Quality watchdogs have given their seal of approval to the UHI Millennium Institute, marking another milestone on its journey to becoming the University of the Highlands and Islands.
The Quality Assurance Agency's report came as UHI won £2.4 million from the Millennium Commission for a headquarters in Inverness and improved facilities in a partner institution, Perth College.
UHI, a federation of 15 colleges and research institutes, was designated a higher education institution in 2001 and has set itself the target of becoming a university by 2007.
Achieving this status will depend, in part, on a clean bill of health from the QAA.
The QAA says in the report that the UHI has made a considerable achievement in developing and sustaining a unique model of higher education to serve the heavily dispersed population of the north of Scotland.
It praises "the tremendous willingness and commitment" of staff and students to make UHI a success, with a sharing of good practice between partner institutions and good student support.
There has been progress in developing quality-assurance processes, although UHI needs to ensure there is a firm basis for securing academic standards and establishing confidence that these will be maintained, the QAA says.
It wants UHI's board of governors to ensure that its executive board does not encroach on the responsibilities of the governing bodies of partner institutions.
But while UHI had argued that its executive board was like a senior management group in other higher education institutions, which helped ensure the cohesiveness of the partner colleges, the audit team says that UHI is not like other institutions. It warns that it risks turning into a central management body.
Robert Cormack, UHI's principal, said: "The outcome is everything for which we could have hoped, and more."
The report will be considered by an advisory group set up by the Scottish Executive to see how progress towards a university might be "accelerated".
It is set to report towards the end of this year.