Intermediate Accounting and Reporting for Colleges and Universities

Transcription

1 Intermediate Accounting and Reporting for Colleges and Universities 1 Financial Reporting for Institutions of Higher Ed FASB Institutions 2 1

2 Learning Objectives Introduce the accounting standards that are significant to private Colleges and Universities Identify the primary financial statements and information included in private College & University financial reports Describe the characteristics and purposes of private College & University financial statements and related information 3 What makes us different? Why do NFP s need a different reporting framework than a for-profit entity? How is an NFP different from a for-profit entity? 4 2

3 FASB - Key Pronouncements SFAS No. 116 Accounting for Contributions Received and Contributions Made SFAS No. 117 Financial Statements of Not for Profit Organizations and FSP FAS Endowments of Not-for-Profit Organizations SFAS No. 124 Accounting for Certain Investments Held by Not-for-Profit Organizations SFAS #157 Fair Value Measurements (not specific to not-for-profits) SFAS No. 163 Not-for-Profit Entities: Mergers and Acquisitions AICPA Audit and Accounting Guide Not-for-Profit Organizations 1996 in response to 116/117 5 SFAS 168 The FASB Standards Codification The Codification organizes thousands of pronouncements comprising U.S. generally accepted accounting principles (GAAP) into a single, easily accessible source. These include the pronouncements of the FASB, the AICPA s Accounting Standards Executive Committee and the Emerging Issues Task Force. Referred to as the Accounting Standards Code (ASC) 6 3

4 SFAS to ASC Crosswalk SFAS 116 = ASC SFAS 117 = ASC SFAS 124 = ASC SFAS 157 = ASC 820 SFAS 164 = ASC Revenue Recognition ASC establishes standards For... Financial accounting and reporting for CONTRIBUTIONS RECEIVED and contributions made including PLEDGES. Recognizing EXPIRATION OF RESTRICTIONS on contributions received. Accounting for COLLECTIONS of works of art and historical treasurers. Accounting for DONATED SERVICES. 8 4

5 Definition of a Contribution A contribution is an unconditional transfer of cash or other assets...a voluntary nonreciprocal transfer by another entity acting other than as an owner. Other assets include securities, land, buildings,...and unconditional promises to give those items in the future. Common term for Promises? Pledges 9 Conditional Versus Unconditional Promises to give must be UNCONDITIONAL Donor imposed conditions = future uncertain events that give the promisor a right to a return of the assets given. Conditional examples (not recorded): if my circumstances allow if you raise $$ I will give $$ Conditional $$ received in advance of condition being met = refundable advance 10 5

6 Nonreciprocal Versus Exchange The College Psychology Department receives $10,000 from a drug company to conduct a clinical trial of an experimental love potion. The drug company specified the protocol for testing and requires a detailed report within six months...is the $10,000 a contribution?? No but why? How do you account for the $$? Debit: Cash $10,000 Credit: Def. Rev. $10, Grants and Contracts: Exchange Transactions or Contributions FASB...a resource provider may sponsor research and development activities at a research university and retain proprietary rights...similarly, a resource provider may sponsor research and development activities and specify the protocol of the testing...those transactions are not contributions. FASB the Board believes that whether a grant is from a government agency, private foundation, or corporation, the difficulties in determining whether a transfer is an exchange transaction or a contribution...requires a careful assessment...excluding all governmental transfers is neither necessary nor desirable... The best approach Analyze each grant and contract to determine if exchange transaction or contribution. 12 6

7 Restrictions Restrictions do not equal conditions...examples??? Contributions with donor-imposed restrictions reported as permanently or temporarily restricted net assets. 13 What about Pledges? Pledges = Unconditional promise to give in the future Must be measured at fair value, which is the Present value of estimated future cash flows using a discount rate commensurate with the risks involved is an appropriate measure of fair value of unconditional promises to give cash. Also need to factor in a provision for amounts you don t expect to collect. Disclosures = Promises receivable in less than one year, one to five years, and over five years The allowance for uncollectibles 14 7

