1993 Vangermeersch Manuscript Award
Ken W. Brown SOUTHWEST MISSOURI STATE UNIVERSITY

HISTORY OF FINANCIAL REPORTING MODELS FOR AMERICAN COLLEGES AND UNIVERSITIES: 1910 TO THE PRESENT

Abstract: This paper contrasts current and proposed higher-education financial reporting models with financial reporting models developed earlier in this century. The historical review in this paper has current value since the FASB and the GASB are considering major changes in the way that private and public colleges and universities report financial information. The results of the historical review reveal that, through the years, report modelers varied in their concern for user needs and report uniformity. Interestingly, the first higher-education reporting model developed in 1910 and the proposed model developed in 1992 by the FASB both focused on user needs while the primary objective for the reporting model currently in use and most other intervening models was only uniformity.

This paper provides a historical review of financial report-ing models suggested for use by colleges and universities. Illustrations are included of the prescribed financial report forms suggested by major higher-education accounting publications published between 1910 and the present. To provide a context for the historical review, descriptions are provided of the present model published by the National Association of College and University Business Officers (NACUBO) and the future model published by the Financial Accounting Standard Board (FASB). Next, reviews are provided of the reporting models published by (1) the Carnegie Foundation in 1910, (2) the General Education Board in 1922, (3) Lloyd Morey in 1930, (4) the American Council on Education (ACE) in the periods 1930-35 and 1952-68, and (5) NACUBO in 1974. During this period, post-secondary education assumed a more important role in American society, and in higher-education financial reporting accordingly.

Although the earliest suggested uniform reports date back to the beginning of this century, the generally accepted format of college and university financial statements has changed very little from the format published by the American Council on Education nearly 60 years ago. This current reporting format (hereafter called the College Model) is unique to higher education since it differs significantly from the generally accepted formats for all other types of government and nonprofit organizations.
The currently used College Model prescribes that highly de-tailed fund accounting information be provided in external fi-nancial reports. This reporting approach, however, could soon be discarded by private institutions as a result of a new uniform reporting model being proposed by the Financial Accounting Standards Board (FASB) for all nonprofit organizations [FASB, 1992]. Also, the fate of the College Model for public institutions is uncertain pending the completion of a study by the Governmental Accounting Standards Board (GASB) [GASB, 1993].

During this period of significant change, it is worthwhile to reflect on the history of American higher-education financial reporting and to determine the foundation on which the current format is based. Through a better knowledge of the historical background for today’s higher-education reporting techniques, one is better able to evaluate the FASB’s new proposal and to envision its subsequent effect on the higher-education industry.

The paper is organized in the following manner. First, to provide a context for the historical review of suggested financial reporting formats, a description of the College Model currently in use is provided, followed by a comparison of the Nonprofit Model proposed by the FASB. Second, descriptions are provided of each higher-education reporting model suggested by major works published in this century. Last, the unique aspects of all reporting models (past, present, and future) are summarized and discussed, and the study’s findings are related to today’s issue of appropriate reporting detail levels.

HIGHER-EDUCATION REPORTING — PRESENT AND FUTURE

Today, American higher education is a major industry which serves over 13 million students each year. In 1990, the higher-education industry consisted of over 3,500 institutions generating almost $140 billion in annual revenues. Now, over 50 percent of the individuals in the 18-to-24-year-old population group are enrolled in a higher-education institution [National Center for Education Statistics, 1993, p. 77].

While present-day college financial reporting uses many accounting funds (i.e., a disaggregated format), the future model could use as few as one fund (i.e., an aggregated format). Thus, the future of higher-education reporting could reveal a significant shift in the level of information aggregation on financial reports. The term aggregation level, as used in this paper, describes the extent that financial information is provided by accounting fund group, (e.g., current fund, plant fund, agency fund). A highly aggregated financial statement provides no accounting fund delineation. In contrast, financial statements that report multiple funds are highly disaggregated.

NACUBO’s 1974 College Model

Although similar to the government model used by state and local governments, the present-day College Model of financial reporting is unique to the higher-education industry. The generally accepted accounting principles (GAAP) that prescribe the statements for the College Model are provided in the Financial Accounting and Reporting Manual for Higher Education published by the National Association of College and University Business Officers (NACUBO) [1990]. The final form of the College Model was determined in 1974 and published in NACUBO’s third edition of College and University Business Administration [1974]. Until future authoritative pronouncements of the FASB and the GASB generate new reporting models, the 1990 Manual and the 1974 CUBA Manual will continue to provide the higher-education industry with generally accepted accounting principles.

In a manner that will be used for each major reporting model reviewed in this paper, Figure 1 provides an abbreviated illustration of the 1974 College Model and shows the format of each statement required by higher-education GAAP, including report titles, column headings, and major row headings. So that the basic characteristics of the reporting-model format can behighlighted, financial numbers and detailed item descriptions are omitted in order to provide only a skeletal view of each report form.

