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Advisory Report 1999-1

July 8, 1999

Accounting and Reporting for Nongovernmental Grants and Contracts and Gifts

POSITION PAPER PREPARED BY THE NACUBO ACCOUNTING PRINCIPLES COUNCIL

The position paper that follows was approved in April 1999 by the NACUBO Accounting Principles Council. The paper represents preferred industry practice, and in the absence of any guidance from the Financial Accounting Standards Board (FASB), the Governmental Accounting Standards Board (GASB), or the American Institute of Certified Public Accountants (AICPA), this document should be followed by all higher education institutions.

Purpose: NACUBO has reviewed certain accountability issues pertaining to the category Private Gifts, Grants and Contracts in NACUBO’s Financial Accounting and Reporting Manual for Higher Education (FARM) and has determined that there is a significant enough difference between gifts and private grants and contracts to warrant separate recognition in the FARM. It is further noted that while gifts are classified as nonexchange transactions, private grants and contracts could be either exchange or nonexchange transactions. This position paper provides guidance for accounting for those activities.

Applicability: This position paper applies to all independent and public higher education institutions.

Scope: The FARM included both Gifts and Private Grants and Contracts under one classification. This position paper will separate the classifications to provide better disclosure and accountability.

Significance: The FARM will be modified to provide reporting guidance for Gifts and Nongovernmental Grants and Contracts. Financial statements should be prepared differentiating between the two classifications to give the readers a better understanding of how many resources are a result of donor activity and how many are a result of acquiring grants and contracts from nongovernmental entities, including individuals.

Effective Date: The requirements of this document are effective for all higher education institutions for fiscal years beginning after June 15, 1999, with earlier application recommended.

Summary

The following paragraphs will be revised and included in a future revision of the FARM and may be used in the interim for accounting and reporting purposes:

Nongovernmental Grants and Contracts. The nongovernmental grants and contracts category includes amounts from nongovernmental organizations and individuals, including funds resulting from contracting for the furnishing of goods and services of an instructional, research, or public service nature. The category includes all unrestricted and restricted nongovernmental grants and contracts. Grants and contracts from foreign governments should be treated as nongovernmental grants and contracts. This category excludes revenues derived from contracts and other activities that are not related directly to instruction, research, or public service. Nongovernmental grants and contracts may be either exchange or nonexchanage transactions.

Amounts equal to the direct costs incurred by restricted current funds should be reported as revenues of those funds, while amounts equal to the associated facility and administrative cost recoveries should be recorded as unrestricted current fund revenues.

Gifts. The gift category includes resources donated to the institution for unrestricted or restricted institutional purposes except those gifts received as additions to permanently restricted net assets which are recorded in other support. Should the amounts included in gifts not be material, gifts should be included in other sources. Gifts are nonexchange transactions. Income from funds held in revocable trusts or distributable at the direction of the trustees of the trusts should be reported here and, if significant, disclosed in the notes to the financial statements.