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Business and Policy Areas
Business and Policy Areas

Exposure Draft, Proposed Statement of Position

October XX, 2001

Mr. Marc Simon
Technical Manager
Accounting Standards
File 4210.CC
American Institute of Certified Public Accountants
1211 Avenue of the Americas
New York, New York 10036-8775

Re: Exposure Draft, Proposed Statement of Position, Accounting for Certain Costs and Activities Related to Property, Plant, and Equipment

Dear Marc:

Thank you for the opportunity to provide input to the Accounting Standards Executive,Committee’s (AcSEC) project on property, plant, and equipment (PP&E) accounting. We appreciate the considerable effort that has been invested in this project, as well as the consideration you give to input received from the field. This letter provides our comments on the June 29, 2001, Exposure Draft (ED) referenced above.

The National Association of College and University Business Officers (NACUBO) represents more than 2,100 colleges and universities. Our members include both public and private campuses, as well as independent primary and secondary schools. Our primary representatives include the chief financial officers of these organizations, although many of their staff members also are active participants in NACUBO programs and activities. The comments presented in this letter evolve from input provided by our members and more specifically from the members of NACUBO’s Accounting Principles Council (APC). The APC is a standing body comprising representatives from member institutions. All of these individuals have demonstrated expertise and interest in issues relating to financial accounting and reporting as well as management analysis and reporting. In addition, ex officio members of the APC include representatives of organizations such as the American Accounting Association, the Association of College and University Auditors, and the Institute of Management Accountants.

NACUBO recognizes the importance of having effective standards to guide the development and presentation of financial information beneficial to all users of financial statements. We have been an active participant in various projects related to financial accounting and reporting standards, including playing an active role with the FinancialAccounting Standards Board (FASB), the Governmental Accounting Standards Board (GASB), and past committees of the AICPA. In each of these activities, we have tried to balance the needs of users against costs and other impacts of various standards.

In this particular instance, the issue of cost/benefit is of primary concern to NACUBO. Although it is important that appropriate standards exist for accounting for PP&E, we are concerned that the requirements of the ED impose a significant additional cost to preparers without significantly enhancing the overall quality of the information being presented. We anticipate that it would take a large investment of time and effort to comply with the elements of the new standard.

Many of our member institutions are small to medium-sized private institutions that experienced two major administrative cost impacts in recent years: the implementation of FASB Statement Nos. 116 and 117 and the acquisition and implementation of new administrative systems. This SOP has the potential to require changes to these new systems at a time when campuses are just getting used to the new environment. We do not understand the benefits warranting the costs that would be incurred. Stated differently, we do not understand what problem this standard seeks to address — especially as it relates to the not-for-profit environment.

The issue of cost/benefit is only one aspect of our concern with the ED. Not-for-profit colleges and universities also will have a problem because of their participation in federally sponsored research programs. These institutions currently are subject to rules promulgated by the federal Office of Management & Budget (OMB). One such rule appears in Circular A-21, < Educational Principles>s. Paragraph J(12)(a)(2) of A-21 mandates that those colleges and universities claiming reimbursement for facilities costs use the same depreciation accounting for costing purposes that they use in their GAAP-basis financial statements. Any changes, such as the ones contained in the ED, would force these institutions to go through a cumbersome disclosure and approval process to implement the changes required by the ED. This could be especially problematic for institutions operating under multi-year rate agreements. Those institutions would incur the cost of changes needed to comply with the ED, would incur additional costs in submitting the required disclosures to their federal cognizant agency, and potentially would be deemed "out of compliance" with the requirements of OMB Circular A-21 until their rate agreements came up for renewal. This problem may not be one merely of timing. We have contacted representatives of OMB to discuss the proposed standard. They have expressed concerns about the potential impact the standard could have on the amount of costs reimbursed by the federal government. Additionally, they are concerned about the impact that these changes could have on institutions that may find themselves out of compliance. It is especially troubling that these representatives were unwilling to speculate on the likelihood that OMB would modify Circular A-21 if the standard becomes final. In fact, they indicated that the current political climate in Washington with respect to new or additional regulations is such that it is unlikely Circular A-21 would be amended time soon. This would create an untenable situation for many institutions, especially those with long-term rate agreements.

There is one final problem with the proposed standard that we must identify. For several years now, the higher education industry has been divided from a financial reporting perspective. As you know, the FASB has promulgated one reporting model for use by not-for-profit organizations, including private colleges and universities, whereas GASB institutions continue to report using the AICPA’s audit guide for colleges and universities. After several years of trying to wrestle with the complexities of this situation, relief is on the horizon with the GASB’s issuance of GASB Statement Nos. 34 and 35. These standards significantly close the gap between public and private higher education financial reporting. It’s not a perfect situation because there remain some differences between the two reporting models. Still, it’s a vast improvement over a situation that will have existed for more than five years between the effective date of FASB Statement Nos. 116 and 117 and the effective date for GASB Statement Nos. 34 and 35. We are most troubled that this standard, if applied to not-for-profits, would have the effect of creating more differences between the reporting models that public and private higher education employ.

Based on the various problems identified above, NACUBO asks that the standard, if issued, be amended so that it is not applicable to not-for-profit organizations. We believe this will not have a negative impact on the quality and usefulness of college and university financial statements. On the other hand, from a positive perspective, it will avoid the investment of significant financial resources for this effort as well as the potential problems created by noncompliance with OMB requirements.

We appreciate this opportunity to comment on this ED and look forward to answering any questions AcSEC staff members may have about our comments. Please direct your questions to Larry Goldstein at 804-973-1731 or


Mark Olson Larry Goldstein

Senior Vice President Senior Fellow