‘Acknowledging the College Model as generally accepted by the higher-education industry, the American Institute of Certified Public Accountants (AICPA) included the financial statements from the 1974 College and University Administration publication in its industry audit guide titled Audits of Colleges and Universities [AICPA, 1975].

As shown in Figure 1, the College Model includes three general purpose financial statements: the Balance Sheet, the Statement of Changes in Fund Balances, and the Statement of Current Funds Revenues, Expenditures, and Other Changes. As in-dicated by the column headings of the statements, the College Model is based on the principles of fund accounting.

The Balance Sheet partitions assets, liabilities, and fund balances into as many as ten different funds. While resources available for general operations are expended through the Cur-rent Funds, all nonexpendable resources, resources for capital asset acquisition, and the stock of capital assets are placed in funds outside the Current Funds category.
The Statement of Changes in Fund Balances illustrated on Figure 1 explains the year’s change in the net worth of each fund on the balance sheet except the Agency Fund which, by definition, has no fund balance. As shown in Figure 1, changes to fund balances are placed into one of three classifications: revenues and other additions, expenditures2 and other deductions, and transfers among funds.

The Statement of Current Funds Revenues, Expenditures, and Other Changes represents the college’s “operating state-ment.” In college accounting, revenues and expenditures are recognized only in Current Funds; in all other funds, resource flows are classified either as other additions or deductions. Di-vided into three sections (revenues, expenditures, and transfers), the Statement does not provide the customary subtotal between revenues and expenditures.

The FASB’s 1992 Nonprofit Model

In a 1989 decision of the Financial Accounting Foundation, the FASB and the GASB were provided with standards-setting jurisdiction for privately and publicly controlled colleges, re-spectively [Cowherd, 1989, p. 1]. As a result, future financial reports of the private and public college groups are likely to differ in format and content as the FASB and the GASB issue independent reporting standards for their respective sets of higher-education entities.

In this dualistic standards-setting environment, the FASB is ahead of the GASB in determining an appropriate reporting model for higher-education entities. In 1992, the Financial Ac-
2 In present-day college accounting, capital assets are not reported on the balance sheet. As a result, outlays of Current Funds for capital assets are reported with traditional expenses (e.g., salaries, travel, or supplies) as expenditures of Current Funds.

counting Standards Board (FASB) issued an exposure draft that would change the aggregation level of private college financial reports [FASB, 1992] by reducing the number of funds and altering the types of statements presented. While the GASB is studying financial reporting needs of public colleges, it does not expect to make a decision until 1995 as to whether the College Model, the GASB’s current Government Model, or another model is appropriate for the public college group [GASB, 1993, p. 4].

The Nonprofit Model’s basic statements proposed in the exposure draft are illustrated on Figure 2. As shown on Figure 2, three statements that are very different from the College Model are proposed: the Statement of Financial Position, the Statement of Cash Flows, and the Statement of Changes in Net Assets.

As shown on Figure 2, the Statement of Financial Position does not separate assets and liabilities into accounting funds. Instead, net assets (previously called the fund balance) are partitioned into three types: unrestricted, temporarily restricted, and permanently restricted. In essence, the Nonprofit Model uses only one fund and classifies net assets, revenues, and expenses into three types. The Nonprofit Model does not classify assets and liabilities into funds similar to those used by the College Model.

A new statement required by the FASB’s Nonprofit Model is the Statement of Cash Flows; no similar statement is included in the present-day College Model. The cashflow statement classifies inflows and outflows into the standard categories of operating, investing, and financing activities. In addition, the Statement of Changes in Net Assets (optionally called the Statement of Activities) serves as an entity’s “operating statement,” and explains the year’s changes in net assets for each of the three net-asset types: unrestricted, temporarily restricted, and permanently restricted. While revenues are recognized in any of the three net-asset types, expenses (including depreciation) are recognized only in the unrestricted funds. Also, a subtotal disclosing the difference between unrestricted revenues and expenses is provided.

Comparison of the College and Nonprofit Model

While major differences exist in the format and content of the college and nonprofit models, less obvious differences exist

While NACUBO’s 1990 and 1974 publications, which con-tain the final version of the College Model, do not identify spe-cific users or purposes for financial reports, the FASB exposure draft [1992] includes references to both. The FASB exposure draft indicates that the external users for whom the financial reports are intended are: “… donors, members, creditors, and others who provide resources for not-for-profit organizations.” [FASB, 1992, p. 2].

According to the exposure draft, the financial statements should provide the following information:

1. The amount and nature of an organization’s assets, liabilities, and net assets.
2. The effects of transactions and other events and circumstances that change the amount and nature of net assets.
3. The amount and kind of inflows and outflows of economic resources during a period and the relation between the inflows and outflows.
4. How an organization obtains and spends cash, its borrowing and repayment of borrowing, and other factors that may affect its liquidity.
5. The service efforts of an organization.

