1. Chapter 11 College and University – Private Institutions
Essentials of Accounting for Governmental and Not-for-Profit Organizations
Chapter 11
College and University – Private Institutions
McGraw-Hill/Irwin
Copyright © 2008 by The McGraw-Hill Companies, Inc. All rights reserved.

2. Overview of Chapter 11
Who has standard setting authority for colleges and universities?
Overview of Financial Statements and General Accounting Principles for private colleges and universities
Split-Interest Agreements

3. Standard Setting Authority
GASB has primary authority over government related (Public) colleges
There is one standard (GASB 35) specific to Public Colleges and Universities
FASB has primary authority over private colleges
NACUBO - National Association of College and University Business Officers provides additional guidance

4. Required Statements: Private Not-for-Profit Colleges and Universities
Required statements are set forth in FASB 117 and are the same as other not-for-profits.
Statement of Financial Position
Statement of Activities or (both)
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 of accounting, including depreciation expense
FASB 116 applies for contributions, including pledges of support and contributed services
FASB 117 applies to classification of net assets as unrestricted, temporarily restricted, or permanently restricted.
Plant assets may be initially recorded as unrestricted or temporarily restricted
Restricted resources are assumed to be used before unrestricted

6. Basic Principles, con’t
Investments are reported at fair value
Collections may be reported in statements or merely in notes.
Fund-raising expenses follow not-for-profit allocation rules 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 the Statement of Activities
Revenues – (Compared to Public Colleges)
No distinction between operating and nonoperating revenues -- state appropriations are treated like other revenues
State Colleges did not have category for release of restrictions
Expenses include:
Education and General
Auxiliary activities

8. Auxiliary Enterprises Activities of colleges or universities that furnish services on a user-charge basis.
Bookstores
Residence halls

9. Reporting of Tuition Revenues (NACUBO guidelines)
If a tuition or fee reduction is an employee benefit (work study or graduate assistantship), 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 also treated as reductions in revenue

10. 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 that both revenues and expenses for split sessions be apportioned to the two fiscal years, in a manner similar to that followed by commercial organizations.

11. Statement of Changes in Net Assets
This statement is presented when a college uses a Statement of Unrestricted Revenues, Expenses, and Other Changes in Unrestricted Net Assets
The Statement of Changes in Net Assets shows changes in temporarily restricted and permanently restricted net assets which are not presented in the Statement of Unrestricted Revenues, Expenses, and Other Changes in Unrestricted Net Assets

12. Equity Accounts: Types of Colleges and Universities
Private not-for-profit
Net Assets: Unrestricted, Temporarily Restricted, and Permanently Restricted.
Public
Net Assets: Unrestricted, Restricted, and Invested in Capital Assets Net of Related Debt
Investor Owned
Owners’ Equity: Paid in Capitals and Retained Earnings

13. Statement of Cash Flows
Direct or indirect format is permitted
The cash flow statement is for all 3 net assets categories: unrestricted, temporarily, permanently restricted
Cash flows are Not displayed separately for the 3 categories
3 Categories (Operating, Investing, and Financing)
Interest payments and revenues appear in the operating section. The indirect method begins with total “change in net assets”
Investing section includes long-term investments, long-term asset activity and loan receivable activity
Financing section includes receipt of permanently restricted contributions.

14. Split-Interest Agreements
Split interest agreements are arrangements with donors in which not-for-profits receive benefits that are shared with other beneficiaries.
There are 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
In a charitable lead trust, the donor provides resources which generate income that is paid to the not-for-profit for a period of time (term).
At the end of the term, the remaining assets are paid to another party
The not-for-profit recognizes a receivable and temporarily restricted revenue equal to the present value of expected receipts
Changes in the present value or expected receipts affect temporarily restricted assets in future years.

16. Perpetual Trusts Held by Third Parties
In a perpetual trust held by a third party, the trust benefits the not-for-profit only (no remainder interest).
When established, the not-for-profit records the present value of anticipated receipts as an asset and as contribution revenue (permanently restricted).
Receipt of the income each year is treated as temporarily restricted or unrestricted income.
Changes in present value and/or fair value of assets to be received affects permanently restricted net assets.

17. Charitable Remainder Trusts and Gift Annuities
Charitable remainder trust: The donor provides resources which generate income that is paid to a beneficiary for a period of time (term). At the end of the term, the not-for-profit gets the remaining assets.
When established, assets are recorded at their fair value, and a liability is set up for the present value of expected payments to the beneficiary. The difference between the assets and the liability is contribution revenue.
Charitable gift annuity is the same as a charitable remainder trust except no formal trust agreement exists. The accounting is also similar to a charitable remainder trust.

18. Pooled Life Income Funds
Pool in which donors or recipients of their choice receive income from the trust for the remainder of the beneficiary’s life. Afterwards the not-for-profit receives the assets.
May require use of actuarial techniques to determine appropriate present value amounts