Financial Reports: Frequently Asked Questions (FAQ)

Questions relating to the interim financial statements

Q1 - How close are the interim financial statements to being as accurate as the final year-end audited numbers? Answer
Q2 - Isn't the University's net loss only a paper loss because of the projected $11 million of depreciation expense?  Answer

Questions relating to the financial information included on the GASB 35 Report

Q1 - What is the GASB 35 really all about anyway? Answer
Q2 - I thought GASB 35 was supposed to make the financial reports easier to read. Answer
Q3 - How come I can't find the two things I am looking for - financial aid given to graduate students and health care expenses for the last five years? Answer
Q4 -Where do I find the actual-to-budget comparison on the audited financial statements? Answer
Q5 - How come the Student Financial Support in the Annual Financial Report's Management Discussion & Analysis (MD&A) is different than the Student Financial Support in the income statement? Answer
Q6 - Why did you begin grouping the funds into Restricted and Unrestricted funds rather than the way it always was before - Current and Non-current funds? Answer

A6. The GASB has been steadily moving the not-for-profit financial reports to look more like the for-profit financial reports.   GASB 34 and 35 (adopted by MTU on July 1, 2000) combined MTUs eight fund groups into a single column consolidated balance sheet and income statement.  The GASB has permanently and drastically changed the financial reporting of governments and universities.

I like to draw an analogy of the Current Funds Statement to Elvis.  Although Elvis lives in the hearts and minds of many fans, and although many fans make their pilgrimage to Graceland, the King is dead.  Likewise, GASB 35 changed the perspective of reporting Current and Non-current funds to reporting Restricted and Unrestricted funds.  Although Current Funds Statement lives in the hearts and minds of many administrators, it also is dead. 

I predict that over time, Current Funds Statement sightings will diminish, just as Elvis sightings have diminished.

Questions relating to the netting feature of GASB 35

Q1 - Where are the fund transfers? Answer
Q2 - Where is the Indirect Cost Recovery (ICR) from Research? Answer
Q3 - I ran adhoc reports (Oracle Reports or Discoverer), but my reports don't tie out to the audited financial statements. What's up? Answer

Questions relating to GASB 35 and fund reporting

Q1 - I need to complete a survey. Where do I find the Current Funds Statement? Answer
Q2 - So are you saying that fund accounting has been thrown out the window by GASB 35? Answer
Q3 - I'm confused. I was told that cash outlays for capital expenditures (building and equipment) was always only a balance sheet transaction. You say, it wasn't? Answer

Questions relating to the General fund carryforwards

Q1 - Where are the General fund carry forwards on these financial statements? Answer
Q2 - Are the General Fund carryforwards included in the fund balance (deficit)? Answer

Questions relating to "old" data

Q1 - I want to do a 5 and a 10 year comparison of revenues and expenses. Where are the audited financial statements before 2001? Answer
Q2 - How do I get the pre-Banner data (prior to FYE 6/30/1993)? Answer

Questions relating to the interim financial statements
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Q1 - How close are the interim financial statements to being as accurate as the final year-end audited numbers?

Answer: We are very proud of our month-end closing process. Very few universities or colleges have as accurate or timely month end closing and reporting as MTU. We continue to improve our month end closing processes so that there are now only three significant closing procedures that are not done at month end, but are only done for the fiscal year end close.
Here are the three differences:

1. Accruals of Accounts Payable
We typically close the books at the end of the second working day of the month. On the other hand, at the end of the fiscal year (June 30), we accrue expenses through the last day of the audit field work, i.e. sometime in late August or early September. As a result, because the window of opportunity to record expenses is open so long, the accounts payable and accrued expenses are much larger at the end of the fiscal year as compared to the end of any other month. There is nothing we can do to change this under accrual of non-payroll related expenses.

2. Tuition Scholarship allowances and financial aid expense
This split between tuition allowance and expense is compiled based on the elaborate National Association of College and University Business Officers (NACUBO) allocation. This allocation takes a significant commitment of time and effort to complete. It is therefore only done one time per year, and that is only for the audited financial statements. Thus, the interim comparative statements are consistent, because neither the current fiscal year nor the prior fiscal year have the student financial support allocation. New in FY05 (and forward) - This estimate is now recorded on the interim financials.