Of interest is the fact that the College Model focuses only on information items 1 and 2. Item 3 (changes in economic resources), item 4 (factors of liquidity), and item 5 {service ef-forts) are new dimensions of college financial reports not pro-vided by the present-day College Model.

Several striking differences exist between the present-day College Model and the FASB’s proposed Nonprofit Model. First, when compared side-by-side, one can see that the College Model on Figure 1 contains a much larger number of accounting figures than does the Nonprofit Model on Figure 2. Second, while omitting many accounting figures, the Nonprofit Model provides a new statement (i.e., the Statement of Cash Flows). Third, because the Nonprofit Model reports capital assets on the balance sheet and requires a depreciation allowance to be recorded, the Nonprofit Model shows expenses (rather than expenditures)3 on the “operating statement.” Last, unlike the College Model, the Nonprofit Model provides an accounting number that approximates “net income.”

In summary, the changes from the present-day College Model to the proposed Nonprofit Model reflect a move toward (1) more aggregated statements, (2) less accounting numbers being disclosed, (3) more similarity with for-profit reports, and (4) more reporting on economic resources and liquidity. Collectively, these changes represent a transition from the most detailed reports to the least detailed reports in this century. Through a historical review of American higher-education reporting models, one can verify that the present and future models represent the extremes of detail in the chronological history of college accounting.

Overview of Historical Reporting Models

To determine the background for the present-day College Model, a search was conducted for higher-education accounting publications that outlined a unique reporting model.4 A chronological listing of the publications identified through the search are shown in Table 1.

TABLE 1
College Accounting Publications with Unique Reporting Models Publication
Date Author, Title, and Publisher
1910 Carnegie Foundation for the Advancement of Teaching, Bulletin Number 3: Standard Forms for Financial Reports of Colleges, Universities, and Technical Schools.
1922 Trevor Arnett, College and University Finance, General

Education Board.

1930 Lloyd Morey, University and College Accounting, John Wiley and Sons.
1935 National Committee on Standard Reports for Institutions of Higher Education, Financial Reports for Colleges and Universities, University of Chicago Press.
1974 National Association of College and University Business Officers, College and University Business Adminis-tration, 3rd edition.
4 Particularly helpful in the search was Flesher and Rezaee’s working paper titled History of College and University Accounting and Auditing [Flesher and Rezaee, 1988].

As shown on Table 1, bulletins have been issued and books have been written about college and university accounting and financial reporting since 1910.5
Interestingly, the two earliest works were financed by two outstanding businessmen and philanthropists: Andrew Carnegie and John D. Rockefeller, Sr. In 1910, Andrew Carnegie’s foundation, the Carnegie Foundation for the Achievement of Teaching, published a set of suggested uniform college financial reports. In 1922, Trevor Arnett, writing for Rockefeller’s General Education Board, published a widely-accepted book on college accounting and reporting.

In 1930, Lloyd Morey published a book on college accounting not long before becoming chairman of a new American Council on Education’s (ACE) committee on college financial reporting. In 1935, Morey’s committee published a book on financial reporting. This work outlined much of the College Model still in use today.

In 1974, the National Association of College and University Business Officers published the third of four “CUBA manuals”; the first two editions were prepared by a committee of the American Council on Education. The 1974 version of College and University Business Administration included the last noteworthy revisions to the ACE’s 1935 reporting format; as a result, the 1974 CUBA Manual provides the current statement of generally accepted accounting principles for college accounting.

The above major publications, issued between 1910 and the present, provide the essential historical trail by which to trace college financial reporting to its present form.

HISTORICAL REVIEW OF THE REPORTING MODELS

The five publications in Table 1 were reviewed for stated principles or concepts about (1) the format and content of sug-gested financial reports, and (2) the users of college financial reports and their related needs. In the following pages, the resuits of each key publication’s historical review are provided to determine the publication’s role in the evolution of college fi-nancial reporting.

5 Although important works, some other publications are omitted from the list on Table 1 because the works either did not include a financial reporting model or did not include a model that was unique to their publication. For example, in 1925, Earle T. Washburn’s Accounting for Universities [1925] was limited to accounting and not reporting. In addition, the first edition of College and University Administration [ACE, 1952] was omitted because it included the same essential reporting model as contained in the Committee Model [National Committee, 1935],

1910 Carnegie Model

At the turn of the century, higher education was in a period of dramatic growth. The number of colleges and universities had increased from 563 just after the Civil War to 977 in the year 1900 [NCES, 1993, p. 80]. While average enrollment was still very small (an average of about 240 students per institution in 1900), the percentage of college-age young people enrolling in college was increasing. Although still considered a luxury activity only for the children of well-to-do families, higher education was growing very rapidly during the early part of the twentieth century [Brubacher and Rudy, 1976, pp. 249-250].

