Date:
July 16, 1997 Code: AD 97-07
To:
Vice Presidents for Administration
From: George A. Pardon
Accounting Director
Business and Finance
Subject: Accounting Issues Related to the Financial Statement Audit for the Fiscal Year
Ended June 30, 1997
The guidance provided in this memo
is to be used for the preparation of campus financial statements
in accordance with generally accepted accounting principles (GAAP)
only, and should not be applied to the legal basis financial information
of the campus. This memo serves as a supplement to the information
provided in the GAAP Workshop materials which should also be referred
to while preparing the campus GAAP financial statements.
Several issues have been raised as
we have been progressing through this beginning audit process.
A GAAP Committee, which consists of accounting and finance personnel
from several CSU campuses and the Chancellor's Office, was formed
to assist in the resolution of the accounting and reporting issues
pertaining to the audit for the fiscal year ended June 30, 1997.
The GAAP Committee consulted with representative members of campus
auxiliary organizations when issues related to them arose. The
primary purpose of the GAAP Committee is to identify and resolve
accounting and reporting issues and to assist campuses in accounting
and reporting like information in an appropriate and consistent
manner.
The following summarizes the accounting
and reporting issues that have been addressed and resolved to
date. Additional guidance will be provided to campus personnel
as such guidance is developed.
AUXILIARY ORGANIZATION TRANSACTIONS
Separate guidance for auxiliary organizations
regarding this audit process has been provided to campus auxiliary
organizations and to campus financial officers. (Reference: AD
97-06, dated June 26, 1997.)
REVENUE RECOGNITION
It is important that all revenue
of the CSU be recorded in the combined 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 organization communicate
the receipt of any such gifts or receipts to the campus as soon
as possible.
For certain types of transactions,
it may be difficult to determine if the revenue should be recorded
on the financial statements of the campus or the auxiliary organization.
The decision should be based on the "ownership" of
the activity. The following guidance is offered to assist the
campus and its auxiliary organization in making this determination:
1) Who administers and makes decisions
relating to the activity in question?
2) Who assumes the risks in the event
of losses, claims or lawsuits?
If the campus actually operates the
activity but an auxiliary organization holds the money, all revenue
and expenses should appear on the financial statements of the
campus, and the auxiliary organization would record the activity
as an agency transaction, i.e., no revenue or expenses should
be recognized. If ownership resides with an auxiliary organization,
the revenues and expenses would appear on that auxiliary organization's
books only and not on the books of the campus or another auxiliary
organization.
Reimbursement of Expenses
For purposes of the combined financial
statements of the CSU, it has been determined that transactions
occurring between the auxiliary organizations and the campuses
should not result in the double recording of revenues or expenses.
This principle is also applicable to transactions between CSU
funds such as general fund and trust fund.
Accordingly, any reimbursements from
an auxiliary organization to a campus relating to an activity
considered to be "owned" by the auxiliary organization
should be recorded in the campus's general fund's reimbursed activities
as a reimbursement from the auxiliary organization. There should
also be a reduction in the program expenditure offset by an increase
in reimbursed activities expenditure. For example, expenditures
should be reduced in Instruction and increased in reimbursed activities
by the cost of the faculty release time.
At the end of the fiscal year, the
reimbursed activities revenues and expenditures should net to
zero and will not appear as a line item on the financial statements.
Following are two situations that can occur and that will require
analysis and possible adjustment:
Other Reimbursable Costs
Reimbursements for campus provided
services, such as postage, phones, copier costs, etc., to departments
within the campus or to support groups that are not considered
auxiliary organizations, should be treated as a reduction to the
program that actually incurred the expenditure ( e.g., Instruction,
Institutional Support, etc.).
Revenue should only be recognized
when earned from non-CSU sources.
Fee Waivers & Fee Remissions
- The AICPA Industry Audit Guide, Audits of Colleges and Universities
(the Guide), requires that all tuition and fees should be recorded
as revenue even though there is no intention of collection from
the student. The amounts of any fee waivers or fee remissions
should be recorded as expenditures and classified as either Scholarships
and Fellowships or as staff benefits associated with the appropriate
expenditure category to which the personnel relate.
Summer Session
- The Guide states that revenues from tuition and student fees
of an academic term that encompasses two fiscal years, for example,
a summer session, should be reported totally within the fiscal
year in which the program is predominantly conducted. However,
the CSU GAAP Audit Workshop manual binder, Sec. 2.6 Faculty Accrual
says that campuses may split summer faculty compensation based
on the number of days of the session falling in each fiscal year.
