.



Institution

Endowment value as of

June 30, 2007 (in millions of

dollars)

Endowment value as of

June 30, 2008 (in millions of

dollars)Pct Change in Endowment

Harvard U. $ 34,635 $ 36,556 5.5%Yale U. $ 22,530 $ 22,869 1.5%Stanford U. $ 17,165 $ 17,200 0.2%Princeton U. $ 15,787 $ 16,349 3.6%U. of Texas $ 15,614 $ 16,111 3.2%MIT $ 9,980 $ 10,069 0.9%Columbia U. $ 7,150 $ 7,147 0.0%U. of Michigan $ 7,090 $ 7,572 6.8%U. of California $ 6,439 $ 6,217 -3.4%Texas A&M System $ 6,590 $ 6,659 1.0%University of Houston 654$ $ 674 3.2%University of Idaho $ 189 $ 176 -6.6%

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Endowment Assets (as of June 30,2008)FY 2008

(NES)

Ju1y 1 to Nov. 30

Follow-upGreater Than $1 Billion 0.6% -20.5%> $500 Million to ≤ $1 Billion -1.9% -22.2%> $100 Million to ≤ $500 Million -2.9% -23.5%> $50 Million to ≤ $100 Million -3.2% -22.1%> $25 Million to ≤ $50 Million -4.3% -23.1%Less Than or Equal to $25 Million -4.3% -21.4%All Public Institutions -4.3% -21.3%All Independent Institutions -2.8% -22.5%Full Sample -3.0% -22.5%Chapter 13 Granof & Khumawala 5e

Most are state, with 12 federal and a few hundred local Example: University of Idaho, Washington State University

Proprietary (for profit) – about 1,000 Not-for-profit – about 1,600

Example: Brigham Young University, University of Portland, University of Puget Sound, Pacific Lutheran University



Year 2007-08

4,3522,6751,6771,685

6531,0322,6672,022

645Total 1,624

4-year 1,5322-year 92

Total 1,0434-year 4902-year 553

2-year

PublicTotal

4-year2-year

For-profit

Not-for-profit

2-year, total

US Colleges & Universities

Private

Total4-year, total

All institutionsTotal

4-year

However, some institutions (e.g. community colleges) use the full GASB government model with the dual perspective.

1) Only in business-type activities 2) Only in governmental activities 3) In both



• Used for:

• Internal Purposes ONLY

• The fund structure prescribed by the AICPA 1973 Audit and Accounting Guide for Colleges and Universities (no longer authoritative for external financial reporting purposes):

• Current funds (unrestricted and restricted)• Loan funds• Endowment and similar funds• Annuity and life income funds• Plant funds (4 sub-funds)• Agency funds

Fund Accounting

GASB 35 (which says to follow GASB 34 but provides examples for C&Us)

AICPA AAG State and Local Governments

FASB standards, now codified as ASC 958

FARM (industry guidance maintained by NACUBO)


PDF files:University of Idaho (GASB)

University of Puget Sound (FASB)



Reporting as a special purpose government engaged in business-type activities only under GASB Statement Nos. 34 and 35 .

Statement of Net Assets, classifying net assets into:

-Unrestricted-Restricted (Expendable or Nonexpendable)-Invested in Capital Assets, net of related debt

Statement of Revenues, Expenses, and Changes in Net Assets

Statement of Cash Flows

For Public C&Us


Reporting under SFAS Nos. 116 and 117

Statement of Financial Position classifying net assets into:

-unrestricted -temporarily restricted-permanently restricted

Statement of Activities

Statement of Cash Flows

Example: Rice University

For Private C&Us

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GASB does not allow designations to be presented on face of FS

So, the most obvious difference on BS is the NA section


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This is a classified balance sheet (stmt of net assets) but this display is not mandatory under GASB



Private nonprofit universities don’t need a separate nonprofit to hold the endowments so there is generally just one set of financial statements.

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Under FASB, classification of current and noncurrent is optional (can use order of liquidity or information in notes)Chapter 13 Granof & Khumawala 5e


Both governmental and private universities classify revenues by SOURCE.

Common categories of revenue include: -Tuition and fees -Federal, state, and local appropriations-Private gifts-Grants and contracts-Endowment income-Sales and services of educational activities-Sales and services of auxiliary activities-Gain/loss on sales of investments

Revenue Classifications


Both governmental and private universities classify expenses by FUNCTION. (see next slide)

Recognized on the accrual basis.

May be also classified by (i.e. matrix form):

-program functions

-organizational units

-projects

-object classes.

Current Operating Expenses


Instruction

Research

Public service

Academic support

Student services

Institutional support

Operation and maintenance of plant

Scholarships and fellowships

Functional Classification of Expenses


Unlike GASB, FASB does not define “operating” but many nonprofits present a subtotal

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Under GASB there is almost always an operating LOSS



Direct Method!


Under GASB, there are 4 sections on the SCF and the university MUST use the direct method


UPS uses the indirect method for the SCF


Isn’t this much better?

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Under GASB, a management discussion and analysis (MD&A) section is mandatory. There is no equivalent requirement under FASB



UPS actually has a section that is somewhat like MD&A but the majority of private colleges and universities do not


An MD&A section is a good place to disclose “SEA” nonfinancial performance indicators like these from UPS

GASB MD&AThe GASB MD&A instructions are very prescriptive with respect to the content and, among other items, require disclosure of the nature of expenses. Apparently, UI does it by way of a GRAPH:


37Chapter 13 Granof & Khumawala 5e

Recording Tuition NETAccounting for Grants

Endowment Disclosures



Scholarships


Exchange Transactions


C&U that expend more than $500,000 of federal awards a year need a Single Audit.

Auditors will use government auditing standards (yellow book) and follow OMB Circular A-133 and AICPA SOP 98-3.

Auditors must be sure that the C&U has complied with the cost principles in OMB Circular A-21.

Auditing Issues in C&U


C&U may have institutionally related foundations for fund-raising, alumni relations, or management of assets.

Related entities should either be disclosed in the Notes to the Financial Statements or reported as component entities, depending on the degree of control and economic interest.

The FASB and GASB both have projects on affiliated organizations and consolidations. FASB consolidation standard

was recently issued

Related Entities


GASB Stmt. # 39 (2002) requires public universities* to report affiliated organizations as component units if these criteria are met:

The economic resources received or held are almost entirely for the direct benefit of the university,

The university is entitled to access those resources, The economic resources are significant to the university.

Discrete presentation is required, i.e., a separate column on the face of the financial statements.

*GASB # 39 is not exclusively for colleges and universities

GASB Stmt. # 39 Affiliated Organizations


However, this is not the practice recommended by NACUBO!

chapter 13 · chapter 13 granof & khumawala 5e ... and accounting guide for colleges and...

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