In the early 1900s, colleges and universities received finan-cial support from a variety of sources: student fees, government funds, endowment income and gifts, and dormitory charges. By 1910, higher education’s total revenues were fairly evenly dis-tributed among student tuition and charges, federal and state government funds, and endowment and gift income [NCES, 1993, p. 89]. Of course, the government funds were provided to public institutions while the endowment income and gifts were provided to private institutions.

At the turn of the century, institutions were still trying to house all students in dormitories as a way to educate the whole person and to promote the “collegiate way of living” [Brubacher and Rudy, 1976, p. 121]. Thus, institutions were faced with the financial and operational problems associated with food and lodging services. Also, with highly organized “big-time” athletics developing from the 1880s, several institutions were already in-volved with having to account for ticket sales [Savage, 1929, pp. 22-29].

While private foundations and philanthropists were provid-ing millions of dollars in direct aid to colleges, the newly formed Carnegie Foundation for the Advancement of Teaching was also providing funds for teachers’ pensions. During its pension-funding activities, the Foundation became frustrated with its inability to obtain accurate and comparable financial reports from the nation’s colleges. Henry Pritchett, former Massachusetts Institute of Technology president and the first president of the Carnegie Foundation, was quite concerned about the public’s financial information needs and higher education’s comparative information needs. Recognizing the problem of deficient finan-cial reporting practices, he initiated a study by the Foundation that led to the first known financial reporting model for colleges and universities.

As a result of its study, the Carnegie Foundation issued a pamphlet titled Bulletin No. 3: Standard Forms for Financial Reports of Colleges, Universities, and Technical Schools [Carnegie Foundation, 1910]. Along with comments made in early Carnegie annual reports, this pamphlet provided the first indication of conceptual thought regarding financial information for colleges and universities. Carnegie’s Bulletin No. 3 identified the following three groups of financial statement users:

1. Trustees, alumni, and friends of the institutions who are directly interested in its welfare.
2. Men of means who are or may become donors to the institution.
3. Individuals and agencies involved with studies of educational methods and costs.

According to the Carnegie bulletin, the third group needed comparative information that could only be provided by unifor-mity in reporting. Bulletin No. 3 proposed that financial state-ment users sought answers to three fundamental questions:

1. What is the total income of the institution for the year?
2. What is the annual expenditures?
3. What are the assets at the end of the year?

The financial statement forms suggested by the Carnegie Foun-dation focused on information required to answer the above basic questions. Figure 3 provides an abbreviated illustration of the format and contents of the Carnegie report forms.

As indicated by the reporting levels in Figure 3, the authors of the Carnegie bulletin were quite concerned about the appro-priate level of information aggregation. Their multi-level forms were intended to avoid “… complexities of too great detail and to reduce the information which ought to be given to the sim-plest and most intelligible form” [Carnegie, 1910, p. 1]. As shown on Figure 3, three levels of detail were provided: a sum-mary level, an intermediate level, and a detailed level.

At the summary level, a single-page report (illustrated on the left side of Figure 3) contained only totals from more de-tailed reports. This highly aggregated summary disclosed only totals from the balance sheet and from separate revenue and expense reports included in the intermediate level. The sum-mary was purported to “… give the concise view of the finan-cial status of the institution which the reader first wants to know” [Carnegie, 1910, p. 2]. In a straightforward manner, the summary answered the three fundamental questions of users.

The summary level was supported by an intermediate level of detail in the form of a basic balance sheet and single-column schedule of income and expenses. Based on the principles of fund accounting, the balance sheet was disaggregated into three self-balancing funds: (1) current assets and liabilities, (2) investment assets and endowment funds, and (3) educational plant.

As shown in the intermediate level of Figure 3, the Carnegie forms provided separate schedules of income and expenses. To determine any excess or deficit between income and expenses, however, the reader would refer to the Summary Report which contained both the totals of the independent income and expense schedules and the resulting surplus or deficit.6
The titles of the reports in the detailed level are shown on the right side of Figure 3. These schedules provided supporting details for accounting numbers on the reports in the intermedi-ate level. Designed during the era when the balance sheet was considered most important, the detailed level of the Carnegie forms provided numerous analyses of balance sheet items.

The three levels of detail contained in the Carnegie forms were ingeniously simple. If the reader wanted only an overview, then the summary-level report filled the need. For readers who wanted additional detail, the intermediate level was available. The third level provided yet another level of detail.

Like many new and innovative endeavors, the Carnegie uniform reports did not gain wide acceptance by higher-education institutions. As a result, in 1922, Trevor Arnett built upon the Carnegie effort and developed a model that gained wider acceptance.