3. Reclassifications and timing
These two items are best explained through examples of recent changes in our accounting processes.
  A. Both the construction-in-progress expenditures and the equipment expenditures are currently netted or offset against the Net Additions to Plant account in the FY04 (and forward) interim financial statements. This "netting" or offsetting was only done at year-end in FY03. When comparing the FY04 and FY03 fiscal years,  this is an example of both reclassification and timing.

  B. Timing (only): During FY04, we have recorded and recognized depreciation expense on a monthly basis. During FY03, we only recorded and recognized depreciation on a quarterly basis - September, December, March, and June. Therefore depreciation expense in January, February, April, and May, 2004 will be greater than the equivalent month's expense in 2003.

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Q2 - Isn't the University's net loss only a paper loss because of the projected $11 million of depreciation expense? 

Answer: That is a very astute observation, because depreciation expense is indeed a non-cash item. To get a good understanding of the relationship of cash and net income, let's look at the second page of University's FY2003 Cash Flow Statement. This important financial report shows how you can indeed have an operating loss, but still increase the University cash! You start with the operating loss, but then you have to add back the depreciation. On the other hand, there are also other balance sheet cash transactions that are not reflected on the income statement that directly affect cash. A good example of that is construction-in-progress (CIP) which does not show up on the income statement, but decreases cash.

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Questions relating to the financial information included on the GASB 35 Report
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Q1 - What is GASB 35 really all about anyway?
Answer: The simplest way to think of GASB 35 is to change the perspective of fund accounting from Current and Non-current funds to Unrestricted and Restricted funds.

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Q2 - I thought GASB 35 was supposed to make these financial reports easier to read.
Answer: By moving from the eight funds that we were previously displaying to two fund group classifications, things really are easier to understand.  We now only have to think in binary terms.  The decision becomes easy when we only have to ask - is the source of funds an external source with strings attached? If so, then it is restricted. If not, then the activity is unrestricted.

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Answer: Just like the TV commercial that tells us "...there are some things that money just can't buy," there are many things that the GASB 35 statements can't tell you either. For specific informational requests, you will need to use the "ASK MIKE" icon at the bottom of this page.

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Q4 - Where do I find the actual-to-budget comparison on these audited financial statements?
Answer: The audited financial reports only report the actual revenues and expenses. The actual-to-budget comparisons are considered managerial reports, and therefore not audited.

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Q5 - How come the Student Financial Support in the Annual Financial Report's Management Discussion & Analysis (MD&A) is different than the Student Financial Support in the income statement?
Answer: The simplest way to explain this prickly question is through an example, such as the graduate student tuition support. (For experienced MTU Banner users, these are E5 accounts.) 

On the MD&A this tuition support is included in the Student Financial Support line item. However, on our income statement (SRECNA), the grad tuition support is included in either the Instruction or the Research line items, not in Student Financial Support.

There are other financial aid items, such as the Tuition Reduction Incentive Program (TRIP) that are also confusing to non-accountants. Unless you are an accounting theorist, rather than trying to understand or reconcile these amounts, my recommendation is to accept them as presented and worry about the more important things in life!

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Questions relating to the netting feature of GASB 35
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Q1 - Where are the fund transfers?
Q2 - Where is the Indirect Cost Recovery (ICR) from Research?

Answer to both: GASB 35 presents the financial information on a combined funds basis. Therefore, since the "transfers in" of one fund are exactly equal to the "transfers out" of another fund, there is a net amount of $0 transfers to report. The same is true with the research overhead return (ICR) in the General fund is exactly equal to the research overhead charges to the various projects in the Expendable Restricted fund group.

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Q3 - I ran adhoc reports (Oracle Reports or Discoverer), but my reports don't tie out to the audited financial statements. What's up?

Answer: There are a number of GASB 35 eliminations and reclasses that are necessary to complete the financial statements. The most notable are the necessary adjustments for the elimination of the capital acquisitions. Under the old fund accounting reporting, those expenditures were grossed up as expenses within the various functions (Instruction, Research, etc) with an offset as a revenue item in the plant fund. Under GASB 35, there are no capital expenses in the operating funds and no  corresponding offsetting revenue in the Plant fund. Instead, these expenditures are reported similar to for-profit corporations. Capital expenditures are reported only on the balance sheet, not on both the balance sheet and the income statement.

