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INCLUSION OF...
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REVIEW OF  ...
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Example Fo...
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 Supplementary I...
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Depreciation and...
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INCLUSION OF AUXILIARY ORGANIZATIONS AND OTHER ENTITIES IN ...

  1. 1. Attachment A Page 1 of 10 INCLUSION OF AUXILIARY ORGANIZATIONS AND OTHER ENTITIES IN THE CSU FINANCIAL STATEMENTS Beginning with the 1996/97 fiscal year, auxiliary organizations were required to provide information for inclusion in the combined financial statements of the California State University (CSU). Beginning with the year ending June 30, 2002, the CSU adopted Governmental Accounting Standards Board (GASB) Statement No. 35, Basic Financial Statements-and Management's Discussion and Analysis-for Public Colleges and Universities. With minor exceptions, this statement provides that public colleges and universities are subject to the financial reporting requirements of GASB Statement No. 34, applicable to state and local governments. Subsequently issued were GASB Statement No.37, Basic Financial Statements-and Management's Discussion and Analysis-for State and Local Governments: Omnibus, and GASB Statement No. 38, Certain Financial Statement Note Disclosures. These changes, commonly referred to as "GASB Nos. 34/35," have in turn impacted the auxiliary organizations and other related entities identified as 'component units' per GASB Statement No. 14, The Financial Reporting Entity, and GASB Statement No. 39, Determining Whether Certain Organizations are Component Units, an amendment of GASB Statement No. 14, and have therefore defined the financial reporting entity to be the CSU and the listed organizations. Therefore, in the Auxiliary Organizations’ separately issued financial statements, each named organization must provide the supplementary information in the form shown in Attachment A-1, accompanied by an "in relation to" independent auditors’ report. The adoption of GASB Nos. 34/35 has not changed the following current practices: 1. As appropriate, auxiliaries must report as either FASB (Financial Accounting Standards Board) or GASB-subject organizations. GASB Nos. 34/35 does not require that the auxiliary organizations change to the basis of accounting used by the primary government, i.e., the CSU and its campuses. As noted above, the auxiliary organizations must continue to provide the required information in the form shown in Attachment A-1 via audited supplementary information in their separately issued financial statements. The proforma electronic template provided as Attachment A-1 must be used in preparing the supplementary information schedules. 2. All auxiliaries are required to reclassify certain information in order to conform to the campus’ required line item reporting categories. 3. All auxiliaries are required to provide additional supplementary information for inclusion in the notes to the financial statements of the campus’ separately issued financial statements. Last revised May 1, 2006
  2. 2. Attachment A Page 2 of 10 REVIEW OF AUXILIARY FINANCIAL STATEMENTS BY THE CAMPUS PRESIDENT This is a reminder of existing policy and practice regarding the annual review of the campus auxiliary organizations’ financial statements. Each campus president is responsible for reviewing and accepting the completed audited financial report of each campus auxiliary organization to ensure each audit is conducted according to the accounting and reporting instructions described in this memorandum. The campus president, subsequent to receiving and reviewing the auxiliary organization annual audit reports, shall provide a summary letter to the Executive Vice Chancellor/Chief Financial Officer (CFO) by December 1 of each year. See example format of summary letter on the following page. The summary letter shall: 1. Indicate that the campus president or designee has reviewed the audit reports, or shall state the reason(s) why any audit report has not been reviewed, and what action is being taken to remedy the situation. 2. List the campus auxiliary organizations and the type of opinion ("unqualified", "qualified", or "adverse") issued for each entity. 3. For audit reports with qualified or adverse opinions and for any other audit reports that are not acceptable as to form and content, indicate what actions are being taken regarding those that are deficient. The campus president and chief financial officer are responsible for promptly notifying the Executive Vice Chancellor/CFO of changes to the list of auxiliary organizations and other component units. Last revised May 1, 2006
  3. 3. Attachment A Page 3 of 10 Example Format of Letter from Campus President: [Date] Mr. Richard P. West Executive Vice Chancellor and Chief Financial Officer Office of the Chancellor The California State University 401 Golden Shore Long Beach, CA 90802-4210 Dear Executive Vice Chancellor Richard West: In accordance with instructions contained in FS 03-03, audited financial reports for the following [NAME OF CAMPUS] auxiliary organizations have been received, reviewed, and accepted: 1. [LIST EACH AUXILIARY] 2. 3. All [NUMBER OF AUXILIARIES] auxiliary organizations audits received an “unqualified” opinion. [If an auxiliary received other than an unqualified opinion, please state which type of opinion was received by each auxiliary organization]. Please contact me if you have any further questions or if you need additional information. Sincerely, [Signature] [Name and Title of Campus President] Last revised May 1, 2006
