June 26, 1997 Code: AD 97-06
Vice Presidents for Administration
From: George A. Pardon
Business and Finance
Organizations: Supplementary Information to be Prepared for Inclusion
in the Financial Statements of the California State University
In March 1996, BF 96-02 was sent
to campus presidents delineating changes in the reporting requirements
for all recognized campus 501(c)(3) auxiliary organizations. One
of the changes was that campus auxiliary organizations would be
included in the CSU's financial statements. This requirement
is effective with the 1996/97 fiscal year audit. The auxiliary
organizations will be shown in a discrete presentation rather
than being blended into the CSU's financial statements. In order
to achieve this presentation, each campus will have to combine
the audited financial information from each of their auxiliary
organizations into one column for inclusion in the combined systemwide
statements and on the campus-specific financial statements, where
applicable. The purpose of this memo is to provide the framework
for the inclusion of the auxiliary organization financial information.
GASB Statement 14, The Financial
Reporting Entity, establishes standards for defining and reporting
on the financial reporting entity. Under this standard the financial
reporting entity consists of: (a) the primary government, in this
case the CSU; (b) organizations for which the primary government
is financially accountable; and (c) other organizations for
which the nature and significance of their relationship with the
primary government are such that exclusion would cause the reporting
entity's financial statements to be misleading or incomplete.
Based upon the nature and the magnitude of the services and functions
provided by the CSU auxiliary organizations, the CSU recognized
auxiliary organizations will be included in the CSU's financial
statements on the basis that exclusion would cause the combined
financial statements to be misleading.
In order to ensure that the financial statements of the CSU are as meaningful as possible, we are requesting that the financial statements of each auxiliary organization include Supplemental Information and that such information be covered by a full scope independent auditors' report. An example of an acceptable independent auditors' report is included as Attachment A. The information underlined on this example describes the required language. Other information, however, such as the title of the financial statements or the existence of any qualifications, will vary from organization to organization. Please provide a copy of this example to your audit firm.
Vice Presidents for Student Services
Auxiliary Organization Directors
KPMG Peat Marwick LLP (KPMG), the
CSU's independent auditors, will reference the audit opinions
of the auditors of the auxiliary organizations in their report
on the combined financial statements of the CSU. Accordingly,
each auxiliary organization's audit firm will need to consent
to the inclusion of their report and will be required to furnish
certain other information to KPMG with regard to their firm's
independence from the CSU and other related matters. An example
of this letter is included as Attachment B. Please provide
a copy of this example to your audit firm.
The CSU recognizes that all of the
auxiliary organizations do not prepare their financial statements
on the same basis of accounting. Although the CSU will prepare
its financial statements pursuant to the Governmental Accounting
Standards Board (GASB), those auxiliary organizations that apply
the standards of the Financial Accounting Standards Board (FASB)
will not be required to adjust or convert their financial statements
to GASB. However, the Supplemental Information that is referred
to above will be requested in order that the financial information
of the auxiliary organizations is consistent with the CSU's financial
statement presentation. Examples of the Balance Sheet and Statement
of Changes in Fund Balances that should be prepared are included
as Attachments C and D. Please provide a copy of these examples
to your audit firm.
The CSU has organized a committee
(the GAAP Committee or the Committee) which consists of accounting
and finance personnel from several CSU campuses and the Office
of the Chancellor. The Committee consulted with members of auxiliary
organizations on issues relating to them. One project of this
Committee included identifying accounting and reporting issues
between the auxiliary organizations and the CSU that need to be
addressed to enhance the meaningfulness of including the auxiliary
organization's financial statements in the financial statements
of the CSU. This project resulted in the following reclassifications
and other items that will need to be addressed by the auxiliary
organizations in order to prepare the Supplementary Information
referred to above.
1. Revenue Recognition
It is important that all revenue
of the CSU be recorded in the financial statements at least once,
but only once. In circumstances where an auxiliary organization
may receive gifts or other receipts on behalf of the campus and
records such gifts or receipts as an agency transaction, i.e.,
the auxiliary organization does not record the revenue, the campus
must record such gifts or receipts in the period in which it was
received or earned. It is important that the auxiliary organizations
communicate the receipt of any such gifts or receipts to the campus
as soon as possible.
2. Return of Surplus to Student
Union Auxiliary Organizations
The amount of Student Union fees
collected by the campus and remitted to the Chancellor's Office
that are in excess of debt service payments are returned to the
Student Union auxiliary organizations. These amounts are recorded
as revenue on the financial statements of the auxiliary organization.
Accordingly, such surplus amounts need to be eliminated from
the fees initially received and recorded by the campus. The amount
of such surplus can be determined by communication between the
auxiliary organization and the campus.
3. Asset and Liability Classifications
The CSU's asset and liability classifications
are illustrated on Attachment C.
4. Revenue and Expense Classifications
The CSU's revenue and expenditure
classifications are illustrated on Attachment D to this letter.
To assist the auxiliary organizations in preparing the Supplemental
Information using these classifications, the following is a description
of the types of revenues and expenditures, that may be applicable
to the auxiliary organizations, that are included in each category.
Auxiliary organizations that provide services to students should report expenses for activities that are not self supporting in this category.
This category should only be used for those auxiliary organizations that provide administrative support services to a variety of different types of activities within their organization and where the administrative costs have not or cannot be allocated to the various categories (e.g., student services, auxiliary enterprises, etc.).
