Higher education in America is big business. Over 12 million students are enrolled in some 3,300 colleges and universities. Slightly over half of these institutions are private, nonprofit organizations, except for a few proprietary institutions, the remainder are operated by various government units. In addition to the public versus private dichotomy, these institutions vary in size, reputation, selectivity, racial composition, types of degrees granted, educational goals, and mission.
Despite the wide diversity of post-secondary education institutions, we believe public sector accountants and auditors can initiate immediate improvements in the annual reports of colleges and universities. Our recommendations for narrative and interpretive information, accompanied by a statistical summary including both financial and nonfinancial data, should help financial statement users better assess the operating performance and financial condition of colleges and universities. The changing environment of public sector and not-for-profit accounting in general, as discussed in the first section of this paper, justifies the timing of our recommendations. The second section provides examples and discusses our recommendations in more detail. In the third section, we comment on the future direction of college and university reporting. We conclude with some guidelines which will help institutions develop more relevant annual reports.
I. CHANGING TIMES
The decade of the 1970s was a period of declining resources for many institutions of higher learning despite an increase of some 40 percent in college enrollments. The growth disappeared in the early 1980s as the number of 18-24-year-olds in the population peaked and then began a decline, expected to continue into the 1990s. Enrollments in most institutions were maintained because of large increases in the number of nontraditional and part-time students.
The dilemmas facing colleges and universities in the last two decades have encouraged the development of many procedures and techniques designed to evaluate and improve the efficiency and effectiveness of the educational process. Accrediting agencies and other oversight bodies are moving in the direction of requesting in addition to the traditional data interinstitutional comparisons and measures of the outputs and outcomes of the educational process.
Financial reporting standards for colleges and universities are also undergoing a process of change. It is in this context that we propose some improvements in the annual reports of colleges and universities. The additional information we suggest be included with audited financial statements is relatively independent of the outcomes of the current debates on financial display, revenue recognition, or public institutions' recording depreciation. In short, our prescription calls for a narrative description of the institution, a five-to ten-year statistical summary of performance indicators, and interpretive explanations regarding the financial and nonfinancial data. In addition to reporting this information, we encourage colleges and universities to experiment with the measuring and reporting of educational outcomes and accomplishments.
COLLEGE AND UNIVERSITY FINANCIAL REPORTING
College and university financial reporting efforts began around 1935 and culminated in the publication of College and University Business Administration (CUBA) by the American Council on Education in 1952 and 1955. Revised in 1968 and 1974,(1) the accounting practices prescribed in CUBA found widespread acceptance in practice.
Until the mid-1960s, the accounting profession paid relatively little attention to nonbusiness(2) accounting. However, the 1970s saw the issuance of a series of audit guides by the American Institute of Certified Public Accountants (AICPA) including Audits of Colleges and Universities in 1973. Because accountants started from industry accounting manuals and worked closely with industry representatives, the resulting accounting procedures and reporting standards contained several inconsistencies on the proper handling of similar issues. …