Accounting Government and Non-

Profit Organization

Week 3
Accounting For Colleges and Universities
 Basic Principles
• The basic characteristics of financial accounting with the accounting system of funds is the
existence of 2 (two) major classes of funds, Unrestricted Funds and Restricted Funds.
Unrestricted funds are funds available and fully within the control of the University, and
may be used for the University's activities.
 Used for: Internal Purposes ONLY
 The fund structure prescribed by the AICPA 1973 Audit and Accounting Guide for Colleges
and Universities (no longer authoritative for external financial reporting purposes):
• While the restricted funds are defined funds for certain uses, consisting of:
1) Loan Fund;
2) Endowment Fund;
3) Annuity and Life Income Fund;
4) Plant Fund;
5) Agency Fund; and
6) Other Funds
 Basic Principles
• Tuition and fee revenues are reported NET of scholarship allowances and uncollectible
amounts;
• Auxiliary enterprise revenue are separately identified under operating revenues.
– Auxiliary enterprises is a unique revenue classification. Auxiliary enterprise are
activities that exist to furnish goods or services to students, faculty or staff that are
not directly related to the university’s missions of teaching, research, or public
service;
– Auxiliary enterprise are self-supporting activities for which a fee is charged for
goods or services and for which the fee is directly related to, but not necessarily
equal to the cost of providing the goods or services;
– Residence halls, food services, college stores, faculty and staff parking are
common examples of auxiliary enterprises.
• Commercial Business Unit: an organization separate from University holding company
(universitas induk), in the form of a legal entity and supporting university funding.
 ACCOUNTING for Colleges
and Universities
• Two types
– Public (1,672 public institutions in 2013)
• GASB Reporting Standards  SAP in Indonesian Context
• Example: University of Houston
• Main sources of revenues are state appropriations and grants
– Private (2,823 private institutions in 2013)
• FASB Reporting Standards  PSAK/IFRS
• Example: Rice University
• Main sources of revenues are student tuition, investments and fees.
 Standards for Public
Colleges and Universities
 Public C&Us have much in common with their NFP counterparts,
so comparability is desirable
 Most C&Us have used the AICPA reporting model.
 However, some institutions (e.g. community colleges) use standard governmental model.

 C&Us differ from other governments in how they are funded and
managed.
– E.g. While auxiliary enterprises exist at universities (e.g. bookstore), the school does not budget by fund.
– Therefore, fund accounting is sometimes undesirable.
– According to GASB Stmt. No. 34, public C&U may report as special purpose entities engaged:
1) Only in business-type activities
2) Only in governmental activities
3) In both
 GAAP for Colleges and
Universities

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reserved.
 For Public C&Us
 Reporting as a special purpose government engaged in business-
type activities only under GASB Statement Nos. 34 and 35 .
 Statement of Net Assets, classifying net assets into:
– -Unrestricted
– -Restricted
– -Invested in Capital Assets, net of related debt
 Statement of Revenues, Expenses, and Changes in Net Assets
 Statement of Cash Flows
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Direct
meth
od

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reserved.
 For Private C&Us
 Reporting under SFAS Nos. 116 and 117
 Statement of Financial Position classifying net assets into:
 unrestricted
 temporarily restricted
 permanently restricted
 Statement of Activities
 Statement of Cash Flows
 Example: Rice University
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 Indire
ct
meth
od

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 Revenue Classifications
• Both governmental and private universities classify revenues by SOURCE.
• Common categories of revenue include:
o Tuition and fees
o Federal, state, and local grants and contracts
o Gifts and private grants
o Endowment income
o Sales and services of educational activities
o Revenues from auxiliary enterprises
o Other operating revenue
o Government appropriations
o Gain/loss on sales of investments (nonoperating)

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All rights reserved.
 Revenues and Expenses
Revenues
Classifications
Expenses
Tuition and fees Educational and General (Instruction,
Research, Public Service)

State Appropriations (alokasi Academic Support (e.g. computing

pendanaan dari pemerintah) services, libraries)

State Grants and Contracts (dari Student Services (e.g. counseling and
pemerintah atau institusi pemerintah career guidance, dean of students,
lainnya) financial aid administration)

