UNDERSTANDING COLLEGE AND UNIVERSITY ACCOUNTING. Learning Objectives

Transcription

1 UNDERSTANDING COLLEGE AND UNIVERSITY ACCOUNTING AN INTRODUCTION FOR NON-ACCOUNTANTS 2018 Joyce Lopes Vice President of Administration and Finance Sonoma 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 1

2 MAJOR TOPICS 3 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 4 CONCEPTS AND DEFINITIONS 2

3 CHARACTERISTICS OF Not For Profit ORGANIZATIONS 5 BUSINESS Business NOT FOR NFPROFIT Individuals own it YES NO Customers People give give money money; and YES NO expect products and services in return Profit is primary YES NO purpose Profit Profit = Net Income Net Income = Revenues Expenses Can a NFP make a profit (have positive net income)? 3

4 College/University: 7 Revenues Expenses = Change in Net Assets (aka Fund Balance) Resources Received Resources Used 8 ACCOUNTABILITY For Profit: Bottom line University: Efficient and effective use of resources and monies for stated purposes 4

5 9 FUND ACCOUNTING Classify financial resources for accounting and financial reporting purposes in accordance with their intended use or purpose. 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 5

6 11 FUND Fiscal and accounting entity Self-balancing set of accounts Defined by specific activities, or certain objectives, or special regulations, restrictions, limitations Self-balancing 12 Assets Liabilities Net Assets 6

7 13 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 What are Net Assets? Funds retained by the organization for reinvestment into the enterprise 7

8 LIMITATIONS 15 Restrictions on use Resources Received Resources Used 16 LIMITATIONS ON USE Donor Federal Institution & State $$$ 8

9 LIMITATIONS ON USE RESTRICTED 17 Donor External entity Federal & state $$$ UNRESTRICTED Institution WHAT IS RESTRICTED Public Colleges & Universities 18 LIMITED BY Donor External entity Federal, state Institution RESTRICTED YES YES YES NO, but may designate or allocate 9

10 19 WHAT IS RESTRICTED Private Colleges & Universities Limited by DONOR only In perpetuity Until passage of time or occurrence of event No donor limitation Restricted Yes-permanently restricted Yes-temporarily restricted No-unrestricted 20 QUICK SUMMARY Fund Accounting for NPO s Resources-based model Funds may have limitations on use 10

11 21 FUND ACCOUNTING 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 11

12 Typical Account String Fund-Department-Account-Program- Activity-Location 23 This is one example How does your campus differ? What is Fund Accounting? 24 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 12

13 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? 13

14 27 FUND GROUPS A way to organize funds within the chart of accounts based upon classification and restrictions Audit Guide Fund Groups 28 Unrestricted Current Funds Restricted Current Funds Loan Funds Endowment and Similar Funds Plant Funds Other Funds 14

15 29 FUND CLASSIFICATIONS Ownership vs. agency Restricted vs. unrestricted Expendable vs. non-expendable Fund Groups 30 Current Funds Noncurrent Funds Other Funds General Funds Loan Funds Financial Aid Designated Funds Auxiliary Enterprises Restricted Funds* Endowment Funds Plant Funds Internal Agency* External Agency* *Indicates fund classifications 15

16 31 Unrestricted Current Funds Fund Groups 32 Current Funds Noncurrent Funds Other Funds General Funds Loan Funds Financial Aid Designated Funds Auxiliary Enterprises Restricted Funds Endowment Funds Plant Funds Internal Agency External Agency 16

17 Unrestricted Current Funds Economic resources of the institution which are expendable for any purpose in performing the primary objectives of the institution 33 Unrestricted Current Funds Typically include instruction, research, and public service; And those funds which have been designated by the governing board for other purposes

18 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

19 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 19

20 Unrestricted Current Funds Sources 39 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 Unrestricted Current Funds Uses Salaries, Wages & Benefits Supplies & Expense Travel Capital Expenditures Note Payments (lease purchases) Interest Expense (lease purchases) Transfers Out 40 20

21 Unrestricted Current Funds Assets Cash Investments Accounts Receivable Inventories Prepaid Expenses Due from Other Funds Notes Receivable 41 Unrestricted Current Funds Liabilities 42 Accounts Payable Salaries Payable Accrued Vacation Liability Deferred Revenue Due to Other Funds Notes Payable 21

