Need for Clarification

In general, governmental colleges and universities currently report using one of two models: 1) the AICPA model, that follows the Audit Guide, "Audits of Colleges and Universities," as amended by the AICPA SOP 74-8, "FInancial Accounting and Reporting by Colleges and Universities," or 2) the governmental model, established by National Council on Governmental Accounting Statement 1, "Governmental Accounting and Financial Reporting Principles." However, research indicated that some governmental colleges and universities do not conform completely with either model. Further, the research also indicated that, contrary to the current hierarchy, some governmental colleges and universities believe that GASB disclosure requirements do not apply to entities that adopt the AICPA Model. Therefore, Statement 15 recognizes that either the AICPA or the governmental model is acceptable and the model used must be followed completely. Statement 15 also states that those following the AICPA model are required to adopt all applicable GASB pronouncements.

Because the GASB has not established a comprehensive accounting and financial reporting model for governmental colleges and universities, Statement 15 also provides a starting point for a project that ultimately may lead to the issuance of one or more pronouncements that establish such a comprehensive model.

From Exposure Draft to Final

Statement

Approximately 50 letters of comment were received on the April 1991 exposure draft (ED), and over 90% of the respondents indicated either unqualified or general support of the ED. The provisions of Statement 15 are virtually the same as those expressed in the ED. However, clarifying language was added to specially state that all GASB pronouncements are to be considered by governmental colleges and universities using the AICPA model. Unlike the ED, Statement 15 states that a governmental college or university presently following either of the two prescribed accounting models cannot change to the other model unless the change can be justified as preferable. In addition, Statement 15, unlike the ED, is silent as to how governmental colleges and universities following the AICPA model are to be reported when included as component units of a state or local governmental reporting entity. (The ED stated that such component units could continue to be discretely presented.) GASB members concluded that such guidance is unnecessary in the final statement because of the June 1991 issuance of Statement 14, "The Financial Reporting Entity," that sets revised standards for defining the reporting entity and for the display of component units.

Approximately 30% of the respondents to the ED expressed concern about industry comparability and/or the need for a definition of "governmental." These respondents believe that financial statements of governmental colleges and universities (under the jurisdiction of GASB) would not be comparable to the financial statements of nongovernmental colleges and universities (under the jurisdiction of the FASB). They are also concerned that the diversity in accounting and reporting by governmental colleges and universities will continue unless GASB develops a definition of "governmental." However, GASB decided not to address either the jurisdiction issue or the definition of "governmental" in Statement 15. The jurisdiction issue was addressed by the Financial Accounting Foundation (FAF) Resolution on Jurisdiction Determination, dated November 30, 1989, and the current hierarchy for GAAP is being revised to reflect FAF's hierarchy recommendations. Also, defining "governmental" is an active project on GASB's agenda; however, GASB did not want to delay issuance of Statement 15 for that definition.

What to Do

While both the jurisdiction issue and the definition of "governmental" are difficult issues to resolve, neither one is solely an issue to be addressed by GASB. Both require the involvement of the FASB as well as the FAF. Additionally, "industry comparability" is an issue that effects industries other than colleges and universities, e.g., utilities and authorities. Although those issues are not unresolved by Statement 15, it will eliminate the present diversity in accounting and reporting by governmental colleges and universities by 1) requiring those that follow neither model to adopt one of the two models, and 2) requiring those that follow the AICPA model to consider all applicable GASB pronouncements.