  4. 4. Attachment A Page 4 of 10 Supplementary Information in the Auxiliary Organizations’ Financial Statements Proforma electronic templates for the supplementary information required for inclusion in the financial statements of CSU are included as Attachment A-1. The auxiliary organization/other component unit must forward these templates to its external audit firm as soon as possible, with the following information regarding each statement. In subsequent years, revisions to the templates will be issued as necessary. Note: If the basic financial statements of the auxiliary organization utilize, and therefore fulfill the CSU template reporting requirements exactly, inclusion of the supplementary information schedules are not necessary. Please note that the Chancellor’s Office is NOT prescribing the format of the auxiliary organization’s primary financial statements or notes to the financial statements. The auxiliary organization MUST follow the relevant accounting literature for their entity. The Statement of Net Assets is classified, i.e., broken down into current and non-current. As a result, there are new reporting categories, such as short-term investments, restricted cash and cash equivalents and short-term and long-term compensated absences. While the auxiliary organization is not required to change its basis of accounting, it will be required to classify balance sheet items in conformance with the templates for the supplementary statements and other information. In consultation with its independent auditor, the organization should refer to the relevant accounting literature for guidance. As examples, generally accepted accounting principles (GAAP) concerning current assets and current liabilities are found, among other sources, in ARB No. 43 and APB No. 10; compensated absences are addressed in SFAS No.43 and GASB Statement No. 16. Therefore, the following comments are meant to provide guidance only when the accounting literature is not definitive to the CSU financial statements: Assets Cash and cash equivalents: Includes demand deposits and all highly liquid investments with an original maturity date of three months or less. Short-term investments: Includes investment accounts that may be accessed on a short-term basis, even if the underlying pool is invested in long-term securities. Example includes MetWest. Amounts held in split interest agreements can be classified in other long-term investments-noncurrent. The related liability for payments to beneficiaries can be classified in deferred revenue-noncurrent. Last revised May 1, 2006
  5. 5. Attachment A Page 5 of 10 Net Assets: In order to conform to the GASB-required net asset categories, FASB organizations will be required to (1) break out net assets invested in capital assets1, net of related debt, then (2) reclassify the balance of permanently restricted net assets to Restricted: nonexpendable net assets, (3) reclassify the balance of temporarily restricted net assets to Restricted: expendable net assets, reporting uncollected pledges under “other” and (4) classify the balance of unrestricted net assets as Unrestricted. The Statement of Revenues, Expenses and Changes in Net Assets replaces the Statement of Changes in Fund Balances and Net Assets. As with the Statement of Net Assets, GASB Nos. 34/35 requires new major classification categories, i.e., Operating Revenues, Operating Expenses and Non-operating Revenues/Expenses. However, within those major classifications, the revenue and expense classifications are not significantly different than under the old reporting model. Again, the auxiliary organization is encouraged to consult with its independent auditor and with the relevant accounting literature. However, in order to ensure consistent classification, the following definitions are provided: Revenues Student tuition and fees: Includes mandatory fees paid by students to attend the CSU or a particular class. Voluntary user fees and penalty fees should not be included in this category. Tuition and fees are to be shown net of scholarship allowances, with parenthetical disclosure of the scholarship allowances. Scholarship allowances are defined as the difference between the stated fees and the amount that is billed to the student and/or third parties making payments on behalf of the students. Grants and contracts, noncapital [Federal, State or Non-governmental]: Includes all unrestricted amounts received or made available by grants and contracts for current operations and all amounts received or made available through restricted grants and contracts to the extent expended for current operations. This line item does not include gifts. Sales and services of educational activities: Includes revenues related to the conduct of instruction, research and public service and that incidentally create goods and services that may be sold. Examples of revenues of educational activities are sales of academic publications, testing services, and sales of products and services of agricultural and other food programs. If sales, rather than training or instruction, is the primary purpose of an activity, the revenue should be classified as sales and services of auxiliary enterprises, as described below. 1 ‘Net assets invested in capital assets, net of related debt’ becomes the first line in the ‘Net Assets’ section. The portion of the debt related to unspent bond proceeds should not be included in the calculation of invested in capital assets, net of related debt. Rather, that portion of the debt should be included in the same net asset category as the unspent bond proceeds (for example, restricted for capital projects). Last revised May 1, 2006