22 43 Restricted Current Funds Fund Groups 44 Current Funds Noncurrent Funds Other Funds General Funds Loan Funds Financial Aid Designated Funds Auxiliary Enterprises Restricted Funds Endowment Funds Plant Funds Internal Agency External Agency 22

23 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 RESTRICTED REVENUE $100 $60 $40 Cash Received Spent Not Yet Spent Temporarily Restricted Revenue Unrestricted Expenses Temporarily Restricted Until Expended 23

24 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 24

25 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 25

26 Restricted Current Funds Liabilities Accounts Payable Salaries Payable Deferred Revenue Due to Other Funds Notes Payable Loan Funds 26

27 Fund Groups 53 Current Funds Noncurrent Funds Other Funds General Funds Loan Funds Financial Aid Designated Funds Auxiliary Enterprises Restricted Funds Endowment Funds Plant Funds Internal Agency External Agency Loan Funds 54 The loan funds group consists of loans to students, faculty, or staff, and of resources available for such purposes. 27

28 55 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 Loan Funds Sources Interest Gifts Endowment Income Other Sources Government advances Transfers In 56 28

29 57 Loan Funds Uses Student Loan Expenditures Collection fees Write-offs of loans Administrative collection costs Refunds to grantors Transfers Out 58 Loan Funds - Assets Cash Investments temporary Due from other Funds Notes Receivable Face value Allowance for doubtful loans 29

30 Loan Funds - Liabilities 59 Accounts Payable amounts due collection agencies for fees Refundable loan amounts 60 Endowment and Similar Funds 30

31 Fund Groups 61 Current Funds Noncurrent Funds Other Funds General Funds Designated Funds Auxiliary Enterprises Restricted Funds Loan Funds Endowment Funds Plant Funds Financial Aid Internal Agency External Agency Endowment and Similar Funds 62 Endowment Funds Term Endowment Funds Quasi-endowment Funds Annuity and Life Income Funds 31

32 Endowment Funds 63 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. Term Endowment Funds 64 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. 32

33 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 66 Funds contributed to an institution subject to the requirement that the institution periodically pay the income earned on the assets to designed beneficiaries. 33

34 Annuity and Life Income Funds 67 Received under deferred giving agreements Income to donor or designee lifetime or fixed period When contract expires, funds used as designated by donor 68 WHAT CAN BE SPENT? Created by Principal Spent Income Spent Endowment Donor No Yes Term Endowment Quasiendowment Donor Yes-after period of time or event Yes Board Yes Yes 34

35 Endowments and Similar Funds Sources Interest & Gains Losses Gifts Other Income Income from Asset Farm Activity, Rental, etc. Transfers In 69 Endowments and Similar Funds Uses 70 Supplies & Expense Payouts on life income funds Transfers Out 35

36 Endowments and Similar Funds Assets 71 Cash Investments Endowments and Similar Funds -Liabilities NONE 72 The mission of these funds is to make money, not spend it. Therefore, there tends to be no liabilities since there are no deductions. 36

37 Endowments and Similar Funds Governed by Uniform Prudent Management of Institutional Funds Act (UPMIFA) Spending Policy Investment Policy Plant Funds 37

38 Fund Groups 75 Current Funds Noncurrent Funds Other Funds General Funds Loan Funds Financial Aid Designated Funds Auxiliary Enterprises Restricted Funds Endowment Funds Plant Funds Internal Agency External Agency Plant Funds 76 Unexpended Retirement of Indebtedness Renewal and Replacement Investment in Plant 38

39 Plant Fund Definitions 77 Unexpended Plant Funds for acquisition of physical plant Sometimes called Construction Retirement of Indebtedness Indebtedness incurred for plant expansion Plant Fund Definitions - continued Renewal & Replacement Funds set aside for replacement of renewable property 78 Investment in Plant Location of all assets that have been capitalized, construction in progress and related debt 39

40 Construction - Sources Additions State Appropriations Interest & Gains Losses Gifts Grants federal and state Bond Revenue Transfers In 79 Construction - Uses 80 Supplies & Expenditures Expendable equipment Capital Expenditures Predominantly building capitalization Transfers Out 40

41 81 Construction Assets Cash Investments Accounts Receivable Prepaid Expense Due from other Funds Construction Liabilities 82 Accounts Payable Due to other Funds Notes Payable Bonds Payable 41

