uncf icb 2015 cfo institute financial statements & financial responsibility

UNCF ICB 2015 CFO Institute

Financial Statements &Financial Responsibility

Financial Statements &Financial ResponsibilitySession Objectives

Financial Statements GAAPExamples

USDE Composite ScoreFormula/Example

Composite Financial Index (CFI) and Core RatiosFormula/Example

UNCF Financial Indicators

TheWesleyPeachtreeGroup, CPAs____________wpg-inc.com

Financial Statements Complete Set of Financial Statements (FASB ASC 958-205-

45-4)Statement of Financial Position(FASB ASC 958-210-45)Statement of Activities (FASB ASC 958-225-45)Statement of Cash Flows(FASB ASC 958-230-45)Notes to Financial Statements (FASB ASC 958-205-50)

Online: fasb.org


Financial Statements Statement of Financial Position – Disclosures (ASC 958-210-45&50)

Liquidity of assets and liabilities by sequencing or by presenting classified statement

Totals should be presented for current assets and current liabilities when presenting classified statement

Assets/liabilities aggregated into homogeneous groups

Info. about donor restrictions resulting in temp./perm. restricted net assets


Financial Statements Statement of Financial Position – Disclosures (ASC 958-210-45&50)

Categories of receivables shown separately, such as A/R, pledge receivables, student receivables

Assets (e.g. cash) with donor imposed restrictions limiting use to long-term purposes shown separately from similar assets available for current use.

Separate line item for “Cash” or “Cash equivalents.”


Financial Statements Statement of Activities – Disclosures (ASC 958-225-45&50; 958-720-45)

The amount of unrestricted revenue/support by major category

The amount of temporarily restricted revenue/support by major source

The amount of permanently restricted revenue/support by major source

Report expenses as decreases in unrestricted net assets


Financial Statements Statement of Activities – Disclosures (ASC 958-225-45&50; 958-720-45)

Report expenses by functional or natural classification

Change in net assets by class and in total


Financial Statements Statement of Cash Flows – Disclosures(ASC 958-230-55)

Accounting policy for determining items treated as cash/cash equivalent should be disclosed

Cash receipts/payments must be classified as operating, investing and financing activities and reported separately.

The net effect of cash flows and cash equivalents should be shown to allow a reader to reconcile beginning and ending cash/cash equivalents.


Financial Statements Statement of Cash Flows – Disclosures(ASC 958-230-55)

Separate disclosure of noncash investing and financing activities

If indirect method is used, the amounts of interest paid, excluding capitalized amounts, should be disclosed

Items reconciling change in net assets to cash flows from operating activities should include separately all major classes of operating items


Financial Statements Pending Changes

FASB Exposure Draft—Comment Deadline: Aug. 20, 2015

Proposed Accounting Standards Update would significantly change existing financial reporting model. Net asset classificationLiquidity informationStatement of activitiesPresentation of operating cash flows


Financial Statements Examples

Berea College

Barnard College

North Central College


Financial Statements Example #1


Financial Statements Best Practices

Sample College


USDE Composite ScoreFinancial Responsibility Composite Scores

Section 498(c) of the Higher Education Act of 1965 Requires institutions to annually submit audited financial

statements to the USDE to demonstrate financial responsibility necessary to participate in the Title IV programs.

A composite of three ratios derived from the audited financial statements is used to gauge the institution’s financial responsibility. primary reserve ratio equity ratio net income ratio


USDE Composite ScoreReflects the overall relative financial health of institutions on a

scale from -1.0 to 3.0.

A score greater than or equal to 1.5 indicates the institution is considered financially responsible.

A score of less than 1.5 but greater than or equal to 1.0 is considered financially responsible, but requires additional oversight of the institution.

A score less than 1.0 is considered not financially responsible. However, an institution with a score less than 1.0 may continue to participate in the Title IV programs under provisional certification. The institution is also subject to cash monitoring requirements and must post a letter of credit .


USDE Composite ScorePrimary Reserve Ratio = Expendable Net Assets

Total Expenses

Equity Ratio = Modified Net Assets Modified Assets

Net Income Ratio = Change in Unrestricted Net Assets

Total Unrestricted Revenue



Total Expenses

BARNARD COLLEGEExpendable Net Assets = 184,480

+ Unrestricted Net Assets 86,499+ Temporarily Restricted Net Assets 145,718– Annuities, term endowments, life income funds (temp. restr.) 0– Intangible assets 0 – Property, plant and equipment net of depreciation 142,781+ Post-employment and retirement liabilities 18,045+ All debt obtained for long-term purposes 76,999 (PPE > LTD)– Unsecured related-party receivables 0



Total Expenses

BARNARD COLLEGEPrimary Reserve Ratio = 1.311

Expendable Net Assets = 184,480Total Expenses = 140,684


USDE Composite ScoreEquity Ratio = Modified Net Assets

Modified Assets

BARNARD COLLEGEModified Net Assets = 378,909

+ Unrestricted Net Assets 86,499+ Temporarily Restricted Net Assets 145,718+ Permanently Restricted Net Assets 146,692– Intangible assets 0– Unsecured related-party receivables 0



Modified Assets

BARNARD COLLEGEModified Assets = 500,765

+ Total Assets 500,765– Intangible assets 0– Unsecured related-party receivables 0



Modified Assets

BARNARD COLLEGEEquity Ratio = 0.756

Modified Net Assets = 378,911Modified Assets = 500,765


USDE Composite ScoreNet Income Ratio = Change in Unrestricted Net Assets

Total Unrestricted Revenue

BARNARD COLLEGENet Income Ratio = 0.010

Change in UR Net Assets = 1,453Unrestricted Revenue = 139,195


USDE Composite ScoreRatio Result x Strength Factor SF ScorePrimary Reserve Ratio = 1.311 10 13.11Equity Ratio = 0.756 6 4.54Net Income Ratio = 0.010 (1+ (50 x Result) 1.52

