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Advisory Report 1999-3

July 8, 1999

Accounting and Reporting Information Technology (IT) Expenses by Higher Education

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: This document addresses the Allocation of Information Technology (IT) Costs for purposes of accounting for and reporting expenses in an institution’s financial accounting system. The current literature, the Financial Accounting and Reporting Manual for Higher Education (FARM) is being revised as pertains to revenues and expenses. Previous editions authorized expenditures for formally organized and/or budgeted activities that provide computing support to the three programs (Instruction, Research, and Public Service) to be assigned to Academic Computing Support. Expenditures for computer services that provide support for institutionwide administrative functions were reported as institutional support. Analysis of current practices within higher education reveals that many institutions separately budget and account for IT in all applicable functional classifications, not just Academic Support and Institutional Support. Analysis also shows that the term computing support no longer adequately describes the full spectrum of activity related to IT within institutions. With the advent of networks; institutional licensing of software to service desktop computers as well as mainframe computers; distributed technology; campus IT infrastructure planning, design support and installation; more sophisticated technical human resources; and so forth, services have grown exponentially beyond the term "computing support" which was originally coined and included in the FARM. Information Technology is the term selected to replace computing services. In addition, it is recognized that IT expenses are relative to more than just Academic Support and Institutional Support. Thus, for those institutions that separately budget and account for IT costs by functional classification, the assignment of such costs are authorized.

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

Scope: The criteria for inclusion of IT costs in a functional classification is that the institution must separately budget and account for such costs by functional classification. Costs to be included are all prudent non-capitalized IT costs. Capitalized IT costs will be accounted for in the Plant Funds using institutional capitalization criteria.

Significance: Reporting separately budgeted and expensed IT costs by budgeted functional classification will reduce expenses in Academic Support and Institutional Support. The net result will be better accountability for IT costs and for the respective functional classifications.

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 included in a future revision of the FARM and may be used in the interim for accounting and reporting purposes:

Instructional Information Technology. This subcategory includes expenditures for formally organized and/or separately budgeted instructional information technology. If an institution does not separately budget and expense information technology resources, the costs associated with the three primary programs will be applied to academic support and the remainder to institutional support.

Research Information Technology. This subcategory includes expenditures for formally organized and/or separately budgeted research information technology. If an institution does not separately budget and expense information technology resources, the costs associated with the three primary programs will be applied to academic support and the remainder to institutional support.

Public Service Information Technology. This subcategory includes expenditures for formally organized and/or separately budgeted public service information technology. If an institution does not separately budget and expense information technology resources, the costs associated with the three primary programs will be applied to academic support and the remainder to institutional support.

Academic Support Information Technology. This subcategory includes expenditures for formally organized and/or separately budgeted academic support information technology. If an institution does not separately budget and expense information technology resources, the costs associated with the three primary programs will be applied to this category and the remainder to institutional support.

Student Services Information Technology. This subcategory includes expenditures for formally organized and/or separately budgeted student services information technology. If an institution does not separately budget and expense information technology resources, the costs associated with the three primary programs will be applied to academic support and the remainder to institutional support.

Administrative Information Technology. This subcategory includes expenditures for formally organized and/or separately budgeted administrative information technology. If an institution does not separately budget and expense information technology resources, the costs associated with the three primary programs will be applied to academic support and the remainder to institutional support..

Operation and Maintenance Information Technology. This subcategory includes expenditures for formally organized and/or separately budgeted operation and maintenance information technology. If an institution does not separately budget and expense information technology resources, the costs associated with the three primary programs will be applied to academic support and the remainder to institutional support.