Article | Higher Education
Related party disclosure requirement changes impacting all colleges and universities
Feb. 9, 2024 · Authored by Blaine Jasper, Rebecca Weiss
The U.S. Department of Education (ED) published a final regulation on Oct. 31, 2023 that will go into effect on July 1, 2024. The final regulation includes changes to the financial responsibility provisions, including enhanced related party disclosure requirements, that go beyond what an institution would be required to report under Generally Accepted Accounting Principles (GAAP).
All higher education institutions, for-profit and not-for-profit, should be aware of these changes to the disclosure requirements for the audited financial statements that will be submitted to ED on or after July 1, 2024.
Why the change?
ED noted in the preamble to the final regulations that these changes are relevant to determine “whether audited financial statements should be submitted on a consolidated or combined basis” and “may also require adjustments to the calculation of an institution’s composite score.” ED also noted that for not-for-profit institutions, the disclosures help them to “identify financial impediments to nonprofit status for Title IV, Higher Education Act (HEA) purposes.”
What is changing?
Below is a summary of the GAAP requirements and ED regulations. This does not include the full text of the Accounting Standards Codification (ASC) 850 or 34 CFR §668.23 and institutions are encouraged to visit the full text for additional context.
| ASC 850 | Title 34 CFR §668.23(d)(1) | |
| When is disclosure required? | 850-10-50-1: Financial statements shall include disclosures of material related party transactions, other than compensation arrangements, expense allowances, and other similar items in the ordinary course of business. | Disclosure requirements extend beyond ASC 850 to include all related parties. If there are no related parties, this must be disclosed. |
| What must be disclosed? | 850-10-50-1: The disclosures shall include:
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Such information must include, but is not limited to, the name, location and a description of the related entity, including the nature and amount of any transactions between the related party and the institution, financial or otherwise, regardless of when they occurred. |
| Can I aggregate transactions? | 850-10-50-2 states that notes or accounts receivable from officers, employees or affiliated entities must be shown separately and not included under a general heading such as notes receivable or accounts receivable. 850-10-50-3 indicates that in certain cases, aggregation of similar transactions may be appropriate. Sometimes, the effect of the relationship between the parties may be so pervasive that disclosure of the relationship alone will be sufficient. |
All related party transactions must be disclosed in a level of detail that would enable the Department to readily identify the related party. There is no provision that would permit aggregation of transactions or an exception to the disclosure requirements above. |
| Do I have to make disclosure if there are no related party transactions? | No explicit requirement to disclose. 850-10-50-1 indicates that disclosure is only required for material related party transactions. | If there are no related party transactions during the audited fiscal year or related party outstanding balances reported in the financial statements, then management must add a note to the financial statements to disclose this fact. |
| Do I have to disclose the names of the individual or entity? | 850-10-50-3: If necessary to the understanding of the relationship, the name of the related party shall be disclosed. | Name, location and a description of each related party. De minimis transactions such as “routine items such as meals provided to all board members during a working lunch would not be a related party transaction since the meals would be incidental to supporting a board meeting” are not intended to be reported. |
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