Chapter 19

Public and Private Collegeand University

and Health Care Accounting

C19 2

College and university standard-setting

Public universities follow GASB guidance

Private universities follow FASB guidance

Accounting and financial reporting standards are now very different for public and private universities

Publicinstitutions

College and university accounting

C19 4

GASB No. 35

New financial reporting model for public colleges and universities

Provides for both fund statements and entity-wide statements

– Statement of Net Assets

– Statement of Changes in Net Assets

– Statement of Cash Flows

Many universities will report as special purpose governments engaged in business-type activities

C19 5

Fund accounting

Universities have traditionally used fund accounting

Funds are similar to state and local government funds

C19 6

College and university funds

Current funds (unrestricted & restricted)

Loan funds

Endowment and similar funds

Annuity and life income funds

Agency funds

Plant funds (four)

C19 7

Current funds: unrestricted

Revenues (tuition, grants, appropriations, etc.)

Expenditures (education, research, student aid, operations, etc.)

Transfers (mandatory & discretionary)

Report assets, liabilities, fund balances

C19 8

Current fund: restricted

Revenues arise from governmental grants and contracts, private gifts, and endowment income

Expenditures are generally for instruction, research and student aid

Resources are expenditure driven

C19 9

Loan funds

Accounts for resources available for loans

Resources consist mainly of gifts and unrestricted current fund transfers

Additions to fund are recorded directly to the restricted or unrestricted fund balance

Expenditures and losses deducted directly from the fund balance

C19 10

Endowment and similar funds

Regular or pure endowments

Term endowments

Quasi-endowments

Investments at fair value - “mark to market”

C19 11

Regular and pure endowments

Principal specified by donor as nonexpendable

Earnings on resources invested are available for expenditure

C19 12

Term endowments

Principal is expendable after a specified time period or designated event

Resources are added to a unrestricted current fund, unless donor has specified another application

C19 13

Quasi-endowments

Funds set aside by a board or controlling body

Funds usually come from unrestricted current funds, or restricted current funds if donor’s limitations are not violated

Discretionary funds

C19 14

Annuity funds

Periodic payments are made to the donor or other designated beneficiary for a specific period of time

Accounted for at their market value

Liability recorded for actuarially computed present value of total payments

– excess credited to Annuity Fund Balance

C19 15

Life income fund

All income received on contributed assets is paid to donor or other specified recipient for life

Assets recorded at market value and a credit to Life Income Fund Balance is made

Liability established immediately as income is received

C19 16

Ending annuity and life payments

Principal is transferred to the donor-specified fund group, or to the unrestricted current fund revenue account

Gains or losses on sale of investments treated as changes in principal

– record in appropriate fund balance account

C19 17

Plant funds

Unexpended Plant Funds

– resources are used to acquire properties

Plant Fund Renewals and Replacements

– resources used to keep plant in operating condition

C19 18

Plant funds (con’t)

Plant fund for renewals and replacements

– corresponds to debt service fund of a governmental unit

Investment in Plant

– similar to GFAAG and GLTDAG

– controls all plant assets and liabilities except those found in the endowment fund

C19 19

Agency funds

Agent of others

– collection, custodianship, disbursement

No fund balance

College and university accounting

Privateinstitutions

C19 21

Private college & universities

Applicable FASB Statements

– No. 93: Depreciation

– No. 116:Contributions

– No. 117:Financial Statements

– No. 124:Investments

C19 22

FASB No. 116

Separates transactions into exchange, nonexchange, and agency

– exchange: both parties benefit

– contributions: only one party benefits

– agency: acting as intermediary

C19 23

Contributions are defined as nonexchange:

Recognize contributions received and unconditional promises to give as revenues or gains in the period received.