42 Retirement of Indebtedness Sources 83 Interest and gains Losses Gifts Grants Transfers In Retirement of Indebtedness - Uses 84 Supplies & Expense Trustee s fees and expenses Note Payments Bond Payments Interest Payments 42

43 Retirement of Indebtedness - Assets Cash Investments Funds on deposit Accounts Receivable Due from other funds Notes receivable 85 Retirement of Indebtedness - Liabilities NONE 86 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. 43

44 Renewal and Replacement Funds Sources Interest and gains Losses Gifts Grants Transfers In Mandatory Voluntary 87 Renewal and Replacement Funds - Uses Supplies and Expense Expendable Equipment Maintenance of R&R Items Capital Expenditures Transfers Out very seldom 88 44

45 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 45

46 Investment in Plant Sources 91 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. Investment in Plant Uses 92 NONE There is typically no expenditure in Investment in Plant. The only exception is depreciation expense when it is recognized in plant funds. 46

47 Investment in Plant - Assets 93 Capital Assets Land Buildings Moveable Equipment Cataloged Library Acquisitions Improvements to Land Infrastructure Accumulated Depreciation Investment in Plant Liabilities 94 Notes Payable Bonds Payable Only debt that relates to (matches) the capital asset items 47

48 95 Other Funds Fund Groups 96 Current Funds Noncurrent Funds Other Funds General Funds Loan Funds Financial Aid Designated Funds Auxiliary Enterprises Restricted Funds Endowment Funds Plant Funds Internal Agency External Agency 48

49 Other Funds 97 External Agency Internal Agency 3 rd party financial aid (private only) Agency Funds 98 Funds held by an institution as custodian or fiscal agent for others such as student organizations, individual students, or faculty members. 49

50 Financial Aid FASB Schools 99 Note: For private institutions, Pell grants and 3rd party financial aid directed toward specific students are shown as Agency transactions. Internal Agency Funds 100 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) 50

51 External Agency Funds 101 Relationship with University mission Usually there is an agreement to sponsor Reimbursement to university Never reported as university resources External Agency Funds 102 Enhance institution s mission Federally-funded research labs Software production corporation Alumni associations Foundations University press 51

52 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

53 Educational and General Function Codes Instruction Research Public Service Academic Support Student Services Institutional Support Operation and Maintenance of Plant Scholarships and Fellowships 105 EDUCATIONAL AND GENERAL INSTRUCTION General Academic Vocational/Technical Continuing Education Remedial

54 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

55 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

56 EDUCATIONAL AND GENERAL STUDENT SERVICES Student services administration Financial aid administration Student records Admissions Cont d 111 EDUCATIONAL AND GENERAL STUDENT SERVICES, con t Counseling and career guidance Social and cultural development Student health services

57 EDUCATIONAL AND GENERAL INSTITUTIONAL SUPPORT Executive management Fiscal and business operations General administration and logistical services Administrative computing Public relations/development 113 EDUCATIONAL AND GENERAL OPERATION AND MAINTENANCE OF PLANT Physical plant administration (and planning) Building maintenance Custodial services Utilities

58 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

59 FINANCIAL REPORTING 117 Purpose To provide financial information useful for making rational decisions to allocate resources

60 Who are the users of financial statements? Federal/State Government Private Sponsors Granting Agencies Media Analysts Rating Agencies Colleges & Universities Students/Parents Others? 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

61 Financial Analysis 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

62 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 123 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

63 Prominent FASB/GASB Differences Split Interest Agreements (planned giving) 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 125 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&A

64 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 127 BASICS OF ALL COLLEGES & UNIVERSITIES FINANCIAL STATEMENTS

65 MEASUREMENT FOCUS AND BASIS OF ACCOUNTING Financial statements should be presented using the economic resources measurement and the accrual basis of accounting. 129 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

66 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. 131 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

67 FINANCIAL STATEMENTS FOR PUBLIC COLLEGES & UNIVERSITIES (GASB) 133 BUSINESS TYPE ACTIVITIES FINANCIALS Present only those financial statements and MD&A required for enterprise funds (GASB 34 & 35) Management Discussion & Analysis Statement of Net Assets Statement of Revenues, Expenses, and Changes in Net Assets Cash Flow Statement Notes to the Financial Statements Other Required Supplementary Information (budget)

