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Policy: II.A.2

Issued: July 17, 1989

Owner: University Comptroller

Latest Revision: November 7, 2005

FINANCIAL ACCOUNTING POLICY - UNIVERSITY

1.0 Purpose

This policy describes the significant accounting policies of the University Academic Division.

2.0 Policy [Top]

2.1 Basis of Accounting

The University uses the accrual basis of accounting in accordance with GASB Statement Nos. 34 and 35. Revenues are recorded when earned and expenses are recorded when incurred and measurable, regardless of when the related cash flows take place. Nonexchange 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. The University does not capitalize works of art or historical treasures that are held for exhibition, education, research, and public service. These collections are protected and preserved, neither disposed of for financial gain, nor encumbered in any means. Accordingly, such collections are not recognized or capitalized for financial statement purposes.


2.2 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) and, for pronouncements issued prior to November 30, 1989, the Financial Accounting Standards Board (FASB), that do not contradict or conflict with GASB standards. It is the University’s policy not to follow FASB standards after that date. The component units continue to follow FASB pronouncements, 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 asset categories:

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.


2.3 Inventories

Inventories are valued at the lower of cost (generally determined on the weighted average method) or market value.


2.4 Investments

Investments in corporate stocks and marketable bonds are recorded at market value. Certain less marketable investments, principally real estate and private equity investments, are generally carried at estimated values as determined by management. Because of the inherent uncertainty in the use of estimates, values that are based on estimates may differ from the values that would have been used had a ready market existed for the investments.


2.5 Capital Assets and Depreciation

Capital assets are stated at cost at date of acquisition, or fair market value at date of donation in the case of gifts. The University capitalizes construction costs that have a value or cost in excess of $250,000 at the date of acquisition. Renovations in excess of $250,000 are capitalized if they significantly extend the useful life of the existing asset. The Academic Division capitalizes moveable equipment at a value or cost of $5,000 and an expected useful life of more than one year. The Medical Center Division capitalizes moveable equipment at a value or cost of $2,000 and an expected useful life of two or more years. Maintenance or renovation expenditures of $250,000 or more are capitalized only to the extent that such expenditures prolong the life of the asset or otherwise enhance its capacity to render service.

Depreciation of buildings, improvements other than buildings, and infrastructure is provided on a straight-line basis over the estimated useful lives ranging from ten to fifty years.

Depreciation of equipment and capitalized software is provided on a straight-line basis over estimated useful lives ranging from one to twenty years.

Depreciation of library books is calculated on a straight-line basis over ten years.

Fixed assets related to construction are capitalized as projects are complete. Projects that have not been completed as of the date of the statement of net assets are classified as Construction in Process. Construction period interest cost in excess of earnings associated with the debt proceeds is capitalized as a component of the fixed asset.

Capital assets, such as roads, bridges, sidewalks, and certain other non-building structures and improvements are capitalized as infrastructure and depreciated accordingly.

In accordance with AICPA Statement of Position 98-1, Accounting for the Costs of Computer Software Developed or Obtained for Internal Use, the University capitalizes computer software developed or obtained for internal use. Capitalization begins at the application development stage, which consists of the design, coding, installation, and testing of the software and interfaces


2.6 Funds Held in Trust by Others

Assets of funds held by trustees for the benefit of the University are not presented in the University's Financial Statements.  The University has irrevocable rights to all or a portion of the income of these funds, but the assets of the funds are not under the management of the University. 


2.7 Affiliated Foundations

Assets of affiliated foundations, which are separately incorporated and managed by their own boards, are not included in the University's own financial statements. Foundations meeting the criteria of GASB Statement No. 39 are discretely reported as component units of the University.

3.0 Definitions [Top]

4.0 References [Top]

5.0 Approvals and Revisions [Top]

       Previous version in effect from 7/17/89 to 1/25/00 available in policy archive.

       Previous version in effect from 1/25/00 to 5/9/05 available in policy archive.

       Previous version in effect from 5/9/05 to 11/7/05 available in policy archive.


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© 2005 by the Rector and Visitors of the University of Virginia