Private Gifts, Grants and Contract (dari Institutional support (e.g. legal
institusi swasta atau pribadi) counsel, alumni office, purchasing)

Sales and Services of educational Operation and maintenance of plant

activities (film rentals or testing
services)
Sales and services of auxiliary Scholarships and fellowships
enterprises (residence halls, food
services, college union etc)

Investment Income Auxiliary enterprise, hospitals and

other auxiliary enterprise

Other sources
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 Current Operating Expenses
• Both governmental and private universities classify expenses by
FUNCTION. (see next slide)
• Recognized on the accrual basis.
• May be also classified by (i.e. matrix form):
o program functions
o organizational units
o projects
o object classes

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 Functional Expense
Classifications
• Education and General
– Instruction and departmental research
– Extension and public service
– Academic support
– Student services
– Institutional support
– Scholarships and fellowships

• Sponsored Research
• Operation and maintenance of plant
• General administration
• Expenses of auxiliary enterprises
• Depreciation
• Interest (nonoperating expense)
• Provision for uncollectible student loans
 Natural vs. functional
expenses
Colleges and universities reporting under GASB are supposed to provide
something along these lines, although it is rarely equivalent to the FASB
statement of functional expenses (which is NOT required for private C&Us)
• Rice University only reports functional expenses
• University of Houston reports a more detailed
breakdown.
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 Scholarships
 Scholarship allowances are the difference between the
stated tuition charges and the actual amount billed to
the student.
 If the tuition reduction is an employee benefit, the
reduction is treated as compensation expense.
 For example, tuition waivers for work-study programs and graduate
assistantships are compensated expenses.
 However, scholarships that do not require service to the
university or college are allowances and treated as
reductions in revenue.
 For example: athletic or academic excellence scholarships.
 Grants: If as Exchange
Transactions
 Grants may be exchange transactions if the grantor receives
direct benefits in the form of something of value in exchange for
the grant.
 Example: if a university tests a product under a federal contract, but the
government retains the patent (or rights) to use the product
 Many C&U treat research grants as exchange transactions
because the grantor expects performance and a report on how
the funds were used.
 In these cases, restricted funds not yet spent are considered
“Deferred Revenue.”
 Grants: If as Non exchange
Transactions
 Nonreciprocal transactions in which the donor does not receive
“quid pro quo” are called nonexchange transactions.
 These gifts are considered increases to “temporarily restricted”
net assets for a private C&U and as restricted net assets in a
public C&U.
 C&U - Example 1
The fiscal year of a college ends July 31. In June 2017 a college collects $120
million in tuition and fees for its summer semester that begins on June 1
and ends on August 15.
It also collects $180 million for the following fall semester, which begins on
September 5th. Faculty salaries applicable to summer session courses are
$10 million. Of this amount, $8 million are applicable to June and July and
$2 million to August.
 C&U - Example 1 (cont’d)
Following the AICPA guidance, the entire summer semester’s tuition and fees,
as well as the related faculty salaries, should be recognized in the year ending
July 31, 2017.
To record revenue for the summer semester (June 1, 2017):
Cash $120 million
Revenue from tuition/fees $120 million
To record faculty salaries:
Faculty salaries relating to summer semester (expense) $10 million
Cash $8 million
Deferred faculty salaries (liability) $2 million
 C&U - Example 1 (cont’d)
Following GASB (instead of AICPA):
To recognize revenue:
Cash $120 million
Revenue from tuition/fees $96 million
Deferred revenues from tuition/fees 24 million

Faculty salaries would be divided between the 2 semesters.

