Harvard University Policy:

Net asset activity is essentially the changes in the General Operating Account (GOA) funds, the Endowment funds, and the Life Income funds.

The net asset activity is accounted for and reported in the University's Statements of Changes in Net Assets.

The Statement of Changes in Net Assets is one of three Financial Statements required by GAAP. The statement provides information about the following:

• The University's performance

• The assessment of services provided and the University's ability to continue to provide these services.

• The assessment of the performance of its managers.

The net asset activity policy defines the accounting treatment and reporting requirements for the changes in the University's net asset balances.

For financial reporting purposes, the net asset activity includes all changes in the University's general operating funds, endowment funds, and life income funds accounts.

The net asset activities are the transactions, and other events and circumstances that change the amount and nature of the net asset balances.

The University records and reports net asset activity in accordance with the Financial Accounting Standards Board, SFAS No. 116, "Accounting for Contribution Received and Made," and SFAS No. 117, "Financial Statements of Not-for-Profit Organizations."

SFAS NO. 116 states that contributions received should be accounted for at fair value and reported as revenue or gains, assets; decreases in liabilities, or as expenses when received.

Contributions received are classified according to their donor-imposed restrictions. Restricted contributions increase permanently restricted or temporarily restricted net assets. Unrestricted contributions increase unrestricted net assets.

SFAS No. 117 establishes standards for financial statements of not-for- profit organizations. It requires the financial statements to focus on the University as a whole and to communicate accounting information to meet the needs of external users of the statements.

The University's complete set of financial statements includes:

The Balance Sheet

• Provides financial information about the University as a whole and reports the total assets, liabilities, and net assets at a point in time.

• Assesses the University's liquidity, its financial flexibility, ability to meet obligations, and need for external financing.

 

The Statement of Changes in Net Assets

• Provides financial information about the effects of transactions and other events on the change in net asset balances.

• Provides information about the uses of resources to provide programs and services.

 

The Statement of Cash Flows

 

Provides financial information about cash receipts and payments made by the University during the period, resulting from operating, investing and financing activities.

Accompanying Notes to the Financial Statements

 

The University uses the Statement of Changes in Net Assets to account for and report on the net assets activities of the general operating account funds, the endowment funds, and the life income funds.

The University's Statement of Changes in Net Assets classifies the changes in these funds according to their permanently restricted, temporarily restricted, and unrestricted designations.

Changes in the General Operating Funds (GOA):

 

The GOA funds are used to manage, direct, and support the University's financial transactions. The changes (or net asset activity) in the GOA are reported and classified on the Statement of Changes in Net Assets are as follows:

Operating Income activity - includes student income, federal and non-federal revenue, gifts for current use, investment income, and other operating income. (Refer to the policy on Accounting for Revenue for more detail.)

Operating Expense activity - includes salaries and wages; employees benefits; scholarships and other student awards; supplies and equipment; space and occupancy; depreciation; and other expenses. (Refer to the policy on Accounting for Expenses for more detail.)

Non-operating activity includes:

Capital changes

• Changes in pledge balances

• Capital gifts for loan funds and facilities

• Transfers between GOA and endowments

• Designated endowments used to finance facilities

• Transfers between GOA and Life Income Funds

 

Other Provisions and Credits:

• Change in realized and unrealized appreciation

• Change in undistributed general investment income

 

Changes in the Endowment Funds:

 

The Endowment Funds provide income for the maintenance of the University. The changes (or net asset activity) in the endowment fund accounts are reported in the Statement of Changes in Net Assets as follows:

• Gifts for capital

• Investment returns (includes endowment income and change in realized and unrealized appreciation)

• Endowment appreciation distributed for operations

• Undistributed general investment income

• Transfers between endowment and GOA

• Designated endowments used to finance facilities

• Capitalization of life income funds

• Changes in pledge balances

• Changes in perpetual balances held by others

 

Changes in Life Income Funds:

The Life Income Funds are funds that are given to the University in connection with a split-interest agreement that is part of a contribution and part of an exchange transaction.

• Gifts for capital

• Investment returns

• Life Income funds converted to endowments

• Transfers between life income funds and GOA

• Payments to annuitants

• Change in liabilities due under life agreements

 

Refer to the following schedules for object code information related to the net asset activity.

• Schedule A - General Operating Account (GOA) activity

• Schedule B - Endowment Fund activity

• Schedule C - Life Income Fund activity

Responsibility:

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

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

For assistance in interpreting this policy, please call your Tub Financial Office.

Schedule A: General Operating Account (GOA) Non-Operating Activity

Schedule B: Endowment Fund Activity

Schedule C: Life Income Fund Activity