(For example, a June 2 to July 11 session would be split 67%
and 33%, respectively for each fiscal year.) The preferred method
is the former, however, each campus may choose which method to
use but must apply the selected method consistently to both revenue
and expenditures and use the method consistently from year to
year.
STUDENT FINANCIAL AID
Federally Guaranteed Student Loans
- Under the William Ford Direct Lending Program and the Federal
Family Education Loan Program (FFELP), i.e., Stafford Loans, the
CSU acts as an agent in disbursing money provided by the lenders
and the Federal government to the students. Accordingly, the
direct lending program and FFELP should be reported in the agency
fund.
Other Loan Programs -
The Federal Perkins Loan Program and the Nursing Loan Programs
shall be reported in the loan fund.
Grants and Scholarships
- If the grantor (State or Federal governments, for example) selects
the recipients, the grant or scholarship should be classified
in an agency fund, since the campus is only serving as an agent
to the grantor. If the campus has the ability to select the recipient
student or has the ability to redirect the grant or scholarship,
the revenue and related expenditure should be recorded by the
campus in a restricted current fund. It has been determined by
the GAAP Committee that the SEOG, CWS, Cal Grant, campus scholarships
& grants, and miscellaneous financial aid are to be reported
in current restricted funds.
Federal Pell Grants
- Governmental Accounting Standards Board (GASB) Statement Number
19, Governmental College and University Omnibus Statement (GASB
19), requires that Federal Pell Grants be recorded in current
restricted funds. GASB 19 discusses that the institution is responsible
for evaluating students' requests for aid based on Federal government
criteria. If a student is eligible, the institution grants the
scholarship and administers the disbursement of the grant.
EOP and SUG
- These grant programs shall be reported in current unrestricted
funds.
PROPERTY, PLANT AND EQUIPMENT
Construction Work in Process
(CWIP)
In the past, for those projects managed
and accounted for by the Chancellor's Office, the Chancellor's
Office has communicated information to the campuses regarding
the amount of plant assets to be capitalized on completed construction
projects in order that the campus could record the completed building
in its accounting records. However, for purposes of preparing
financial statements in accordance with GAAP, the Chancellor's
Office will now also be reporting to the campuses the amount of
construction currently in process affecting each respective campus.
Please note that this information should not be recorded in
the legal basis financial records of the campus. The campuses
should, however, be currently recording any construction work
in process (CWIP) on any projects which they are managing and
accounting.
A list of CWIP by campus as of June
30, 1996 will be provided to each campus in August 1997. This
information will be audited on a centralized basis at the Chancellor's
Office and will not need to be addressed by the campus audit teams.
These amounts should be recorded in the plant fund on the GAAP
financial statements of the campus using the following entry:
June 30, 1996
DR Construction work in process (Asset)
CR Investment in Plant Assets (Fund Balance)
During August 1997, the Chancellor's
Office will provide each campus with the new balance of CWIP as
of June 30, 1997, along with the activity to be recorded by the
campus to reflect the changes in CWIP during the year ended June
30, 1997. Upon receiving this information, the campus should
make the following entry in the plant fund on the GAAP basis financial
statements:
June 30, 1997
DR Construction work in process (Asset)
CR Investment in Plant Assets (Fund Balance)
DR Amounts expended for plant facilities (Expenditure)
CR Amounts expended for plant facilities (Revenue)
The Chancellor's Office will provide
the campus with enough information so that upon receipt of capitalization
letters reflecting completed construction projects, the campus
will not be recording plant assets more than one time in the GAAP
basis financial statements. It should be emphasized that upon
receipt of capitalization letters on completed projects, the campus
should record these amounts for legal purposes.
Art Collections
- Art collections shall be capitalized at cost, if purchased,
or, if donated, at fair market value at the date of donation.
Bound Periodicals
- Bound periodicals are to be capitalized at cost.
LONG TERM DEBT
The CSU has several financing vehicles
which it uses to fund campus construction projects and to otherwise
obtain plant assets. Certain of these debt instruments can be
identified with a campus specific revenue stream such as housing,
student unions, and energy bonds. For those debt instruments
that have a campus specific revenue stream, the Chancellor's Office
will allocate such debt for GAAP basis financial statements.
Any debt incurred directly by the
campus should have already been recorded for legal purposes in
the books and records of the campus, along with the related asset.
A discussion of the various debt
types currently held by the Chancellor's Office and the treatment
of such debt follows:
General Obligation Bonds
- These bonds are issued by the State of California upon voter
approval through the general election process. This debt is the
obligation of the State of California and is funded from state
tax revenue. Such debt is not allocated to the CSU by the State.
