Essentials of Accounting for Governmental and Not-for-Profit Organizations Chapter 9 Accounting for Special Purpose Entities, Including Public Colleges and Universities McGraw-Hill/Irwin Copyright © 2008 by The McGraw-Hill Companies, Inc. All rights reserved.

1-2 Special Purpose Entities General Purpose Governments include: States, counties, cities, towns, and villages. Special Purpose Entities include: Fire protection districts, park districts, and public authorities. A Special Purpose Entity may be a component unit of a General Purpose government.

1-3 Special Purpose Entity Reporting If the entity is engaged in governmental and business type activities Use general GASB 34 reporting model and report both fund basis and government-wide financial statements If the entity is engaged in multiple governmental activities Use general GASB 34 model, just omit enterprise funds statements which are not applicable

1-4 Special Purpose Entity Reporting If the entity is engaged in single governmental activity The entity can prepare governmental fund, government-wide statements, and reconciliation effects all on one statement If the entity is engaged only in business-type activities The entity can prepare enterprise fund financial statements (no need for government-wide) If the entity is engaged only in fiduciary type activities The entity can prepare fiduciary fund financial statements (no need for government-wide)

1-5 PUBLIC Colleges and Universities Public Colleges and Universities are owned by a government. Public College financial reporting is covered by GASB. Private Colleges are not owned by a government and their reporting falls under FASB guidance -- covered in chapter 11. Although there are more private than public colleges in the US, roughly 3/4 of the students attend public institutions.

1-6 Public Colleges and Universities – GASB 35 GASB 35 requires statements similar to those of special purpose governments under GASB 34. The effect is to require colleges to use the accrual basis and record long-term assets, including infrastructure, along with depreciation.

1-7 Public College Financial Reports Although public colleges may have governmental type activities, business type activities, or both Most public colleges, with the exception of some community colleges that have power to levy property taxes, will report as governmental units with “business activities only.” Therefore they will prepare enterprise fund statements

1-8 Public College Statement of Net Assets Assets and Liabilities Are classified as current and noncurrent. Net Assets are Classified as 1) Invested in capital assets, net of debt 2) Restricted -- Nonexpendable and Expendable 3) Unrestricted

1-9 Unrestricted Net Asset Deficits Note: Deficits in unrestricted assets may be common because Colleges are not accustomed to setting aside funds for depreciation. States seldom fund compensated absences in advance.

1-10 Public College Statement of Revenues, Expenses and Changes in Net Assets Format: Operating Revenues include: Student Tuition net of scholarship allowances Federal and State Grants Auxiliary Less: Operating Expenses including depreciation Plus or minus: Nonoperating Revenues and Expenses Includes state appropriations, gifts, investment income, interest on capital debt Plus or minus: Capital appropriations, gift, endowment additions Equals: Increase in net assets Plus: Beginning net assets Equals: Ending net assets

1-11 Public College Statement of Cash Flows Cash flows from Operating activities must be presented using the direct method Four Parts Operating items: Excludes interest and dividend revenues and expenses Noncapital Financing: Includes state appropriations and gifts including endowments Capital Financing: Purchase of long-term assets and related gifts, appropriations and debt repayment including interest Investing: Includes interest revenues, endowment and other investments kept separate Reconciliation of Operating income to cash flows from operations May also have noncash financing and investing section