To record faculty salaries:
Faculty salaries relating to summer semester (expense) $8 million
Cash $8 million
 C&U - Example 1(cont’d)

Under both FASB and GASB the $180 million in tuition

and fees applicable to the fall semester should be:
 recognized as revenue in the year ending July 31, 2018
 and should be reported as revenue received in advance when
received in June 2017.
To record tuition and fees applicable to fall semester
(Sept 5, 2017):
Cash $180 million
Revenue received in advance – fall semester tution and fees (liability) $180
million
 C&U - Example 2
In 2017 a private university’s accounting department received a
$300,000 federal grant to carry out research in government
budgeting. Of this amount, $180,000 was to cover faculty salaries
and $120,000 was to cover overhead.
During 2017 the department began the research and paid faculty
members $45,000. It was reimbursed by the federal government for
$75,000.
 C&U - Example 2 (cont’d)
To record faculty salaries (unrestricted fund):
Sponsored research—expense $45,000
Cash $45,000
To record amount due from federal government for reimbursement of direct/indirect costs (unrestricted fund):
Due from federal government $75,000
Government grants and contracts—direct reimbursement (revenue) $45,000
Government grants/contracts—reimbursement for overhead (revenue) $30,000
To record collection of cash from federal government (unrestricted fund):
Cash $75,000
Due from federal government $75,000
 Related Entities
 C&U may have institutionally related foundations for fund-
raising, alumni relations, or management of assets.
 Related entities should either be disclosed in the Notes to the
Financial Statements or reported as component entities,
depending on the degree of control and economic interest.
 The FASB and GASB both have projects on affiliated organizations
and consolidations.
 Evaluation of colleges and
universities
• The Fiscal health of colleges and universities can be evaluated
using the traditional analytical tools.
• However, to obtain a broader and longer-term perspective, the
analysis also have to look to factors that are far afield from those
associated with corporate financial analysis.
– Examples include: admissions selectivity, the percentage of
faculty that are tenured, and the nature of course offerings
• The fiscal health of colleges and universities, both government
and private, is sensitive to unfavorable national economic
conditions.
 GASB Stmt. # 39 Affiliated
Organizations
GASB Stmt. # 39 (2002) requires public universities* to report affiliated
organizations as component units if these criteria are met:
 The economic resources received or held are almost entirely for the direct
benefit of the university,
 The university is entitled to access those resources,
 The economic resources are significant to the university.
Discrete presentation is required, i.e., a separate column on the face of the
financial statements.
*GASB # 39 is not exclusively for colleges and universities
 Auditing Issues in C&U
 C&U that expend more than $500,000 of federal awards a year
need a Single Audit.
 Auditors will use government auditing standards (yellow book)
and follow OMB Circular A-133 and AICPA SOP 98-3.
 Auditors must be sure that the C&U has complied with the cost
principles in OMB Circular A-21.
 Summary
 Government colleges and universities have the option of
reporting similarly to “full-service” governments or to other
governments as business-type activities.
 Government C&U are required to distinguish between operating
and nonoperating revenues and expenses.
 Not-for-profit colleges and universities must follow FASB’s
reporting standards for not-for-profits.
 C&U also have unique revenues and expenses.
In Indonesia
 The Accounting Entity
within the University
• The Accounting Entity within the University is a fund management entity
in each of the financial management units called the Accounting Unit
(Satuan Akuntansi).
• This Unit prepares Financial Statements independently to be compiled
into a University Financial Statement.
• Accounting units make notes in the form of Cash Journal / Bank Entry,
Cash Journals / Bank Out, Journal General, Ledgers and preparing Reports
Receipts and Expenditures each period (monthly).
• The Accounting Unit has a balanced group of accounts i.e. asset accounts
with liability accounts and net assets.
• To ensure proper accounting, SOPs are required for each activity in
addition to a verification function that guarantees the validity of evidence
/ documents (formal validity, validity of procedures, and material validity)
The Example of Accounting cycle in
University
The Example of University’s
Financial Statement
The Example of University’s
Financial Statement (2)
 Financial Management of the
University in Indonesia PP 66 tahun 2010
about BMHN
Execution
(penyelenggaraan
BHMN)
“BHMN”
Status

Managed by
Government PP 23 tahun 2005
about BLU
Management
(pengelolaan BLU)
“BLU” Status PMK 76 tahun 2008
about Financial
University In Reporting of BLU
(Pelaporan
Indonesia Keuangan BLU)