8 Pledges Measured at FAIR VALUE You receive a pledge from Mr. Simpson with the following details... Pledge = $100,000 Period = 5 years at $20,000 per year Discount rate = 4% Present value = $90,000 Discount by year = $3,000 ; $2,500 ; $2,000 ; $1,500 ; $1,000 YEAR # 1...ENTRY TO RECORD PLEDGE: DR CR Pledge Receivable Gift $90,000 $90,000 YEAR # 2...ENTRY TO RECORD 1ST PAYMENT DR CR CR Cash $20,000 Pledge Receivable $17,000 Gift $3, Contribution Examples In 2005 Ms. Bulin notifies the College she has remembered the College in her will and provides a copy of the will. In 2010 Ms. Bulin dies. In 2011 the will is declared valid by the probate court and the executor informs the College it will receive 10% of the residual value of the estate...$10,000. The executor expects distribution in Would you record an unconditional promise to give?? If so, when??? 16 8

9 Contribution Examples In 2009 Mr. Surges promised to give the College $400,000 if they raise an additional $600,000 towards construction of a new dormitory. Mr. Surges gives the $400,000 to the College in advance of the solicitation drive to raise the $600,000. Is the $400,000 a contribution?? How would you record the $400,000...DR and CR?? Debit: Credit: 17 Works of Art Need not be capitalized if... They are held for public education, research, etc., rather than for financial gain. Are protected and cared for. If sold, proceeds used for other collection items. If don t capitalize, certain disclosures required... Description of the works of art. $$ s purchased $$ s sold $$ s recovered from insurance loss 18 9

10 Contributed Services Recognized as an expense if... Useful (creates or enhances an asset). Requires specialized skill. Would need to purchase if not donated. Debit: Expense Credit: Gift Revenue Disclosure required: Nature and extent of contributed services Amount recognized Services received not recorded 19 EITF Issue No. 12-B Donated Services Received from Employees of an Affiliated Entity Final ASU issued in April 2013 (ASU ) Personnel services received from an affiliate for which the affiliate doesn t charge the recipient NFP should be recognized in the recipient NFP s financial statements, measured at actual costs incurred by affiliate Effective fiscal years beginning after

11 Financial Statements Presentation ASC establishes standards for... general-purpose external financial statements provided by a not-for-profit organization ASC requires... all not-for-profit organizations provide a statement of financial position, a statement of activities, and a statement of cash flows classification of an organization's net assets and its revenues, expenses, gains, and losses based on the existence or absence of donor-imposed restrictions. 21 Reporting Framework Three Net asset classifications Unrestricted Temporarily Restricted Permanently Restricted Three required statements Balance sheet Income Statement Cash Flow And of course the footnote disclosures Expenses reported as unrestricted Release of restrictions 22 11

12 Net Asset Categories Permanently Restricted Net Assets (PRNA): Net assets resulting from contributions and other inflows of assets whose use by the organization is limited by donor-imposed stipulations that neither expire by passage of time nor can be fulfilled or otherwise removed by actions of the organization. 23 Net Asset Categories Temporarily Restricted Net Assets (TRNA): Net assets resulting from contributions and other inflows whose use by the organization is limited by donor-imposed stipulations that either expire by passage of time or can be fulfilled and removed by actions of the organization

13 Net Asset Categories Unrestricted Net Assets (UNRA): Net assets that are neither permanently restricted or temporarily restricted by donorimposed stipulations. 25 Fund Accounting Fund balance categories: Current funds restricted Current funds unrestricted Loan Quasi endowment True endowment Annuity and life income Plant 26 13

14 Fund Balance vs. Net Asset Reporting Current Unrestricted Current Restricted Plant Loan Annuity and Life Income Endowment Unrestricted T emporarily Restricted Permanently Restricted X X X X X?????? X X X X X X 27 Observations Reporting model does not change institution s financial management Only changes reporting of results Conclusion Fund accounting is alive and well 28 14

15 STATEMENT OF FINANCIAL POSITION Offers a picture of the organization s assets and its outstanding obligations Helps stakeholders assess the organization s ability to continue to provide services, the institution s liquidity and financial flexibility, and the institution s ability to meets its obligations and its needs for external financing 29 STATEMENT OF FINANCIAL POSITION Provides information about liquidity Current Assets/Current Liabilities Provides information about financial flexibility (Cash + Investments)/Debt 30 15

16 STATEMENT OF FINANCIAL POSITION Challenge not all amounts are recorded on same basis Historical Cost Net Realizable Value Fair Value 31 Minimum Requirements Total amount of assets, liabilities, and net assets Total amount of each class of nets assets URNA, TRNA, PRNA Information about restrictions on net assets Information on liquidity 32 16

