Financial Accounting & Reporting Basis

Scope

This policy defines the regulatory requirements for financial accounting & reporting basis as defined by the Governmental Accounting Standards Board (GASB).

Reason for Policy

The policy establishes the accounting and reporting basis for the University financial statements.

Policy Statement

Accounting Basis: The University uses the accrual basis of accounting in accordance with GASB. Revenues are recorded when earned and expenses are recorded when incurred and measurable, regardless of when the related cash flows take place. Non-Exchange Transactions, in which the University receives value without directly giving equal value in Exchange, include grants, state appropriations, and private donations. On an accrual basis, revenues from these transactions are recognized in the fiscal year in which all eligibility requirements (resource provider conditions) have been satisfied, if measurable and probable of collection.

Reporting Basis: The University's financial statements are prepared in accordance with generally accepted accounting principles applicable to governmental colleges and universities as promulgated by the Governmental Accounting Standards Board (GASB). Component units follow pronouncements as appropriate for their type of entity, and their financial statements are presented on that basis.

In accordance with GASB Statement No. 34, Basic Financial Statements—and Management’s Discussion and Analysis—for State and Local Governments (GASB 34), the University has elected to report as an entity engaged in business-type activities. Entities engaged in business-type activities are financed in whole or in part by fees charged to external parties for goods and services.

GASB 34 establishes standards for external financial reporting for public colleges and universities and requires that resources be classified for accounting and reporting purposes into the following net position categories:

• Invested in capital assets, net of related debt: Capital assets, net of accumulated depreciation and long-term debt attributable to the acquisition, construction, or improvement of these assets.
• Restricted: Those net positions, either expendable or nonexpendable, subject to externally imposed restrictions stipulating how the resources may be used. Expendable net positions are those that can be satisfied by actions of the University. Nonexpendable net positions, consisting of endowments, must be maintained in perpetuity.
• Unrestricted: Those net positions that are not classified either as capital assets, net of related debt or restricted net positions. Unrestricted net positions may be designated for specific purposes by management.

The University utilizes fund to report net position by the categories listed above.  Proper use of funds on each transaction is imperative for accurate reporting of net position. Monies received from an external party in which has placed a restriction on how the money is to be spent for a specified purpose, must be placed in a restricted fund.  All spending of restricted resources must be completed in accordance with the directives provided by the external party in addition to University policies. Careful selection of a fund based on the restriction of the resource provided is required. 

When an expense is incurred that can be paid using either restricted or unrestricted resources, the University’s policy is first to apply the expense toward restricted resources, then toward unrestricted. Restricted funds remain classified as such until restrictions have been satisfied.

Fiduciary Financial Statements: The University reports fiduciary activities as a separate set of financial statements within the University’s financial reports.  Fiduciary funds include trust funds for the University retirement and other postemployment benefit plans as well as custodial funds (formerly agency funds).  Activities that are reported as custodial funds consist of assets held by the University for organizations that are outside of the University’s reporting entity, are not derived from University resources, and are held for the benefit of the outside organization.  Campus accounting must be consulted prior to using a custodial fund to determine whether all criteria for this reporting have been met.

Definitions

Exchange Transaction - each party receives and sacrifices something of approximate equal value.

Non-Exchange Transaction - one party gives (or receives) something without directly receiving (or giving) something of equal value in return.

Accountabilities

UM System Controller’s Office:

• Ensure Financial Reporting Systems are established and maintained to comply with regulatory requirements.

Campus Finance Office:

• Review use of funds for proper classification
• Approve use of Custodial Funds

Department Finance Staff:

• Ensure funds used on transactions are classified within policy, procedure and other resources
• Seek guidance from campus finance office as needed for proper fund selection
• Request use of Custodial Funds

Additional Details

Forms

Related Information

History

Update 6/11/2025 for fund classification usage and tracking of restricted resources.  Additionally, fiduciary fund statements were also added to the policy.

This policy combines the following former policies:

• Accounting Policy Manual 1.02 – Financial Accounting Standards (FASB) (revised 1/1/2005)
• Accounting Policy Manual 1.03 – Government Accounting Standards (GASB) (revised 1/1/2005)

Procedure