Profit Compute profit ->

SAK ETAP or SAK
Orientation UMUM
Privately
Managed non profit model
Non-Profit management->
Orientation PSAK 45
 Financial Management of the
University in Indonesia (2)
• Initially there were 7 state universities with BHMN status
1. UI, UGM, IPB, Unair, USU, UPI, ITB
2. The legal basis
a) PP No. 61/1999 about establishment of University as a BHMN ( Badan Hukum Milik
Negara)
b) UU no. 9/2009 about BHP
3. The problem?
a) UU BHP was revoked by the Constitutional Court (MK) in July 2010.
b) What about the status of financial management 7 state university BMHN in the
next?
– They are given two choices: to be a BLU or PNBP
c) The current legal is: PP 66 Th 2010 About Amendment To Government Regulation
(Peraturan Pemerintah) No. 17 Th 2010 About Management And Implementation of
Education
– See Pasal 58F pasal 3
 Financial Management of
the University as BHMN
• Financial management is conducted in accordance with the
principles of efficiency, effectiveness, integrity, productivity,
transparent and accountable.
• APBN / APBD funds are accounted for under the laws and
regulations.
• Financial management which doesn’t come from the government
is regulated by ART (Anggaran Rumah Tangga).
• There is no adequate regulation on financial management of
BHMN
 Organisasi BHMN

Organisasi Universitas terdiri atas:

Organ Universitas
(MWA, DA, Senat, Pimp Univ.)
Unsur Pelaksana Universitas
(SPI, Fak, Perencana) Satuan Usaha
Unsur Penunjang Universitas
(Direktorat, Perpus, Lembaga) Komersil
-Terpisah dari Univ. Induk
Satuan Organisasi lain - Badan Hukum
-menunjang pendanaan

Badan Hukum Private???

Kekayaan dipisahkan dr APBN (Non BLU)
(NON BLU)

48
 Konsekuensi
Universitas sebagai BHMN

Revenue received by the University

is not PNBP for the government
therefore those
income is the object of tax.
(UU 20/1997 about PNBP)
The University's revenue and
expenditure budget is Not a BLU
not included in the Characteristic
State Budget (APBN).
APBN funds to the University as
capital shares ownership
by government (penyertaan modal
pemerintah)
University as subject of Tax
Financial Management of the university
separate from the state budget (APBN)

49
 The Example of budget Recapitulation
(Rekapitulasi Anggaran) in University (UPI)
The Example of Revenues
The Example of Expenses in University (UPI)
 University as BLU

• Basically the context is the same as other BLU financial

management and arrangements.
• Please refer to BLU Hospital material
• The difference is the transactions and reporting, which we
will discuss in the next slides
 Kementerian
Pengguna
Menteri Teknis
Anggaran

Pimpinan BLU
FISKAL APBN/D
BLU Dewas

Bendahara
(PMP) Umum MENKEU
Negara

BUMN Komisaris
KEUANGAN Kekayaan yang
NEGARA dipisahkan
BUMN/D Wali Amanat
Rektor

Modal BANK Dewan

MONETER Pemerintah SENTRAL Gubernur BI
 Agenda (University under
PSA)
• Universities under PSA arrangement
• Unique Measurement and Display Feature of Universities
under PSA
• Accounting for Universities under PSA
• Case Illustration
 References

• Prof Andreas Bergmann and Robin Braun (2008). The Value Added of
IPSAS, PEMPAL Workshop Istanbul; February 25
• Caroline Aggestam Pontoppi and Isabelle Andernack (2016).
Intrepretation and Application of IPSAS. Wiley.
• Michael H. Granof, Saleha B. Khumawala. (2016). Government and Not-
for-Profit Accounting. 07. John Wiley & Sons. New Jersey. ISBN: 978-1-
118-98327-0.
•  Direktorat Penyusunan APBN, Direktorat Jenderal Anggaran,
Kementerian Keuangan. (2014). Pokok-Pokok Siklus APBN Di Indonesia
Penyusunan Konsep Kebijakan dan Kapasitas Fiskal Sebagai Langkah
Awal. 01. Kementerian Keuangan. Jakarta. ISBN: 978-602-17675-2-8.
Thank You