17 Liquidity 3 methods to present information about liquidity Sequencing assets according to their nearness to conversion to cash and sequencing liabilities according to the nearness of their maturity and resulting use of cash Classifying assets and liabilities as current or noncurrent Disclosing in notes relevant information about the liquidity or maturity of assets and liabilities, including restrictions on the use of particular assets 33 * * * STATEMENT OF FINANCIAL POSITION Current Year Prior Year Assets Cash and cash equivalents $ 20,693 $ 19,605 Student accounts receivable 1,203 1,071 Other receivables 1,175 1,453 Contributions receivable 1,295 1,215 Prepaid expenses 1,040 1,071 Investments 45,062 40,905 Notes receivable 9,513 9,230 Property, plant and equipment 77,900 79,305 Total assets 157, ,855 Liabilities and Net Assets Liabilities: Accounts payable 962 1,250 Deferred revenues 5,286 4,810 Student deposits 1,438 1,510 Accrued postretirement benefits 1,806 1,806 Notes and bonds payable 39,476 40,387 U.S. government grants refundable 8,293 8,062 Total liabilities 57,261 57,825 Net assets: Unrestricted 86,014 83,724 Temporarily restricted 2,954 2,357 Permanently restricted 11,652 9,949 Total net assets 100,620 96,030 Total liabilities and net assets $ 157,881 $ 153,

18 SEE MORE EXAMPLES IN APPENDIX 35 STATEMENT OF ACTIVITIES Primary purpose is to provide information to stakeholders about the effects of transactions and other events that change the amount and nature of net assets, how the institution's resources are used in providing programs and services, the types of programs and services provided, and the relationship of the transactions and events to each other

19 STATEMENT OF ACTIVITIES What about an intermediate measure of operations? 37 Measure of Operations SFAS 117 neither requires nor precludes a not-forprofit organization from classifying its revenues, expenses, gains, and losses as operating or nonoperating within its statement of activities

20 Minimum Requirements Change in total net assets Change in each class of net assets URNA, TRNA, PRNA Revenues Expenses Gains & Losses Amount of expired donor-imposed restrictions 39 Expenses Reported as Unrestricted FASB...a statement of activities shall report expenses as decreases in unrestricted net assets. FASB 40 20

21 Release of Restrictions According to ASC , a not-for-profit organization shall recognize the expiration of a donor-imposed restriction on a contribution in the period in which the restriction expires...if an expense is incurred for a purpose for which both unrestricted and temporarily restricted net assets are available, a donor-imposed restriction is fulfilled to the extent of the expense incurred. 41 Deemed Spent Rule When has an institution met the donor s restriction? Or Deemed spent if you could have spent it, you did Specific Identification tracks each gift and expenditure for fulfillment of restriction 42 21

22 Release of Restrictions (continued)...expiration of donor-imposed restrictions that simultaneously increase one class of net assets and decrease another (reclassifications) shall be reported as separate items. Said another way: Restricted $ s come in as TR or PR, are expensed as UR, and net asset categories are made whole via a transfer called release from restriction. 43 Release of Restrictions (continued)...donor-restricted contributions whose restrictions are met in the same reporting period may be reported as unrestricted support provided that an organization reports consistently from period to period and discloses its accounting policy

