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Business and Policy Areas
Business and Policy Areas


National Association of College and University Business Officers

The Governmental Accounting Standards Board (GASB) exposure draft affects those public colleges and universities relying on separate foundations to handle such activities as fund raising, athletics, and research for the institution. GASB initially undertook a review of this subject in the mid 1990s, in order to complete work that had begun with the issuance of GASB Statement No. 14, The Financial Reporting Entity. GASB 14 addresses affiliated organizations but provides a loophole that allows institutions to omit fund-raising and other foundations from the university’s financial statements. Affiliated organizations currently addressed by GASB 14 include those over which the institution exerts control either by appointing a majority of board members or by exercising financial control of the affiliate.

The exposure draft, issued on July 31, would force public universities to include most, if not all, of their related foundations in the university’s financial statements. Three cumulative criteria are established to determine which legally separate, nonprofit affiliates would be reported, as follows:

  • the assets of the separate affiliated organization directly benefit the university;
  • the university is entitled to, or can otherwise access, a majority of the assets of the separate affiliated organization; and
  • the assets that the university can access are material to the university.

If all of these criteria apply to an affiliated organization, that organization’s financial informationwould have to be presented in the university’s financial statements. The prescribed method for presenting affiliated organizations’ financial information is discrete display. Discrete display requires that a separate column for the affiliate appear in the balance sheet, activities statement, and cash flow statement. Multiple columns would be needed for multiple organizations.

NACUBO is aware that many representatives of public institutions are opposed to the standards prescribed in the exposure draft. They fear that the inclusion of the foundation’s assets would create the impression that the institution is wealthier than it is. Also, because the assets of the foundation are not under the control of the institution, these institutions feel it is misleading to include them in the statements. Similarly, some are worried that the inclusion of foundations in the institution’s financial statements will subject the foundations to audits by state authorities.

Finally, such reporting may cause donors to fear that the state may be able to claim the foundation’s assets if the state falls on hard times.

NACUBO is developing a response opposing the conclusions in the exposure draft. The response builds on the alternative position taken by two GASB board members who oppose discrete display. Instead, these board members prefer the disclosure of summarized financial statements for affiliates. These summarized statements would report the total assets, total liabilities, and net assets of the affiliate along with the total revenues, total expenses, and net surplus or deficit for the year. This would have the effect of moving the detailed information from the face of the institution’s statements to the footnotes. It also would reduce the amount of detail presented about the affiliate. Under this approach, presentation in the statements would be limited to a line item in the balance sheet labeled something like "interest in assets held by others."

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September 19, 2001