This category should only be used for those auxiliary organizations that provide plant maintenance support services to a variety of different types of activities within their organization and where these costs have not or cannot be allocated to the various categories (e.g., student services, auxiliary enterprises, etc.).
Auxiliary organizations that report their revenues as auxiliary enterprises should report the related expenses in this category.
The timing of the issuance of the
combined financial statements of the CSU is such that audited
financial statements including the Supplemental Information requested
above, as well as the auditor letter illustrated in Attachment
B to this letter, must be submitted to the campus no later than
October 31, 1997. (Individual campus presidents or auxiliary
organizations may set earlier due dates.)
A GAAP listserver has been set up for the purpose
of sharing information and discussing CSU financial statement
issues. To subscribe, send a message to firstname.lastname@example.org
(no topic) with the following contents:
subscribe gaap first-your first name last-your last
(example: subscribe gaap first-George last-Pardon)
To unsubscribe, send a message to email@example.com
with: unsubscribe gaap. When subscribing, use a plain e-mail form.
Some of us have e-mail forms with fancy headings that will be
rejected during the subscription process.
To post to the listserver, send the message to firstname.lastname@example.org.
Potential senders must first subscribe to the listserver before
they can post to it. You will get a verification from the listserver
that you have been added. You will also be informed if there
was a problem. Once you have subscribed to the GAAP listserver,
you will receive a copy of any e-mail that was posted to email@example.com.
Please contact me or Ruth Stipp with questions regarding any of
these issues at (562) 951-4610 or email firstname.lastname@example.org
and email@example.com, respectively.
GAP:RS:js AD 97-06
The Board of Directors
CSU Auxiliary Organization:
We have audited the accompanying balance sheet of CSU auxiliary organization as of June 30, 1997, and the related statements of earnings, retained earnings, and cash flows for the year then ended and the supporting schedules 1 and 2 (supplementary information on pages _ to _). These financial statements and schedules are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and schedules are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and schedules. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement and schedule presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements
referred to above present fairly, in all material respects, the
financial position of CSU auxiliary organization as of June 30,
1997, and the results of its operations and its cash flows for
the years then ended in conformity with generally accepted accounting
principles, and the supporting schedules 1 and 2 (supplementary
information on pages _ through _), in our opinion, present fairly,
in all material respects, the information set forth therein.
1 of 2
Auxiliary Organization Auditor
We have been engaged to audit the
combined financial statements of the California State University
as of and for the year ending June 30, 1997 for the purpose of
forming an opinion as to whether the combined financial statements
present fairly, in all material respects, the financial position
and the results of operations of the California State University
in accordance with generally accepted accounting principles.
In accordance with Governmental Accounting
Standards Board Statement No. 14, "The Financial Reporting
Entity", the audited financial statements of the recognized
auxiliary organizations of the California State University will
be included in the overall combined financial statements of the
California State University.
We are writing to you to make you
aware that KPMG intends to rely upon and refer to your independent
auditors report on (Auxiliary Organization) in KPMG's overall
independent auditors' report on the combined financial statements
of the California State University. Information regarding the
timetable for the audit and the reporting requirements will be
communicated to (Auxiliary Organization) by the California
State University's Chancellor's Office.
In accordance with AICPA Professional
Standards AU Section 543, we request that you confirm to us in
writing your independence from both the (Auxiliary Organization)
and the California State University.
Also, in accordance with AICPA Professional
Standards AU Section 543, we are informing you that we will review
matters affecting eliminations of inter-entity transactions and
accounts and, if appropriate, the uniformity of accounting practices
among the auxiliary organizations included in the combined financial
statements. If any matters come to your attention that you believe
may have an important bearing on KPMG's audit of the California
State University, I ask that you inform me immediately.
If you have any questions regarding
the above, please do not hesitate to contact me at (XXX) XXX-XXXX.
For your convenience in confirming your independence, we have
provided a space below for you to sign. Please return your confirmation
to my attention in the enclosed envelope.
Thank you for your cooperation.
Very truly yours,
KPMG Peat Marwick LLP
2 of 2
I have read and understand the above
information. I am familiar with the Professional Standards regarding
independence and I confirm as engagement partner for (Auxiliary
Organization) that I and my firm are independent from both
(Auxiliary Organization) and the California State University.
Cash and cash equivalents
Accounts Receivable, net
Pledges Receivable, net
Amounts receivable from other auxiliary organizations
Amounts receivable from the CSU
Investments held by the CSU
Prepaid expenses and other assets
Property, plant and equipment, net
Liabilities and Net Assets
Accrued salaries and benefits payable
Amounts payable to other auxiliary organizations
Amounts payable to the CSU
Accrued compensated absences
Capitalized lease obligations
Fund Balances and Net Assets:
Fund Balances (GASB entities only):
Unexpended plant, restricted
Net investment in plant
Total Fund Balances
Net Assets (FASB entities only):
Total Net Assets
Total Fund Balances and Net Assets
Total Liabilities, Fund Balances and Net Assets
Statement of Changes in Fund Balances (Net Assets)
Fees and tuition
Federal grants and contracts
State grants and contracts
Private gifts, grants, and contracts
Sales and service of educational activities
Sales and service of auxiliary enterprises
Educational and general:
Operation and maintenance of plant
Student grants and scholarships
Educational and General Expenditures (Expenses)
Other Expenditures (Expenses)
Auxiliary enterprise expenditures (expenses)
Loss on write-down of investments
Loan cancellations and write-offs
Disposal of plant facilities
Total Other Expenditures (Expenses)
Net Increase (Decrease) in Fund Balances (Net Assets)