1922 Arnett Model

Between 1910 and 1922, when the second higher-education reporting model was published, the major event to affect Ameri-can higher education was World War I. While European class-rooms were emptied of their male students as early as 1914, American higher-education enrollment was not affected until 1917 when the United States entered the world conflict. During
“As shown by the terminology in the summary and intermediate levels, the Carnegie modelers used the words expenditures and expenses interchangeably.

the war years, enrollments at undergraduate colleges dropped 20 percent [Rudy, 1991, p. 19].
Following the war, America entered the “roaring” 1920s, and the number of colleges and college students began to grow again. The average institutional enrollment was approximately 500 students in 1920 and 750 students in 1930 [NCES, 1993, p. 75]. The University of Chicago’s auditor, Dr. Trevor Arnett, responded to this environment with a publication for the General Education Board (GEB) titled College and University Finance [1922]. John D. Rockefeller, Sr., provided the GEB with Hnan-cial support for the project. Arnett’s publication is considered to be the first generally accepted source of college and university accounting and reporting [NACUBO, 1982, p. i].

In his publication, Trevor Arnett identified friends of the institution as the users of college financial reports. He suggested that annual financial statements should be designed to inform these friends about the institution [Arnett, 1922, p. 115]. Arnett did not list trustees and officers as annual statement users be-cause he felt that such groups of decision makers should receive frequent internal reports that were more detailed in their contents than annual financial statements.

Arnett showed concern for user needs and also disdain for the college accounting of the time in the following statement:

“It is probably safe to say that college trustees in numerous instances are not furnished with statements and reports which show clearly the financial condition and methods of the institutions committed to their trust, for if they were they would not rest until the undesirable features had been eliminated.”
[Arnett, 1922, p. 109-110].

Like the Carnegie Foundation’s leaders, Dr. Arnett felt that users asked certain key questions and that some of those ques-tions were more important than others. Arnett contended that users were most concerned about the amount of endowment, then about the cost of plant assets, and finally, about the amounts of current assets and liabilities [Arnett, 1992, p. 115].
Figure 4 provides an abbreviated illustration of Arnett’s proposed financial reports. In Figure 4, the primary statements and supporting schedules are illustrated on the left and right sides, respectively.

The balance sheet on Figure 4 was classified into the same three funds as those shown on the Carnegie forms but in a

•Illustration adapted from Trevor Arnen’s Coiiegt and Univtnity tezounting published by the Genera! Accounting Board, New Ybrk, 1922.
different order. Arnett’s balance sheet was organized so that users’ questions could be answered in the order that he supposed the questions would be asked: the amounts of (1) endowment assets, (2) plant assets, and (3) current assets and liabilities, respectively.

In addition to his unique balance sheet ordering, Arnett provided a novel approach to income and expense reports. A summary report titled the Surplus and Deficit Account reported the net surplus or deficit for each division of the institution. Each division’s surplus or deficit was determined from individual schedules of income and expenses for each division and receipts and disbursements for each revenue generating activity. Examples of these division schedules are shown on Figure 4 for an academic college7 (i.e., the College of Liberal Arts), and three auxiliary enterprises: dormitories, food service, and the bookstore.

The General Education Board mailed a copy of the book to every college in the nation in the hopes that its suggestions would be used. Lloyd Morey described Arnett’s book as a significant effort and as having widespread influence on college accounting [Morey, 1930, p. 6]. As will be seen in the following paragraphs, however, Morey retained little of Arnett’s reporting model when he published his own reporting model in 1930.

1930 Morey Model

In 1930, University of Illinois comptroller (and eventual president), Dr. Lloyd Morey, CPA, published University and College Accounting. Through his book and subsequent publications, Dr. Morey became one of the most influential figures in the development of today’s college financial reporting practices.

Unlike the Carnegie and Arnett works, Morey’s book did not identify specific groups of public users or perceptions of user needs. This failure to address user and user needs was the start of a trend that continued in higher-education publications until reversed by the FASB’s recent exposure draft on the Nonprofit Model. Dr. Morey, however, acknowledged that published annual reports were important to all colleges, both public and private, as a means to instill public confidence in the business management of the institution [Morey, 1930, p. 196].

Without further elaboration, Dr. Morey indicated that pub-lished annual reports were used for various purposes by “per-sons intimate with the institution as well as by friends and citi-zens.” [Morey, 1930, p. 199]. According to Morey, certain pur-poses required brevity in reports while others required elaborate detail. To provide brevity, Morey suggested that a written con-

7 A few colleges (usually private) prepare income statements for each academic division but do not distribute them externally (see, for example, Gaffney [1987-88]). Because of their controversial nature, such reports are usually avoided by administrators of a college or university until the institution develops severe financial problems that mandate assessments of each division’s financial contribution to or drain on the institution.

An abbreviated illustration of the Morey reporting model is shown on Figure 5. Morey’s primary statements and the titles of supporting schedules are shown on the left and right sides of Figure 5, respectively.

