A multicase study of depreciation and decision-makers: A qualitative study

Nonprofit colleges and universities can be identified as either governmental, those that follow the guidelines of the Governmental Accounting Standards Board, or nongovernmental, those that follow the guidelines of the Financial Accounting Standards Board (which services the for-profit sector also), for financial accounting reporting purposes. Following different guidelines, although they are in the same industry (colleges and universities), makes accounting for such entities unique. One instance of this uniqueness is depreciation recognition. Governmental colleges and universities have accounted for capital assets in a format different from for-profit businesses and nongovernmental colleges and universities. However, due to some basic changes in accounting definition and the need for college and university financial statements to be comparable, there is high probability that governmental colleges and universities might be required to account for depreciation in a format similar to these entities. If this change should occur, and if the proper authorities are not educated about the change, governmental college and university appropriation levels could be affected. The purpose for conducting this study was to identify a process that is used when changing an accounting method, such as, a change from nonrecognition of capital asset depreciation to the recognition of capital asset depreciation. Nongovernmental college and university chief business officers, or their designees, and selected board members and auditors were interviewed in order to ascertain what steps constitute the standard process of this change and the impact on the financial statements. Once identified, this process and its impact on financials can be used to educate governmental college boards, legislators, commissioners of postsecondary education and staff who may be affected by financial statement data in their decision making process. Nongovernmental college and university financial statements, board minutes and budgets were reviewed to substantiate the change process. The second purpose of this study was to identify the steps that were used in the process of converting financial statements from nonrecognition of depreciation to the recognition of depreciation. These steps will be useful to governmental college and university personnel if the transition from one accounting method to another becomes mandatory. The results of this study will be useful to state college boards, legislators, state education commissioners and staff as they make decisions concerning appropriations, budgetary information and financial statement preparation