Harvard University Policy:

An asset is an element of the financial statements constituting resources or claims thereto at a moment in time, as of a certain date.

More specifically, the Financial Accounting Standards Board, SFAC No.6 "Statement of Accounting Concepts" defines assets as probable future economic benefits obtained or controlled by the University because of past transactions or events. (For example, an acquisition of land, a construction of a building, an investment in stock, or a receivable for the sale of goods or services.)

In simple terms, assets represent items of value that the University owns or controls. They have the ability or potential to provide future benefits to the University.

The policy on accounting for assets establishes the fundamental guidelines and GAAP practices for properly accounting and reporting assets on the University's Balance Sheet.

For financial statement and government reporting purposes, this policy includes all items recorded in the assets section of the University's Balance Sheet.

An asset has three primary characteristics:

It embodies a probable future benefit that involves a capacity, singularly or in combination with other assets, to contribute directly or indirectly to future net cash flows to the University.

The University can obtain the benefit and control others' access to it.

The transaction or event giving rise to the University's right to control of the asset has already occurred.

Assets are recorded on the University's Balance Sheet using the accrual basis of accounting.

The accrual basis of accounting records the effects of a transaction and other events in the periods when they occur instead of only in the periods when cash is received or paid. Accordingly, accrual accounting considers not only cash transactions but also noncash transactions and exchanges of goods and services.

The accrual basis of accounting focuses on inflows of assets from operations (revenues) and uses of assets in operations (expenses), regardless of whether those inflows and outflows currently produce or use cash.

Assets are classified on the University's Balance Sheet in descending order of liquidity. Liquidity means the availability of cash or ability to convert into cash. Assets are also further classified into current and noncurrent categories. These distinctions are implicit in the natural descending order of the assets on the Balance Sheet. For reporting purposes, these category distinctions do not need to be explicitly stated on the Balance Sheet.

Valuation accounts are used to change the carrying amount of an asset and are considered an essential part of the asset. The valuation account accumulates amounts that are either added to or, in most cases, subtracted from the original asset balance. The valuation accounts are also referred to as contra asset accounts.

Examples of valuation accounts include:

• Allowance for doubtful accounts (contra valuation account to Accounts Receivable)

• Accumulated depreciation (contra valuation account to Facilities & Equipment)

• Unrealized gain or loss on investments (contra valuation account to Long-term investments)

For financial reporting purposes, the University reports assets net of their respective valuation accounts.

Assets are reported on the Balance Sheet using various valuation measurements.

The table below describes the various valuation measurements used to record assets on the Balance Sheet.

Refer to Schedule A for a list of the University's asset categories, their valuation measurements, definitions, and related object codes.

The Office of Financial Systems is responsible for writing and updating this policy.

The Financial Deans of the University are responsible for enforcing this policy.

The Harvard Management Company is responsible for managing the University's endowment, pension assets, working capital, and deferred giving accounts, and for interpreting the policy of managing the long-term investment portfolio of these accounts.