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Questions relating to GASB 35 and fund reporting
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Q1 - I need to complete a survey. Where do I find the Current Funds Statement?
Answer: The Current Funds Statement has been eliminated by GASB 35, so you won't find it in the audited financial statements anymore. Ditto for General Fund revenues and expenditures. If you need help, Ask Mike.

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Q2 - So are you saying that fund accounting has been thrown out the window by GASB 35?

Answer: No, the cash basis structure of fund accounting is still in place even though the reporting formats and classifications have changed. Accounting for the write off of bad debts is a good example that demonstrates how the cash basis structure of true fund accounting is still in place. Assume the University had an accounts receivable that was determined uncollectable, so it was written off to bad debt expense. After the write off, the balance sheet for that account (Banner fund), would only have negative cash and a negative fund balance. The only way to eliminate this situation is to transfer cash from another fund into this account (Banner fund). 

GASB 35 has both directly and indirectly affected financial reporting. For example, under the previous AICPA reporting model (with its fund-by-fund combining income statements and balance sheets), the apportionment or allocation of interest income across fund groups was very important. Under the current GASB 35 reporting of combined funds, only the integrity of the interest/investment income is important. How that income is spread across the various fund groups is irrelevant with the exception of the appropriate allocation to restricted funds (examples: Perkins Loans, research contracts, and debt service reserves).

A good example of the direct effect of GASB 35 reporting is the non-recognition of $13 million of Federal Direct Student Loans (FDSL) payments. Currently this is an in-and-an-out on our balance sheet, so this does not show up on our financial statements. Previously (AICPA reporting format), this would have been $13 million of Federal grants revenue and $13 million of Student financial aid expense. This is a direct and material reporting change!

An example of an indirect effect of GASB 35 on fund reporting is the recognition of Distance Education revenues and expenses. MTU had previously recorded these revenues and expenses in the Designated fund group. All of the other Michigan universities recorded this activity in the General Fund. From a GASB 35 combined funds perspective, it doesn't matter. Under the previous AICPA reporting format, these revenue and expense dollars would be considered material to the individual fund groups, and would've therefore, been a major point of discussion with the external auditors.

Conclusion - fund accounting has not been thrown out, but GASB 35 has materially changed both our internal and external reporting.

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Q3 - I'm confused. I was told that cash outlays for capital expenditures (building and equipment) was always only a balance sheet transaction. You say, it wasn't?

Answer: That's correct. Under the AICPA reporting model, Current Fund cash outlays for equipment were recorded as an expense in the Current Fund's functions (a/k/a Banner programs such as Instruction, Research, etc). This was true cash basis fund accounting. At the same time that the expense was posted in the Current Funds (General, Designated, Auxiliary, and Expendable Restricted), a fund addition (revenue) was posted in the Plant Fund  . In 1999, it was $4 million. This series of transactions inflated both revenues and expenses on our Combined Income Statement.

GASB 35 reporting is cleaner since there is an eliminiation of the inflated revenue and expenese. After this GASB 35 elimination takes place, we are left with true "balance sheet only" transactions.

Conclusion: What you heard was a myth for fiscal years prior to the FY2001 adoption of GASB 35. Up until June 30, 2000 the Current Fund equipment expenditures were included in Educational and General expenses. They were not balance sheet only transactions.

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Questions relating to the General fund carryforwards
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Q1 - Where were the General fund carryforwards on these financial statements?
Q2 - Were the General Fund carryforwards included in the fund balance (deficit)?

Answer to both: Although carryforwards used to be identified in the old AICPA fund accounting reporting format, under GASB 35 the General fund carryforwards are not included in either the Combined balance sheet or the Combined income statement. As to the second question, the carryforwards are not included in the fund deficit. These are budget adjustments that do not appear on the "actuals" financial reports. In "accountingeze," these are off-balance sheet unfunded liabilities.

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Questions relating to "old" data
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Q1 - I want to do a 5 and a 10 year comparison of revenues and expenses. Where are the audited financial statements before 2001?

Answer:The audited financial statements prior to 2001 are presented in the AICPA audit guide format, and they are available upon request. It would be a monumental task to recast that data into the current GASB 35 format. Trying to do a "longitudinal" study without recasting the old data to the new reporting format would give meaningless results.Therefore that information is not presented.

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Q2 - How do I get the pre-Banner data (prior to FYE 6/30/1993)?

Answer: Only the audited financial statements in the old AICPA audit guide format are available. There is no ad hoc report writing tool that could retrieve data from the Unisys software.

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