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Business and Policy Areas
Business and Policy Areas

NACUBO and GASB Discuss Operating Revenues and Expenses

May 1, 2017

NACUBO staff and Accounting Principles Council (APC) met with Governmental Accounting Standards Board (GASB) representatives to provide input on a portion of its Reporting Model Reexamination Project.

The APC concentrated on classifying operating and non-operating revenues and expenses in Business-Type Activity (BTA) financial statements. APC members elaborated on the type of information that higher education stakeholders would like to understand when examining public college and university financial statements.

After almost two decades, GASB is in the middle of a multi-year project to re-examine the effectiveness of Statement No. 34, “Basic Financial Statements—and Management’s Discussion and Analysis—for State and Local Governments.”

In late 2016, GASB began studying characteristics of operating revenues and expenses for proprietary fund and BTA financial statements. Through constituent outreach efforts, GASB staff identified four themes that might assist with distinguishing operating and non-operating revenues and expenses:

  1. Self-sustaining or subsidized.
  2. Financial performance.
  3. Recurring or nonrecurring.
  4. Debt covenant compliance.

GASB staff has recommended that the self-sustaining or subsidized approach be pursued further. This approach stresses determining whether a proprietary fund or BTA is self-sustaining or whether other resources, such as subsidies (e.g., appropriations), are needed to maintain desired levels of service to citizens.

Meeting Discussion
NACUBO discussed two alternate presentations for the “Statement of Revenue, Expenses, and Changes in Net Position.” Both formats separately display self-sustaining revenue (fee for service) and subsidies (support or non-exchange revenue) with subtotals to illustrate how these types of revenue contribute to a net performance result.

In NACUBO’s alternate formats, operating expenses are subtracted from total revenues (subsidized and non-subsidized) and financing expenses are bifurcated between operating and capital activities based on the types of revenues expected to fund financed projects. Further, for public institutions that hold their own endowments, annual support (spending) from the endowment is classified as a reporting period subsidy (similar to an appropriation).

In NACUBO’s alternative profit and loss presentation, items such as appropriations and non-exchange grants and gifts can continue to be labeled non-operating because they subsidize the institution. However, NACUBO believes that a meaningful “bottom line” of revenues less expenses is imperative. The APC tried to convince GASB representatives that although a subsidized approach provides valuable information to financial statement users, public institutions that report as stand-alone BTAs need to go one step further and convey financial performance. Public institutions must communicate management’s accountability for the sustainability and viability of their reporting entity—especially given that subsidies such as state appropriations have been declining for decades, necessitating increased revenue diversity. 

Over the next few months, GASB will continue their research and outreach efforts on revenue and expense classification. NACUBO will continue to closely monitor this project and provide input and feedback to GASB.


Sue Menditto
Director, Accounting Policy