Essentials of Accounting for Governmental and NotforProfit Organizations

1
Essentials of Accounting for Governmental and
Not-for-Profit Organizations

• Chapter 11
• College and University Accounting -- Private
  Institutions

2
Overview of Chapter 11

• Who has standard setting authority?
• Overview of Financial Statements and General
  Accounting Principles
• Split-Interest Agreements

3
Standard setting authority

• GASB
• Authority over government related colleges
• GASB 35 for Public Colleges and Universities
• FASB
• Private colleges and universities
• NACUBO - National Association of College and
  University Business Officers wrote guidelines
  before FASB addressed college issues
• Major FASBs 93, 116, 117, 124, 136

4
Required Statements

• Required statements set forth in FASB 117 -- same
  as other nonprofits
• Statement of Financial Position
• Statement of Activities
• Or, Statement of Unrestricted Revenues, Expenses
  and Other Changes in Unrestricted Net Assets plus
• Statement of Changes in Net Assets
• Statement of Cash Flows
• Not required Statement of Functional Expenses

5
Basic Principles

• Accrual basis including depreciation
• Restricted resources assumed used before
  unrestricted
• FASB 116 applies for pledge and contributions of
  service
• Plant assets may be initially recorded as
  unrestricted or temporarily restricted

6
Basic Principles continued

• Investments at fair value
• Option to record collections or not, plus note
  disclosure
• Student aid, no services required, net revenue
  others as expense.
• Foundations -- part of revenue may have to be
  disclosed in university statements
• Fund-raising allocation issues based on purpose,
  audience and content

7
Statement of Unrestricted Revenue, Expenses and
Other Changes in Unrestricted Net Assets

• Illustrations 11-2 and 11-3 are an alternate
  approach to Statement of Activities
• Revenues Compared to Public Colleges
• No distinction between operating and
  non-operating revenues -- state appropriations
  treated like other revenues
• State Colleges did not have category for release
  of restrictions
• Expenses and Losses
• Education and General
• Auxiliary

8
Reporting of Tuition Revenues(NACUBO)

• If tuition or fee reductions are an employee
  benefit (work study), the reduction is treated as
  an expense
• Academic or athletic scholarships that do not
  require service to the college are treated as
  reductions in revenue
• Estimates of uncollectible tuition and fees are
  treated as reductions in revenue

9
Academic terms encompassing more than one fiscal
year

• Because colleges and universities commonly use
  June 30 as fiscal year end, tuition for summer
  school frequently cover parts of two fiscal
  years.

• NACUBO requires both revenues and expenses for
  split sessions to be apportioned to the two
  fiscal years, following accrual accounting
  practices similar to those employed by commercial
  organizations.

10
Statement of Changes in Net Assets

• When Unrestricted Revenues only are shown in
  Statement of Revenues, Expenses, etc., this
  statement shows changes in temporarily restricted
  and permanently restricted.
• Could have additional statements showing details
  of changes in temporarily restricted and
  permanently restricted assets if complex.

11
Statement of Financial Position

• Similar to statements illustrated in Chapter 10
• Board designation -- listed as unrestricted net
  assets on Statement of Financial Position

12
Comparison Ownership Types and Equity Accounts

• Private -
• Net Assets Unrestricted, Temporarily Restricted,
  and Permanently Restricted.
• Public -
• Net Assets Unrestricted, Restricted, and
  Invested in Capital Assets Net of Related Debt
• Investor Owned -
• Paid in Capital and Retained Earnings

13
Statement of Cash Flows

• 3 Categories on Statement of Cash Flows --
  direct or indirect format
• Increase in net assets is for all 3 net assets
  categories - unrestricted, temporarily,
  permanently restricted -- adjustments remove most
  temporary and permanent amounts
• Investing section includes long-term investments,
  long-term asset activity and loan receivable
  activity
• Interest payments and revenues in Operating
  section -- financing includes principal payments
  only -- the endowment is the amount of
  contributions received, purchase of investments
  shown in investing section

14
Split-Interest Agreements

• Five types
• Charitable lead trust funds
• Perpetual trusts held by third parties
• Charitable remainder trusts
• Charitable gift annuities
• Pooled (life) income funds

15
Charitable lead trust funds

• Fixed amount or fixed of assets paid to NFP for
  certain term
• Then remaining assets to another party
• NFP may or may not hold the assets
• When irrevocable trust begins
• NFP recognizes a receivable and temporarily
  restricted revenue equal to present value of
  expected receipts
• Additional assets and a liability recognized if
  NFP is the holder of the assets
• Changes in present value or expected receipts
  affect temporarily restricted assets in future
  years.

16
Perpetual trusts held by third parties

• Trust benefits NFP only (no remainder interest).
• When established the NFP records the present
  value of anticipated receipts as an asset and as
  contribution revenue in the permanently
  restricted.
• Receipt of the income each year treated as
  temporarily restricted or unrestricted income.
• Changes in present value and/or fair value of
  assets to be received affects permanently
  restricted revenues.

17
Charitable remainder trusts

• An fixed amount or specified of the trust is
  paid to a beneficiary for a certain length of
  time
• At end, NFP gets the remaining assets
• When set up Assets are recorded at fair value,
  liability set up for present value of expected
  payments to the beneficiary, difference to
  unrestricted, temp. rest. or permanently
  restricted depending on terms.

18
Charitable gift annuities and Pooled life income
funds

• Charitable gift annuity accounting similar to
  charitable remainder trust
• Life income funds --
• Pool in which donors or recipients of their
  choice get income for life, remainder to NFP
• May require use of actuarial techniques to
  determine appropriate present value amounts