The impact of financial reporting on decision -making by boards of trustees: A case study at Stanford University

Public scrutiny of the operations of American higher education institutions has increased and the management of colleges and universities has had to change to respond to that scrutiny. Over the past couple of decades, non-profit higher education institutions—as well as for-profit institutions—have seen greater importance placed on standardizing the way they report financial results to external agencies, bringing university financial reporting more in line with the standards applied to for-profit corporations and businesses. But how does this exercise of standardizing financial reporting affect the internal management of institutions? By examining the experiences at a major doctoral research university, Stanford University, I explore the relevance of financial reporting to management processes, both long-term strategic planning and day-to-day allocation decisions. One of the main focuses of the research is the impact of the Federal Accounting Standards Board (FASB) Statements 116 and 117 (similar changes in Government Accounting Standards Board regulations (GASB Statement 35) impact public institutions), regulations both governing the reporting of charitable contributions and conforming university reporting standards to those of for-profit entities. Specifically, what impact—good and/or bad—does the financial reporting presented to boards of trustees have on decision-making at colleges and universities? As I found through my research, the financial information which has been most focused on by trustees and outside agencies, while accurate and conforming to the FASB standards, does not provide much real or useful insight into the financial health of the university, nor does it provide much useful information for decision-making processes