(Min -1 *Max 3) WeightedRatio SF Score Weight ScorePrimary Reserve Ratio = *3.00 40% 1.20Equity Ratio = *3.00 40% 1.20Net Income Ratio = 1.52 20% 0.30

Composite Score = 2.70


BARNARD COLLEGE

USDE Composite ScoreRatio Result x Strength Factor SF ScorePrimary Reserve Ratio = 1.311 10 13.11Equity Ratio = 0.756 6 4.54Net Income Ratio = 0.010 (1+ (50 x Result) 1.52

(Min -1 *Max 3) WeightedRatio SF Score Weight ScorePrimary Reserve Ratio = *3.00 40% 1.20Equity Ratio = *3.00 40% 1.20Net Income Ratio = 1.52 20% 0.30

Composite Score = 2.70


Financial Responsibility Composite Score Scale: 1.5 – 3.0 Institution demonstrates overall financial health 1.0 – 1.4 Institution demonstrates minimal financial health; additional monitoring is needed in the areas of viability, liquidity and/or profitability. -1.0 - .9 Institution demonstrates relative weakness in fundamental elements of financial health (viability, liquidity and/or profitability).

BARNARD COLLEGE

Composite Financial Index and Core Ratios Financial Component of an Institution's Well-being

Developed by KPMG/Prager, McCarthy & Sealy to measure financial performance.

Used to assist institutions: understand the affordability of strategies monitor financial results of implemented initiatives

Combines four core ratios in a manner similar to the Composite Score (i.e. applies strength factor and weight).

Net Operating Revenues Ratio Return on Net Assets Ratio Primary Reserve Ratio Viability Ratio


Composite Financial Index and Core RatiosReflects the overall relative financial health of institutions on a

scale from -4.0 to 10.0.

CFI of 3 indicates that the institution is relatively financially healthy. This may be attained by achieving the following targets on core ratios (that yield each a Strength Factor of about 3): Net Operating Revenues of 2% Return on Net Assets of 6% Primary Reserve of 0.40x Viability of 1.25x


Composite Financial Index and Core RatiosReflects the overall relative financial health of institutions on a scale from -4.0 to 10.0.

CFI of 3 indicates that the institution is relatively financially healthy. This may be attained by achieving the following targets on core ratios (that yield each a Strength Factor of about 3): Net Operating Revenues of 2.00% ÷ 0.70% = 3* x 10% = 0.30 Return on Net Assets of 6.00% ÷ 2.00% = 3 x 20% = 0.60 Primary Reserve of 0.40x ÷ 0.133x = 3 x 35% = 1.05 Viability of 1.25x ÷ 0.417x = 3* x 35% = 1.05

Composite Financial Index 3.00

*Rounded up


Composite Financial Index and Core RatiosCORE RATIOSNet Operating Revenues = Excess of UR Operating Revenues

Unrestricted Operating Revenues

Return on Net Assets = Change in Net Assets .

Total Net Assets Beginning of Year

Primary Reserve Ratio = Expendable Net Assets Total Expenses

Viability Ratio = Expendable Net Assets Long Term Debt


Composite Financial Index and Core RatiosNet Operating Revenues = Excess of UR Operating Revenues

Unrestricted Operating Revenues

BARNARD COLLEGENet Operating Revenues Ratio = -1.1%

Excess (Deficiency)of UR Operating Revenues = -1,489Unrestricted Operating Revenues= 139,195


Target 2%

Composite Financial Index and Core RatiosReturn on Net Assets = Change in Net Assets

Total Net Assets Beginning of Year

BARNARD COLLEGEReturn on Net Assets Ratio = 12.8%

Change Net Assets = 42,932Total Net Assets Beginning of Year = 335,977


Target 6%

Composite Financial Index and Core RatiosPrimary Reserve Ratio = Expendable Net Assets

Total Expenses

BARNARD COLLEGEPrimary Reserve Ratio = 1.2x

Expendable Net Assets = 166,435Total Expenses = 140,684


Target 0.4x

Composite Financial Index and Core RatiosViability Ratio = Expendable Net Assets

Long Term Debt

BARNARD COLLEGEViability Ratio = 2.2x

Expendable Net Assets = 166,435Long Term Debt = 76,999


Target 1.25x

Composite Financial Index and Core RatiosRatio Result / SF____ SF Score_Net Operating Revenues = -1.1% 0.7% -1.5Return on Net Assets = 12.8% 2.0% 6.4Primary Reserve Ratio = 1.2x 0.133x 9.0Viability Ratio = 2.2x 0.417x 5.2

(Min -4 Max 10) WeightedRatio Score x Weight Score .Net Operating Revenues = -1.5 10% -0.2Return on Net Assets = 6.4 20% 1.3Primary Reserve Ratio = 9.0 35% 3.2Viability Ratio = 5.2 35% 1.8

Composite Financial Index = 6.1


BARNARD COLLEGE

UNCF Financial Indicators Report III


Financial Ratios 37 Member Institutions Five Years 41 Ratios

Sent Via Email July 13, 2015 To Presidents & CFOs

A Study Conducted by WPG

Closing Comments

QUESTIONS?


Cr.FA, FCPA, CGMA Senior Vice President

Keith X. Terrell, CPA

The Wesley Peachtree Group, CPAs

UNCF ICB 2015 CFO Institute

Financial Statements &Financial Responsibility

THANK YOU

Contact:(404) [email protected]

uncf icb 2015 cfo institute financial statements & financial responsibility

Documents

net effect of cash flows

current assets

operating activities

liquidity of assets

total thewesleypeachtreegroup

similar assets available

current use

current liabilities