I read with interest Kathryn Campbell's commentary in the November Bulletin about the detrimental effect a change in accounting standards will bring to the universities. I suspect the case has been misstated or, at least, overstated.

Professor Campbell is correct when she states that "Business people on the Board ... have trouble understanding financial statements ... prepared on a ... fund accounting basis."

Financial statements are difficult to understand not because universities use fund accounting, but because universities, for years, have not bothered to present their financial statements and budgets in a way that allows the users to compare and comprehend just what the universities have done with the monies. The new standards may at least enable the users to receive a set of statements that consolidate all of the university's financial activities into one comprehensive statement.

While I do not wish to appear as an apologist for CAUBO, I must point out that in the initial stages of development of the not-for-profit standards CAUBO vigorously and vehemently opposed the contents of the exposure draft. Contrary to what Professor Campbell reported, CAUBO did challenge their implications.

Professor Campbell contends that depreciating plant and equipment will make institutions appear poorer. This is not necessarily the case. Many universities regularly appropriate amounts from their operating funds to other funds, including the capital fund. These appropriations from the operating fund do make the university appear poorer and are often done so that the operating fund will present a balanced budget. Depreciation expense, to the extent that it replaces part of these appropriations, will not make the universities appear any poorer than they do now.

Universities engage in many profit-oriented activities such as bookstores, residences and food services. As well, not-for-profit organizations, including universities, are in the business of raising funds from various sources: governments, businesses, students, donors, etc. Because plant and equipment wear out and must be replaced, a depreciation charge against the revenues raised by these activities is appropriate.

Professor Campbell also states that "... library holdings (must be written off) over a maximum of five years." In examining the accounting standards, I was not able to find any reference to the depreciation period for library holdings. What the standard does state is that "a capital asset with a limited life should be amortized over its useful life in a rational and systematic manner appropriate to its nature and use by the organization." (CICA Handbook, par. 4430.16)

To date, Canadian universities have not done a good job in reporting their financial or academic accomplishments. It is a sad state of affairs when we can obtain more information about university accomplishments from Maclean's than we can from the audited financial statements.

Universities do not need to "cede to accountants the important task of depicting the essence and merits of a university." What universities do need to do is report to their stakeholders what they do and how well they do it on both financial and nonfinancial dimensions. This is already being done in other jurisdictions, particularly in New Zealand and Australia. The universities are not being betrayed by the changing accounting standards and the sky is NOT falling.

Morton Nelson
Business & Economics, Wilfrid Laurier University