As shown on Figure 5, Morey’s primary financial tables consisted of (1) a balance sheet, (2) a consolidated summary of income, and (3) a consolidated summary of expenditures. No-ticeably missing from Morey’s forms was a statement of changes in net assets. As a result, the accounting numbers on Morey’s primary statements could not be traced to one another.
As shown on Figure 5, Morey’s balance sheet displayed four accounting funds: General and Building Funds, Trust Funds, Endowment Fund, and Plant and Property, in comparison to only three funds used in the 1922 Arnett model. In contrast to his disaggregated balance sheet, Morey’s Consolidated Summary of Income and Consolidated Summary of Expenditures were each completely aggregated (i.e., a single fund is displayed) with the exception that trust funds income and expenditures were itemized. In addition to his primary statements, Morey suggested that twelve detailed schedules be provided as supporting detail of various items on the main financial reports. As shown on Figure 5, most of these schedules related to items on the balance sheet.

In the 1930s, Dr. Morey chaired an American Council on Education (ACE) national committee that developed the essen-tial College Model presently in use. Thus, his leadership of the committee preserves a place in college accounting history for Dr. Morey and provides a basis for declaring Dr. Morey as the father of the College Model that has served American higher education for almost 60 years. His committee’s reporting model is reviewed in the paragraphs that follow.
1935 Committee Model

Because of its loose and diverse accounting practices, the American accounting profession received some of the blame for the 1929 stock market crash and the Great Depression [Chatfield, 1977, pp. 132-133]. As a result, throughout the 1930s, leaders of the accounting profession were involved with the Securities and Exchange Commission in reassessments of accounting and auditing standards-setting processes. Late in the decade, the American Institute of Certified Public Accountants formed the Committee on Accounting Procedure and the Committee on Auditing Procedure to promulgate for-profit entity accounting and auditing standards, respectively [Davidson and Anderson, 1987, p. 116]. These two groups were the forerunners of FASB and the AICPA’s Auditing Standards Board.

In the 1930s, the task of setting accounting standards for government and nonprofit organizations was left to the profes-sional organizations for each type of entity. For example, in 1934, the Municipal Finance Officers Association formed the National Committee on Municipal Accounting to promulgate formal standards lor municipalities [Government Finance Officers Association, 1988. p. 1]. Earlier in the decade (1930), the American Council on Education (ACE) formed the National Committee on Standard Reports for Institutions of Higher Education (hereinafter called the National Committee). The National Committee operated between 1930 and 1935. Interestingly, ACE obtained financing for the National Committee from the Carnegie Foundation, the same organization that, two decades earlier, had attempted to bring uniform reporting to American higher-education institutions through the Carnegie Model.
One of the committee’s first actions was to complete a study of financial reporting practices of the nation’s colleges and universities [National Committee, 1930, p. 3]. Subsequently, the National Committee published a pamphlet, Suggested Forms for Financial Reports of Colleges and Universities [National Committee, 1931], and a book, Financial Reports for Colleges and Universities [National Committee, 1935] that described a uniform reporting model for higher-education institutions. In these two publications, the basic framework was prescribed for the present-day financial reports under the College Model.

Continuing with the trend that Morey set in his book [1930], the Committee dismissed a user’s need for simple and understandable accounting information. While acknowledging the pleas of individuals who were urging a simple and readily intelligible set of forms, the Committee declared the following:

“With this point of view [the committee] is in great sym-pathy, but it is well known that educational finance is not a simple matter. A proper picture thereof cannot be presented in a few figures. The financial data must be suitably analyzed rather than merged into a meaningless total.”
[National Committee, 1931, p. 2]

The Committee’s main objective was not so much to fill the needs of individual users but to promote uniformity in financial reporting among both public and private institutions. Their goal was to provide reports that were “… so classified and presented that different items will have a definite meaning and will fit into their proper place” [National Committee, 1931, p. 2].

An abbreviated illustration of the statements suggested by the National Committee (hereinafter called the Committee Model) are provided on Figure 6. As shown on Figure 6, the Committee Model consisted of a disaggregated balance sheet

OTHER ANNUAL REPORTS

Slatemeni ol Reslrictefl Current Funds Statement of Endowment and Other Non-ExpendaWa Funds
Statement of Loan Funds Principal Statement of Funds Held SuDject to Annuity Agreements
Statement of Unexpended Plant Funds Statement of Funds invested in Plant

and a statement of income and expenditures for the Current Funds; in addition, separate and more detailed statements of income and expenditures were provided.
As shown on Figure 6, the Committee Model introduced several features that were not present in prior reporting models but have endured in college accounting to the present day. For example, the committee’s balance sheet was disaggregated into twice as many funds (eight) as that contained in Morey’s four-fund Model.