  6. 6. Attachment A Page 6 of 10 Sales and services of auxiliary enterprises: An auxiliary enterprise is an entity that exists to furnish goods or services to students, faculty and staff and that charges a fee directly related to, although not necessarily equal to, the cost of the goods or services. The general public may be served incidentally by auxiliary enterprises. The distinguishing characteristic of auxiliary enterprises is that they are managed as essentially self- supporting activities. Included in the CSU basic financial statements in this category are residence halls, food services, student unions, bookstores, and parking. The amount is shown net of scholarship allowances, with parenthetical disclosure of the scholarship allowances. Other: This category should include all sources of revenues not included in other classifications. Examples would be subsidized childcare centers and other services that are not essentially self-supporting and certain other activities that may be unique to a particular auxiliary organization. Expenses Instruction: This category should include expenses for all activities that are part of an instruction program, with the exception of expenditures for remedial and tutorial instruction (included as Student Services). Expenditures for departmental research and public service that are not separately budgeted should be included in this classification. Expenditures in an academic department which are primarily administrative in nature should not be included in this category but in Academic Support. Research: This category should include all expenses for activities specifically organized to produce research outcomes. This category does not include all sponsored programs (for example, training grants should be recorded in Public Service programs) and it is not necessarily limited to sponsored research, since internally supported research programs, if separately budgeted and if specifically organized to produce research outcomes, might be included in this category, Public service: This category should include expenses for activities that are established primarily to provide non-instructional services beneficial to individuals and groups external to the institution. These activities include community service programs, conferences, institutes, general advisory services, reference bureaus, radio and television and similar non-instructional services to particular sectors of the community. Academic support: This category should include expenses primarily to provide support services for the institution’s primary missions. It includes: (1) retention, preservation and display of educational materials, – for example, libraries, museums and galleries; (2) the provision of services that directly assist the academic function, such as demonstration schools; (3) media and technology support (unless charged directly to an operating unit); (4) academic administration; and (5) separately budgeted support for course and curriculum development. Last revised May 1, 2006
  7. 7. Attachment A Page 7 of 10 Student services: This category should include expenses for offices providing enrollment services and for those activities whose primary purpose is to contribute to the student’s well-being and development outside the context of the formal instruction program. It includes expenditures for student activities, cultural events, student newspapers, athletics, student organizations, remedial instruction, counseling and career guidance and student aid administration. Auxiliary organizations that provide services to students should report expenses for activities that are not self-supporting in this category. Institutional support: This category should include expenses for: (1) executive management; (2) fiscal operations; (3) administrative data processing; (4) space management; (5) human resources management (6) logistical support services such as procurement, storerooms, safety, security, printing and transportation services; (7) support services to faculty and staff that are not operated as auxiliary enterprises; and (8) activities concerned with community and alumni relations, including development and fundraising. This category should be used only for those auxiliary organizations that provide administrative support services to a variety of different types of activities within their organization and where the administrative costs have not or cannot be allocated to the various other categories. Operation and maintenance of plant: This category includes all expenses for the