23 STATEMENT OF ACTIVITIES Changes in unrestricted net assets: Revenues Education and general: Tuition and fees $ 60,374 Government grants and contracts 2,661 Private gifts, grants and contracts 2,598 Investment income 1,128 Investment gains (losses) 1,022 Other sources 665 Auxiliary enterprises 14,800 Total revenues and gains 83,248 Net assets released from restrictions 2,049 Total revenues, gains, and other support 85,297 Expenses Education and general Instruction 23,532 Research 57 Public support 42 Academic support 6,809 Student services 9,017 Institutional support 11,183 Operation and maintenance 5,457 Scholarships and fellowships 14,538 Total educational expenses 70,635 Auxiliary enterprises 12,372 Total expenses 83,007 Increase in unrestricted net assets 2,290 Changes in temporarily restricted net assets Private gifts, grants and contracts 1,553 Investment income 913 Investment gains (losses) 180 Net assets released from restrictions (2,049) Increase in temporarily restricted net assets 597 Changes in permanently restricted net assets Private gifts, grants and contracts 1,645 Investment income 31 Investment gains (losses) 27 Increase in permanently restricted net assets 1,703 Increase in net assets 4,590 Net assets beginning of year 96,030 Net assets end of year $ 100, STATEMENT OF ACTIVITIES Unrestricted Revenues Educational and general: Tuition and fees 60,374 CURRENT YEAR Temporarily Restricted Permanently Restricted $ $ 60,374 Government grants and contracts 2,661 2,661 Private gifts, grants, and contracts 2,598 $ 1,553 $ 1,645 5,796 Investment income 1, ,072 Investment gains (losses) 1, ,229 Other sources Auxiliary enterprises 14,800 14,800 Total revenues and gains 83,248 2,646 1,703 87,597 Net assets released from restrictions 2,049 (2,049) Total revenues, gains, and other support 85, ,703 87,597 Expenses Educational and general Instruction 23,532 23,532 Research Public support Academic support 6,809 6,809 Student services 9,017 9,017 Institutional support 11,183 11,183 Operation and maintenance of plant 5,457 5,457 Scholarships and fellowships 14,538 14,538 Total educational expenses 70,635 70,635 Auxiliary enterprises 12,372 12,372 Total expenses 83,007 83,007 Increase in net assets 2, ,703 4,590 Net assets at beginning of year 83,724 2,357 9,949 96,030 Net assets at end of year $ 86,014 $ 2,954 $ 11,652 $ 100,620 Total 46 23

24 Expenses Reported as Unrestricted Unrestricted Revenues Educational and general: Tuition and fees 60,374 CURRENT YEAR Temporarily Restricted Permanently Restricted $ $ 60,374 Government grants and contracts 2,661 2,661 Private gifts, grants, and contracts 2,598 $ 1,553 $ 1,645 5,796 Investment income 1, ,072 Investment gains (losses) 1, ,229 Other sources Auxiliary enterprises 14,800 14,800 Total revenues and gains 83,248 2,646 1,703 87,597 Net assets released from restrictions 2,049 (2,049) Total revenues, gains, and other support 85, ,703 87,597 Expenses Educational and general Instruction 23,532 23,532 Research Public support Academic support 6,809 6,809 Student services 9,017 9,017 Institutional support 11,183 11,183 Operation and maintenance of plant 5,457 5,457 Scholarships and fellowships 14,538 14,538 Total educational expenses 70,635 70,635 Auxiliary enterprises 12,372 12,372 Total expenses 83,007 83,007 Increase in net assets 2, ,703 4,590 Net assets at beginning of year 83,724 2,357 9,949 96,030 Net assets at end of year $ 86,014 $ 2,954 $ 11,652 $ 100,620 Total 47 Release of Restrictions (continued) Unrestricted Revenues Educational and general: Tuition and fees 60,374 CURRENT YEAR Temporarily Restricted Permanently Restricted $ $ 60,374 Government grants and contracts 2,661 2,661 Private gifts, grants, and contracts 2,598 $ 1,553 $ 1,645 5,796 Investment income 1, ,072 Investment gains (losses) 1, ,229 Other sources Auxiliary enterprises 14,800 14,800 Total revenues and gains 83,248 2,646 1,703 87,597 Net assets released from restrictions 2,049 (2,049) Total revenues, gains, and other support 85, ,703 87,597 Expenses Educational and general Instruction 23,532 23,532 Research Public support Academic support 6,809 6,809 Student services 9,017 9,017 Institutional support 11,183 11,183 Operation and maintenance of plant 5,457 5,457 Scholarships and fellowships 14,538 14,538 Total educational expenses 70,635 70,635 Auxiliary enterprises 12,372 12,372 Total expenses 83,007 83,007 Increase in net assets 2, ,703 4,590 Net assets at beginning of year 83,724 2,357 9,949 96,030 Net assets at end of year $ 86,014 $ 2,954 $ 11,652 $ 100,620 Total 48 24

25 SEE MORE EXAMPLES IN APPENDIX 49 Gains and Losses on Endowment ASC A statement of activities shall report gains and losses on investments...in unrestricted net assets unless their use is temporarily or permanently restricted by explicit donor stipulation or by law