Exceptions are made for contributions of services and works of art

C19 24

Donor restrictions

Only the donor can restrict the use of assets

All contributions are classified in the period received as:

– unrestricted revenue

– temporarily restricted revenue

– permanently restricted revenue

C19 25

Release from donor restrictions

Reclassifications are used to release restrictions:

– operating purpose

– purchase of a fixed asset

– passage of time

C19 26

Types of contributions

Cash contributions

Promises to give

Reductions of liabilities

Free use of space/assets

Fixed assets (buildings and/or land)

Each may have donor-imposed conditions and/or restrictions.

C19 27

Volunteer services

Recorded at fair market value only if they create or enhance non-financial assets or

Require specialized skills that would have been purchased

C19 28

Works of art and treasures

Optional if going into a collection that will be held for research or public exhibition and, if sold, the proceeds will be used to acquire other collectibles

C19 29

Donor-imposed conditions

When condition is met recognize revenue:

– conditional donations of cash or property are credits to “refundable advances”

– conditional pledges are not recorded until condition is met (footnote disclosure only)

C19 30

Marketable securities

Report at fair market value

Applies to all investments

C19 31

Depreciation

All private not-for-profit organizations record depreciation, except for works of art

C19 32

Government grants

Considered to be exchange transactions, not contributions

In private universities they are recorded as “refundable deposits” (a liability) until work/service is performed, then they become revenue

Under FASB 116 definitions, grants are not restricted revenue

C19 33

FASB No. 117

Minimum display requirements for three required statements

Flexible formats

Report entity-wide totals for each of the three categories of net assets

– unrestricted

– temporarily restricted

– permanently restricted

C19 34

FASB No. 117 (con’t)

Statement of Financial Position

– assets, liabilities, net assets

Statement of Activities

– change in unrestricted, temporarily restricted, and permanently restricted

Statement of Cash Flows

– operating, financing, investing

Health care accounting

Publicand Private

C19 36

Health care entities

Hospitals, nursing homes, HMOs, etc.

AICPA Audit Guide covers both government and private health care organizations

GASB Statement 34 allows reporting as special purpose government using proprietary fund accounting

Public and private health care organization reporting is similar

Net asset reporting is slightly different

C19 37

Health care fund structure

General funds account for resources available for general operations

Donor-restricted funds

– specific purpose funds

– plant replacement and expansion funds

– endowment funds

– annuities or life income funds, or loan funds

C19 38

Types of revenues

Operating Revenue relates to principal activity of providing health care services

– patient service revenue

– resident service revenue

– other operating revenue

Nonoperating Revenue

– unrestricted and donor-restricted pledges, gifts, grants, investment income

C19 39

Types of expenses

Nursing services

Other professional service

General services expense

Fiscal services expense

Administrative services expense

Interest expense

C19 40

Accounting for contributions

If contribution is unconditional and unrestricted

– other operating revenue - unrestricted (on-going and central activities) or

– nonoperating revenue - unrestricted (peripheral or incidental transactions)

C19 41

Accounting for contributions (con’t) If contribution is unconditional and

restricted

– other operating revenue - temporarily restricted or

– other operating revenue - permanently restricted

C19 42

Volunteers and donated items

Volunteers

– same rules as other not-for-profits

– create or enhance nonfinancial assets or

– require specialized skills and would typically need to be purchased

Donated Items: depending on nature of gift

– other operating revenues - unrestricted

– nonoperating revenues

C19 43

Malpractice claims

Insurance premiums are often allocated to administrative services expense

If self-insured

– establish a trust account

– establish an expense and liability for estimated claims and judgments

C19 44

Financial statements - public

Government-wide reporting

– Statement of Net Assets

– Statement of Revenues, Expenses, and Changes in Net Assets

– Statement of Cash Flows

Net assets

– Invested in Capital Assets, net of related debt

– Restricted

– Unrestricted

C19 45

Financial statements - private

Follow FASB No. 117 - entity-wide reporting

– Statement of Financial Position

– Statement of Activities

– Statement of Cash Flows

Net Assets

– Permanently Restricted

– Temporarily Restricted

– Unrestricted