operation and maintenance of physical plant, net of amounts charged to auxiliary enterprises. It includes all expenditures for operations established to provide services and maintenance related to grounds and facilities. Also included are utilities, fire protection, property insurance and similar items. This category should only be used for those auxiliary organizations that provide plant maintenance support services to a variety of different types of activities within their organization and where these costs have not or cannot be allocated to the various other categories. Student grants and scholarships: This category should include expenses for direct payments of grants or scholarships to students. Auxiliary enterprise expenses: This category includes all expenses relating to the operation of auxiliary enterprises, including operation and maintenance of plant and institutional support; also included are other direct and indirect costs, whether charged directly as expenditures or allocated as a proportionate share of costs of other units. Auxiliary organizations that report their revenues as auxiliary enterprises should report the related expenses in this category. Last revised May 1, 2006
  8. 8. Attachment A Page 8 of 10 Depreciation and Amortization: This category includes all depreciation of capital assets and amortization of other assets. Auxiliary organizations that have charged or allocated depreciation to other expense categories must reclassify depreciation to this category. Nonoperating Revenues (Expense) Gifts, noncapital: This category includes all unrestricted gifts and bequests as well as all restricted gifts for which the terms of the restriction have been met, and that are not for capital purposes. Investment income: This category includes all revenues from non-endowment investments, net of investment expenses (such as investment management fees paid to an external entity). Investment expenses are to be disclosed parenthetically or in a note to the financial statements. Interest, dividends and net realized and unrealized gains and losses should be included in this category. Endowment income: This category includes all revenues from endowment investments, net of investment expenses (such as investment management fees paid to an external entity). Investment expenses are to be disclosed parenthetically or in a footnote to the financial statements. Interest, dividends and net realized and unrealized gains and losses on endowments should be included in this category. Interest on capital-related debt: This category includes interest expense on debt related to acquisition and other capitalized costs of capital assets and capital leases. Grants and gifts, capital: This category includes all revenues for grants and gifts dedicated, by external restriction only, towards capital purposes. Additions to permanent endowments: This category includes all revenues (excluding gains) to the endowment accounts. Statement of Cash Flows: With the CSU’s implementation of GASB 39 effective July 1, 2003, the Auxiliary Organization’s statement of cash flows is no longer required to be included in the campus’ financial statements. Other Information will be required for the notes to the financial statements of the campus’ financial statements, as indicated earlier. Last revised May 1, 2006
  9. 9. Attachment A Page 9 of 10 The Most Common Errors in Auxiliary Organizations’ Financial Statements, Including Supplementary Information Number of Auxiliary Description of Error Organizations 37 Long-term liabilities roll forward note (4) was not prepared in accordance with CSU guidelines and/or did not agree to balance(s) on the debt service schedule note or debt balance(s) per SNA. 21 Note 10 filled out incorrectly (included both GASB and FASB incorrectly, or reported in wrong column; missing calculation or incorrect calculation and did not tie to SNA. 19 Did not attach a completed and signed troubleshooting checklist. 16 Other Information (notes 1-10) was not included as either a supplemental schedule or as part of notes to the F/S in CSU format. 16 Restricted cash note (1): Either missing information or inaccurate, and does not tie to the SNA. 14 Investment information note (2) was not presented in accordance with CSU guidelines and/or did not agree to investment balance(s) per SNA. 14 A statement of net assets (SNA) in CSU format was not included as supplementary schedule, or presented in CSU format (missing lines, additional lines, amount reported on incorrect lines). 12 Capital assets roll forward note (3) was not prepared in accordance with CSU guidelines and/or did not agree to the capital asset, net balance per SNA. 8 Debt service schedule note (7) was not prepared in accordance with CSU guidelines, and/or did not agree to the balance(s) on the long-term liabilities roll forward note or debt balance(s) per SNA. Last revised May 1, 2006
  10. 10. Attachment A Page 10 of 10 4 A statement of revenues, expenses, and changes in net assets in CSU format was not included as supplementary schedule, or presented in CSU format (e.g. missing depreciation expense). 3 Did not disclose prior period adjustment (FASB) in note (9). 1 Did not disclose prior period adjustment (GASB) in note (8). Last revised May 1, 2006

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