Lease Revenue Bonds (Public
Works Board) - These
bonds are issued by the Public Works Board (PWB) to finance specific
projects at specific campuses. The CSU receives the funds through
an appropriation from the state for Public Works projects, and
upon completion of the project, the CSU enters into a lease agreement
with the PWB. These lease obligations are not allocated to the
campuses because these projects can not be identified with
a campus specific revenue stream.
Revenue Bonds
- Commonly referred to as the Dormitory Revenue Fund (DRF), these
bonds are issued by the CSU and are used to finance campus projects
such as housing and student union buildings. Education Code Section
90011 provides a list of the type of projects that can be financed
through this type of bond financing. The debt service amounts
related to these projects will be allocated to the campuses because
these projects can be identified with a campus specific revenue
stream. Amounts will be allocated as of June 30, 1996 and June
30, 1997 and should be recorded in the plant fund of the GAAP
basis financial statements as follows:
June 30, 1996
DR Investment in Plant Assets (Fund Balance)
CR Bonds Payable (Liability)
June 30, 1997
DR Interest Expense
DR Bonds Payable (Liability - Principal portion of payment)
DR Other expense (representing amounts paid to the Chancellor's Office to be held as a required reserve)
CR Investment in Plant Assets (Fund Balance)
CR Transfer from unrestricted funds sources other
than plant fund)
The campus should already have recorded
the transfer out of the 580 fund representing payment of principal,
interest and reserve amounts to the Chancellor's Office (Unrestricted
Current Fund in the GAAP basis statements.)
Energy Bonds
- Energy bonds are actually capital lease obligations that can
be directly attributable to a campus funding source. The funding
source is energy savings generated by the project that was financed
by the bond proceeds. The balance of the capitalized asset along
with the remaining lease obligation attributable to each campus
will be provided by the Chancellor's Office. Amounts will be allocated
as of June 30, 1996 and June 30, 1997 and should be recorded in
the GAAP basis financial statements as follows:
June 30, 1996
Plant Fund
DR Investment in Plant Assets (Fund Balance)
DR Property, Plant and Equipment (Asset)
CR Capitalized Lease Obligation (Liability)
June 30, 1997
Current Unrestricted Fund
DR Transfer to Plant Fund
CR Lease expense
Plant Fund
DR Lease Expense (can break out into principal and interest)
CR Transfer from current unrestricted fund
DR Capitalized Lease Obligation (Liability)(representing principal portion of lease payment only)
CR Investment in Plant Assets (Fund Balance)
REPORTING ISSUES AND FORMATS:
The financial statements shall be
prepared using the same general format used in the previously
issued ten campus financial statements. See Attachments A and
B for specific information to be included.
Accruals between campuses and
the Chancellor's Office
Campuses should provide the Chancellor's
Office as soon as possible with detailed information of June 30,
1996 accruals relating to other CSU campuses and the Chancellor's
Office. The Chancellor's Office needs this to ensure consistent
cut-off of revenues and expenditures between entities. The following
information should be provided:
1) Fund
2) Balance sheet lines or accounts
3) Expenditure or Revenue line or account
4) Amount
5) Other campus name or Chancellor's Office involved in transaction
6) Description in sufficient detail
to identify the transaction on another entity's books (e.g., Invoice
number, AD-NOAT number, PFA number, ENPA number, Project Authorization
number, accrued interest, etc.)
A sample schedule is included as
Attachment C.
For these accruals for June 30, 1997,
the campuses and the Chancellor's Office should provide the affected
CSU entity with enough information so that both entities can properly
record the accruals. This information can be the basis for elimination
entries in the combined financial statements. Separate account
controls have been set up in the FRS system for accruals between
the CSU entities for use beginning in fiscal year 1997/98 in the
legal basis. (By using these for legal basis accounting, the
information will be more readily accessible and will require fewer
GAAP adjustments.) They are as follows:
Accounts Receivable (map to A/R Other)
1369 A/R from CSU campuses
1370 A/R from Chancellor's Office
Accounts Payable (map to A/P Other)
2026 A/P to CSU campuses
2027 A/P to Chancellor's Office
Footnotes.
The footnotes to the financial statements will be prepared at
the campus level and consolidated at the Chancellor's Office.
Please contact me or Ruth Stipp with questions regarding any of
these issues at (562) 951-4610 or email george_pardon@calstate.edu
and ruth_stipp@calstate.edu, respectively.
GAP:RS:js AD 97-07
Attachment A-Balance
Sheet
Attachment
B-Statement of Changes in Fund Balances (Net Assets)
Attachment C-Accruals
Between Campuses and The Chancellor's Office as of June 30, ____