26 Example Endowed Professorship 1924 original endowment gift $10,000 Realized capital gains $ 15,000 6/30/09 book value $25,000 Historic dollar value can t touch?? $10,000 or some other amount Appreciation?? $15,000 or some other amount How classify corpus?? How classify gains?? U TR PR U TR PR 51 Capital Construction Gifts ASC states...gifts of long-lived assets received without stipulations about how long the donated asset must be used shall be reported as restricted support if it is an organization s accounting policy to imply a time restriction that expires over the useful life of the donated assets...in the absence of that policy and other donor-imposed restrictions on use of the asset, gifts of long-lived assets shall be reported as unrestricted support

27 Capital Construction Gifts Unrestricted Revenues Educational and general: Tuition and fees 60,374 CURRENT YEAR Temporarily Restricted Permanently Restricted $ $ 60,374 Government grants and contracts 2,661 2,661 Private gifts, grants, and contracts 2,598 $ 1,553 $ 1,645 5,796 Investment income 1, ,072 Investment gains (losses) 1, ,229 Other sources Auxiliary enterprises 14,800 14,800 Total revenues and gains 83,248 2,646 1,703 87,597 Net assets released from restrictions 2,049 (2,049) Total revenues, gains, and other support 85, ,703 87,597 Expenses Educational and general Instruction 23,532 23,532 Research Public support Academic support 6,809 6,809 Student services 9,017 9,017 Institutional support 11,183 11,183 Operation and maintenance of plant 5,457 5,457 Scholarships and fellowships 14,538 14,538 Total educational expenses 70,635 70,635 Auxiliary enterprises 12,372 12,372 Total expenses 83,007 83,007 Increase in net assets 2, ,703 4,590 Net assets at beginning of year 83,724 2,357 9,949 96,030 Net assets at end of year $ 86,014 $ 2,954 $ 11,652 $ 100,620 Total 53 Reporting Classification...to fund the research of Dr. Stanley Livingston in the field of African Studies....to underwrite the regular budget of the English Department for fiscal Endowment whose net income is to be used for the support of the Homer Professorship. The endowment produces $60,000 per year in income and has a cumulative unspent balance of $47,

28 Reporting Classification In 2011 the Trustees established an endowment with a bequest from Joe Donor the purpose of which is to support the College....to establish a revolving loan fund to make loans to deserving students pursuing a law degree....$500,000 towards the new pool. 55 Accounting for Investments Investments in equity securities with readily determinable fair values and all investments in debt securities shall be measured at fair value in the statement of financial position. What about other types of investments like...venture capital, real estate, natural resources, options, etc...??? ASC 820 Fair Value Measurements 56 28

29 Fair Value This valuation method has been the subject of numerous accounting rule changes over the last several years. Measurement basis went from entrance price to exit price Exit price = the amount an organization would receive to sell and asset or pay to transfer a liability. 57 Exit Price 3 techniques to determine exit price Market approach uses prices involving identical or comparable assets or liabilities Income approach uses future income or cash streams to arrive at values using discounted cash flows Cost approach uses the amount that would be required to replace the asset and still receive the same output or perform same function 58 29

30 Disclosure Fair Value Hierarchy Level 1. Quoted prices in active markets for identical assets or liabilities Level 2. Significant other observable inputs Level 3. Significant unobservable inputs 59 Disclosure Con t Entities must disclose the amounts of, and reasons for, significant transfers between Level 1 and Level 2, as well as those into and out of Level 3, of the fair value hierarchy. Entities must separately present gross information about purchases, sales, issuances, and settlements in the reconciliation disclosure of Level 3 measurements, which are measurements requiring the use of significant unobservable inputs. For Level 2 and Level 3 measurements, an entity must disclose information about inputs and valuation techniques used in both recurring and nonrecurring fair value measurements Fair value measurement disclosures must be presented by class of assets and liabilities. See ASC for more details 60 30

31 Natural Classification Salaries and Wages Benefits Utilities Supplies and Other Services Depreciation Interest 61 Functional Expenses Instruction Research Public Service Academic Support Student Services Institutional Support Operations and Maintenance of Plant Auxiliary Hospital Independent Operation 62 31

32 Functional Expenses If Natural on Face Function In Notes If Function On Face Natural Classification Not Required In Notes Allocate To Functions (DIP) Depreciation Interest Expense Operation and Maintenance of Plant