In another new feature, the Committee Model included statements that explained the change in fund balance of each fund. All prior reporting models failed to explain fund-balance change for any fund. Thus, the Committee Model was the first to provide statements in which the yearly operating statement could be tied to the end-of-the-year balance sheet. The change statements for the other funds are not illustrated on Figure 6 but are simply listed at the bottom.

As shown on Figure 6, the Committee Model illustrated the use of the optional columnar form for the balance sheet. Prior models used only the layered form whereby the accounting figures for each fund were stacked on top of another fund in a horizontal manner. While the National Committee acknowledged the use of the currently popular columnar form, it applied the presentation technique only to the balance sheet. Today’s presentation of the fund-balance change statement in columnar form did not occur until a later date.

The eight accounting funds established by the National Committee are still used in the 1974 College Model used today. This is shown on Table 2 which provides a comparison of the funds in the Committee Model and the College Model. As shown on Table 2, the 1974 College Model includes only two additional funds (both in the Plant Funds category) that were not included in the 1935 Committee Model: the Renewals and Replacements Fund and the Retirement of Indebtedness Fund.

While establishing most of today’s college accounting funds, the Committee Model also introduced the classification of Current Funds into unrestricted (call general) and restricted funds. Prior models disaggregated restricted endowment and trust funds away from other funds, but none drew the distinction between unrestricted and restricted operating funds.
The National Committee’s Financial Reports for Colleges and Universities [1935] remained the generally accepted source of

TABLE 2
Comparison of Fund Titles Used by the 1935 Committee Model and the 1974 College Model

PLANT FUNDS

a. Unexpended
b. Renewals and replacements
c. Retirement of indebtedness
b. Invested in Plant
d. Investment in Plant

AGENCY FUNDS

AGENCY FUNDS

a Fund titles used by the National Committee on Standard Reports for Institutions of Higher Education in Financial Reports for Colleges and Universities, Chicago: University of Chicago Press (1935).

b Fund titles used by the National Association of College and University Business Officers in College and University Business Administration, 3rd edition (1974) and Financial Accounting and Reporting Manual for Higher Education (1990).

financial reporting principles until 1952 when the American Council on Education (ACE) published the first edition of Col-lege and University Administration. This edition, along with subsequent revised editions represents the last chapter in the historical trail of uniform reporting for higher-education institu-tions.

The Effect of the “CUBA Manuals” on Today’s College Model

By 1940, the American higher-education system had grown to over 1,700 institutions, was serving approximately 1.5 million students, and was employing almost 190,000 faculty members [NECS, 1993, p. 75]. However, enrollments plummeted when the United States entered World War II in 1941. By 1943, many institutions reported enrollment drops of almost 40 percent [Rudy, 1991, p. 71]. After World War II ended in 1945, Americans went back to college in record numbers. The higher-educa-tion industry went on an upward spiralling growth track that continued until the 1980s.

During the 1940s and early 1950s, the foundation of John D. Rockefeller, Jr., financed a new committee of the American Council on Education call the National Committee on the Preparation of a Manual on College and University Business Administration (hereinafter called the CUBA Committee). In 1952, the CUBA Committee published the first of four editions of College and University Business Administration [ACE, 1952]. The publication is commonly called the CUBA Manual by higher-education finance officers. In 1968, the CUBA Committee prepared the second edition of the CUBA Manual [ACE, 1968]. Subsequent third and fourth editions were published in 1974 and 1982, respectively, by the National Association of College and University Business Officers (see NACUBO [1974] and [1982]).

Like the members of Lloyd Morey’s 1935 National Committee, the authors of the 1950s and 1960s CUBA Manuals had little or nothing to say about statement users and their needs. The first CUBA edition, however, acknowledged that annual reports should be distributed widely so that “… representatives of the public and members of the groups responsible for the support of the institution may be adequately informed of its financial affairs.” [ACE, 1952, p. 34]. Further, the 1952 CUBA Manual suggested that annual financial statements were multi-purpose; in addition to providing information to donors and grantors, the reports provided a record for study and research, and had internal value since they provided important financial data for future decisions [ACE, 1952, p. 34].

The 1968 CUBA Manual implied that more financial detail would promote readability when it asserted that “… although excessive detail is to be avoided, the disclosure of resources and their utilization must be adequate to permit general understand-ing.” [ACE, 1968, p. 166]. The 1974 and 1982 editions of CUBA continued with the theme of uniformity that began with the ACE’s 1930-35 National Committee. Furthermore, the discussion of financial reporting focused on the establishment of standard revenue and expenditure classifications that would be used by all institutions, and no mention was made of report users or their needs.

Since most features of the present-day College Model was established by the 1935 Committee Model, each succeeding edi-tion of the CUBA Manual provided little change from the Committee Model. For example, the 1952 CUBA Manual made only two noteworthy changes: (1) it established the plant sub-fund titled the Retirement of Indebtedness Fund as the ninth fund to the balance sheet, and (2) it added one substantially new statement called the Summary of Current Income and Expenditures. This new report matched current income and expenditures and derived m “excess or (deficit) of current income over current expenditures.