68 Statement of Net Assets (Balance Sheet) 135 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

69 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. 137 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 (permanently restricted) net assets are those that are required to be retained in perpetuity

70 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. 139 STATEMENT OF REVENUES, EXPENSES, AND CHANGES IN NET ASSETS (SRECNA)

71 SRECNA Operating statement for proprietary funds/enterprise funds/business type activity Revenues should be reported by major source Should distinguish between operating and nonoperating revenues and expenses 141 SRECNA Should present a separate subtotal for operating revenues, operating expenses, and operating income Nonoperating revenues and expenses should be reported after operating income

72 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 143 SRECNA Revenue recognition of capital contributions and additions to permanent and term endowments 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

73 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 145 CASH FLOW STATEMENT

74 CLASSIFICATIONS Operating Activities Noncapital Financing Activities Capital and Related Financing Activities Investing Activities 147 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

75 NOTES TO THE FINANCIAL STATEMENTS 149 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)

76 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Measurement focus basis of accounting used Definition of cash equivalents Codification of applicable GASB 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 151 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

77 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 153 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

78 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 155 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

79 MANAGEMENT S DISCUSSION AND ANALYSIS (MD&A) 157 MD&A The basic financial statements should be preceded by MD&A 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

80 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, 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

81 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 amounts 161 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

82 MD&A MINIMUM REQUIREMENTS Contributions Special & Extraordinary Items Transfers Change in Net Assets Ending Net Assets 163 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

83 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. 165 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

84 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 FINANCIAL STATEMENTS FOR PRIVATE COLLEGES & UNIVERSITIES (FASB)

85 Financial Statements for Private Colleges and Universities (FASB) SFAS (Statement of Financial Accounting Standards) 116 and 117 (Contributions) 124 (Investments) 136 (Funds held for others) 164 (Mergers and acquisitions) 169 SFAS overview SFAS #116 addresses issues of recognition & measurement for contributions SFAS #117 establishes standards for generalpurpose external financial statements SFAS # 124 establishes recognition for investment losses SFAS # 136 establishes recognition for funds held by others SFAS # 164 established guidance for NFP acquisitions and mergers

86 Types of Statements Statement Purpose Financial Position Activities Cash Flow Current Status (Balance Sheet) Detailed Sources & Uses, Transactions Cash Receipts & Cash Payments 171 Statement of Financial Position (Balance Sheet)

87 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 173 Minimum Requirements include Information regarding types of restrictions on net assets (usually in notes) Information regarding liquidity (e.g. by providing classified balance sheet)

88 Statement of Activities 175 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

89 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 177 Statement of Cash Flows

90 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 179 Notes to the Financial Statement

91 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 181 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

92 GROUP DISCUSSION TELLING THE STORY 183 Financial Analysis 92

93 93

94 Ratio Analysis RATIOS Used to evaluate the financial position of an institution Important to track them over time and compare year to year Can be used to compare one institution to another VIABILITY RATIO Net assets available to cover debt Unrestricted Net Assets less Property, Plant & Equipment Long-Term Liabilities Ratio Analysis RESERVE RATIO Measures financial strength & flexibility Unrestricted Net Assets less Property, Plant & Equipment Unrestricted (Operating & NonOperating) Expenses RETURN ON NET ASSETS RATIO Measures financial well-being over time Change in Net Assets Total Net Assets 94

95 Questions for Statement of Net Assets? Use a financial statement provided or pull up your institution s statement on-line: What is the cash balance? How much are they owed? How much to they owe? What amount of net assets are available for an immediate need? Questions for SRECNA? Use a financial statement provided or pull up your institution s statement on-line: What revenues were collected in the most recent year? How much from contributions? What were the expenses for general operations? How much for instruction/academics? What is listed under nonoperating activities? 95

96 Questions for Cash Flow? Use a financial statement provided or pull up your institution s statement on-line: What was the cash on hand at the end of the year? Did it increase or decrease over the year? Did investing activities change the cash available? Questions for Notes to the FS? Use a financial statement provided or pull up your institution s statement on-line: How much did the institution have in capital assets? Did the institution have debt? 96

97 Questions for MD&A? Use a financial statement provided or pull up your institution s statement on-line: Did the MD&A provide year to year comparison? Did it provide any ratio analysis? Hope this put the FUN into FUNd Accounting!