UNCF ICB 2015 CFO Institute Financial Statements & Financial Responsibility.
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Transcript of 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
TheWesleyPeachtreeGroup, CPAs____________wpg-inc.com
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
TheWesleyPeachtreeGroup, CPAs____________wpg-inc.com
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.”
TheWesleyPeachtreeGroup, CPAs____________wpg-inc.com
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
TheWesleyPeachtreeGroup, CPAs____________wpg-inc.com
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
TheWesleyPeachtreeGroup, CPAs____________wpg-inc.com
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.
TheWesleyPeachtreeGroup, CPAs____________wpg-inc.com
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
TheWesleyPeachtreeGroup, CPAs____________wpg-inc.com
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
TheWesleyPeachtreeGroup, CPAs____________wpg-inc.com
Financial Statements Examples
Berea College
Barnard College
North Central College
TheWesleyPeachtreeGroup, CPAs____________wpg-inc.com
Financial Statements Example #1
TheWesleyPeachtreeGroup, CPAs____________wpg-inc.com
Financial Statements Example #2
TheWesleyPeachtreeGroup, CPAs____________wpg-inc.com
Financial Statements Example #3
TheWesleyPeachtreeGroup, CPAs____________wpg-inc.com
Financial Statements Best Practices
Sample College
TheWesleyPeachtreeGroup, CPAs____________wpg-inc.com
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
TheWesleyPeachtreeGroup, CPAs____________wpg-inc.com
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 .
TheWesleyPeachtreeGroup, CPAs____________wpg-inc.com
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
TheWesleyPeachtreeGroup, CPAs____________wpg-inc.com
USDE Composite ScorePrimary Reserve Ratio = Expendable Net Assets
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
TheWesleyPeachtreeGroup, CPAs____________wpg-inc.com
USDE Composite ScorePrimary Reserve Ratio = Expendable Net Assets
Total Expenses
BARNARD COLLEGEPrimary Reserve Ratio = 1.311
Expendable Net Assets = 184,480Total Expenses = 140,684
TheWesleyPeachtreeGroup, CPAs____________wpg-inc.com
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
TheWesleyPeachtreeGroup, CPAs____________wpg-inc.com
USDE Composite ScoreEquity Ratio = Modified Net Assets
Modified Assets
BARNARD COLLEGEModified Assets = 500,765
+ Total Assets 500,765– Intangible assets 0– Unsecured related-party receivables 0
TheWesleyPeachtreeGroup, CPAs____________wpg-inc.com
USDE Composite ScoreEquity Ratio = Modified Net Assets
Modified Assets
BARNARD COLLEGEEquity Ratio = 0.756
Modified Net Assets = 378,911Modified Assets = 500,765
TheWesleyPeachtreeGroup, CPAs____________wpg-inc.com
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
TheWesleyPeachtreeGroup, CPAs____________wpg-inc.com
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
TheWesleyPeachtreeGroup, CPAs____________wpg-inc.com
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
TheWesleyPeachtreeGroup, CPAs____________wpg-inc.com
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
TheWesleyPeachtreeGroup, CPAs____________wpg-inc.com
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
TheWesleyPeachtreeGroup, CPAs____________wpg-inc.com
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
TheWesleyPeachtreeGroup, CPAs____________wpg-inc.com
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
TheWesleyPeachtreeGroup, CPAs____________wpg-inc.com
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
TheWesleyPeachtreeGroup, CPAs____________wpg-inc.com
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
TheWesleyPeachtreeGroup, CPAs____________wpg-inc.com
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
TheWesleyPeachtreeGroup, CPAs____________wpg-inc.com
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
TheWesleyPeachtreeGroup, CPAs____________wpg-inc.com
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
TheWesleyPeachtreeGroup, CPAs____________wpg-inc.com
BARNARD COLLEGE
TheWesleyPeachtreeGroup, CPAs____________wpg-inc.com
UNCF Financial Indicators Report III
TheWesleyPeachtreeGroup, CPAs____________wpg-inc.com
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?
TheWesleyPeachtreeGroup, CPAs____________wpg-inc.com
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]