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Business and Policy Areas
Business and Policy Areas

Accounting Change May Impact Financial Responsibility Scores

March 1, 2010

NACUBO is expecting an increase in the number of independent nonprofit colleges and universities having trouble meeting the Department of Education's financial responsibility standards for FY2009. Unprecedented investment declines coupled with changes in the classification of assets under Financial Accounting Standard (FAS) 117-1 may result in substantial drops in an institution's composite score.

ED's financial responsibility standards are based on three ratios-primary reserve, equity, and net income-which are calculated based on the institution's audited financial statements as submitted through ED's e-Z Audit portal. Institutions which participate in the Title IV student financial aid programs are required to submit their financial statements through e-Z Audit within nine months of the end of each fiscal year. For institutions with a June 30 year-end, the deadline is March 31.

FAS 117-1, "Endowments of Not-for-Profit Organizations:  Net Asset Classification of Funds Subject to an Enacted Version of the Uniform Prudent Management of Institutional Funds Act," requires institutions located in states which have adopted UPMIFA to reclassify certain endowment assets from unrestricted to temporarily restricted net assets. (All states have now adopted UPMIFA except for Alaska, Florida, Kentucky, Louisiana, Mississippi, New York, Pennsylvania, and Rhode Island.)

Although ED's regulations stipulate that the cumulative effect of changes in accounting principles will generally be excluded, it is not clear that the eZ Audit templates or ED's processes do so. As NACUBO tries to work through some of these issues with ED officials, business officers at affected institutions may want to consider the following:

  • Delay submitting FY2009 financial statements and completing the e-Z Audit submission process as long as possible (while still meeting the applicable deadline).
  • Share your financial statements for FY2009 and FY2008 with NACUBO by emailing them to More examples of the effect of both the market downturn and the accounting changes will enable us to better analyze the situation and inform our conversations with ED.
  • If your institution has already submitted its statements and received notice from ED about failure to meet the financial responsibility standards, please share the letter and any calculations provided as well.

NACUBO will keep members informed as we learn more. 


Sue Menditto
Director, Accounting Policy

Anne Gross
Vice President, Regulatory Affairs