In the 1968 CUBA Manual, the plant sub-fund titled Renewals and Replacements Fund was added as the tenth fund on the highly disaggregated balance sheet. In addition, the term unrestricted funds replaced the Current Funds sub-fund previously called general funds. In 1974, the Summary of Current Income and Expenditures established in 1952 was expanded to include transfers and was retitled the Statement of Current Funds Revenues, Expenditures, and Transfers. A single-page columnar Statement of Changes in Fund Balances was provided as an alternative to individual statements of change in each fund balance.

Since the 1982 CUBA Manual included no significant changes from the reporting model in the 1974 edition, 1974 is established as the date when the College Model ceased to change. Although important in the history of college finance, the CUBA Manuals, however, did little to change the basic re-porting structure of 1935 Committee Model. Based on this ob-servation, one can conclude that today’s College Model was, in essence, established almost 60 years ago.

SUMMARY OF FINDINGS AND CONCLUSION

Although the present College Model has changed little for 60 years, the foregoing historical review shows that higher-education financial reporting has taken several diverse and interesting directions during the twentieth century. Collectively, the unique aspects and contributions of the reporting models are so numerous that one can have difficulty grasping an overall historical perspective.

For the same reasons that the 1910 Carnegie Model sug-gested that financial data be summarized, a summary of the historical, present, and future reporting models is provided in Table 3. In Table 3, the number of primary statements, the number of accounting funds, and the unique features are listed for each reporting model.

TABLE 3 Summary of College and University Report Models

a. Is the first known effort on uniform financial reporting.
b. Is based on needs of specific users.
c. Used varying levels of detail to fit differing reader interests.
a. Arranged the balance sheet to answer important user questions first.
b. Disclosed overall and divisional net profit.
a. Was not based on any perceived user needs.
b. Reported revenues and expenses on separate statements.
a. Established uniformity as more important than user needs.
b. Disaggregated statements into eight funds.
c. Partitioned current funds into unrestricted and restricted funds.
d. Suggested the columnar form as an alternative for the balance sheet presentation.
e. Included statements that explained the change in each fund balance.
a. Established the columnar form of fund-balance change statement.
b. Established the current funds operating statement.
a. Abandoned the use of self-balancing fund accounting.
b. Included a cash flow statement.
c. Disclosed the difference between revenues and expenses.
d. Based the required statements on the needs of specific users.

As shown in Table 3, all reporting models suggested from two to four primary statements be provided. Although they varied greatly on the format of the balance sheet and the operating statement, none of the reporting models included unorthodox types of statements. Perhaps the most original statement was the 1922 Arnett Model’s use of divisional net profit statements. Also, the proposed 1992 Nonprofit Model would provide cashflow reporting for higher education for the first time.

Table 3 shows that the number of accounting funds dis-closed on reports increased steadily throughout the century to a maximum of 10. Interestingly, while eight funds were used in the 1935 Committee Model in an effort to gain reporting uniformity within higher education, one fund is proposed for the FASB’s Nonprofit Model to gain reporting uniformity among all nonprofit entities.

A review of each model’s unique aspects shown on Table 3 suggests that trade-offs occurred between simplicity and uniformity. For example, the earliest modelers (i.e., Carnegie and Arnett) were concerned with the general body of users, users’ information needs, and the need to keep reports simple. A second wave of modelers (i.e., Committee and College) were concerned with uniformity even at the risk of making reports unreadable by anyone not trained in college accounting.

The FASB’s 1992 Nonprofit Model represents the comple-tion of a cycle back to simplicity in higher-education reporting. As a result, the Nonprofit Model is consistent with a basic objective contained in the Carnegie Foundation’s seventh annual report of 1912:

Simple and intelligible reporting is acceptable alike to the financier, the layman, and the student, and is equally desired by all. What all these wish to know are the general totals of permanent resources with their increases and decreases, and the totals of current income and expenditure with their distribution and balance.
[Carnegie Foundation, 1912, p. 131]

Besides providing consistency with the original objectives for college financial reporting, the 1992 Nonprofit Model could also provide a partial answer to a new problem in today’s information society, information overload. In a 1989 interview for the Accounting Review, renowned scholar and author Herbert Simon, talked about the overabundance of information and the need for humans to be selective in the amounts and types of information they process. He admonished the accounting pro-fession to remember that “… the scarce resource is human at-tention, not information” [Ijiri and Sunder, 1990, p. 659, emphasis added]. In this historical review of higher-education models, one can see that modelers varied in their understanding of and compliance with Simon’s axiom. Since Simon contends that unread information is irrelevant information, report simplicity and readability is the higher-education accountants’ challenge for the twenty-first century just as it challenged the leaders of the Carnegie Foundation at the start of the twentieth century.

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