Question

How would the statement of cash flow be different if a private university were a public college or university? Why would these differences be necessary?

The university reports a certain amount of unrestricted net assets each year. Suppose a student complained in a letter to the university president that the institution is holding back resources that should properly be used to increase faculty salaries; acquire computers and other equipment; and improve classroom facilities. What would your response be, as an accountant?

Suppose that a private university elected to report as a special-purpose government engaged in governmental and business-type activities. How would the financial statements differ from those presented? What are the pros and cons associated with reporting under each approach?

Answer 1

Statement of Cash flow represent movements in cash and cash equivalents transaction in following activities:

1. Operating Activities

2. Investment Activities

3. Financing Activities

All the above activites of public college or university is different from any business organisation because university or college is covered under Non-profit Organisation. These organisation are having Receipts and Payments while Normal business organisation are having revenue and expenditure.

Non profit organisation are run ny trust/ group of persons/ governments.

The fund alloted at initially on the basis of budgeted requirement of these organization while in business it is dependent on capital capacity of businessman.

These organisation cannot invest outside their service scope with approval of trust but profit oriented business organisation can invest at any where.

Due to above reasons there is difference in investment, operating and financial activities.

On the basis of complain, As an accountant, we should audit books of university or college in following manner:

1. We should check book of fixed asset and simultaneously it should verify with physical existence of fixed assets.

2. We have to check that proper recording of asset should be in register with details required like date of purchase, amount of asset, rate of depreciation, location of assets, under whose possession is asset kept, vendor of assets etc.

3. We have to verify actual use of such assets with randomly visit in college and classroom.

4. We have get details about assets with faculty and students in different manner and try to resolve issues.

After proper assessing the report, we should need to present True and Fair report to management.

If specially engaged college/university need to prepare its financial as per guidance provided by such body. Hence, financial would be definately different from normal financial statement due to reason mentioned above.

Pros related to above approach are as follow:

1. It is Industry Specific.

2. Once it is prepared then it is easy to prepare for next time.

3. Any change in normal financial statement doesnot give any impact on it.

4. Raising of question is restricted.

Cons related to above approach are as follows

1. At initial level, it require expertise.

2. Any layman cann't understand it easily.

3. Change in financial require lot of approval mechanism and it is too difficult.

4. Matching it with normal financial is not easy.