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CHAPTER 31

CHAPTER 31. NOT-FOR-PROFIT ORGANIZATIONS: PUBLIC NPOs. FOCUS OF CHAPTER 31. Accounting for Public Health Care Organizations The AICPA’s New HCO Audit & Accounting Guide Accounting for Public Colleges & Universities. PART I PUBLIC HEALTH CARE ORGANIZATIONS (HCOs).

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CHAPTER 31

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  1. CHAPTER 31 NOT-FOR-PROFIT ORGANIZATIONS: PUBLIC NPOs

  2. FOCUS OF CHAPTER 31 • Accounting for Public Health Care Organizations • The AICPA’s New HCO Audit & Accounting Guide • Accounting for Public Colleges & Universities

  3. PART IPUBLIC HEALTH CAREORGANIZATIONS (HCOs)

  4. Public HCOs: The GASB Guidance • Financial reporting for public HCOs falls under GASB’s jurisdiction. GASB guidance encompasses both: • GASB pronouncements and • AICPA’s 1996 HCO Audit and Accounting Guide (cleared by both FASB and GASB).

  5. Public HCOs: The AICPA’s 1996 HCO Audit Guide • The AICPA’s 1996 HCO Audit guide: • Applies to both: • Private HCOs and • Public HCOs. • Is to be read in conjunction with the reporting requirements of FAS 117, “Financial Statements of Not-for-Profit Organizations.”

  6. Public HCOs: The AICPA’s1996 HCO Audit Guide • SAS 117 (para. 3) allows AICPA’s 1996 audit guide toprovide more specific accounting guidance than that set forth in FAS 117. • Thus allowable differences exist between the two documents. • Furthermore, slight terminology differences exist in the financial statements between public HCOs and private HCOs.

  7. Public HCOs:An Overview • Measurement focus: Flow of economic resources • Basis of accounting: Accrual basis • Financial reporting: Aggregated basis • Description of outflows: Expenses • Depreciation recorded: Yes • Title of the operating Statement of statement: Operations

  8. Public HCOs:Financial Statements Used • Required Financial Statements--ALL On An AGGREGATED Basis: • A balance sheet. • A statement of operations. • A statement of changes in fund balances. • A statement of cash flows--2 categories of cash flows from financing activities: • Capital and related financing activities. • Noncapital financing activities.

  9. Public HCOs:Balance Sheet--Unique Aspects • Compared to private NPOs (Ch. 30), the major balance sheet differences are: • “Fund Balance” is used instead of “net assets”--even though the B/S is presented on an aggregated basis. • The fund balance section may show only 2categories (restricted and unrestricted) rather than 3categories (UR, TR, and PR).

  10. Public HCOs:Operating Statement--Unique Aspects • Compared to private NPOs (Ch. 30) the majorOPERATING STATEMENT differences are: • Inflows and outflows for the restrictedfundsare NOT shown. • Restriction expirations are reported in the revenues section (e.g. as grant revenue)--NOT in a separate category called “Net Assets Released from Restrictions.”

  11. Public HCOs:Operating Statement--Other Aspects • The statement of operations must includea “performance indicator.” Examples are: • Revenues over expenses. • Revenues & gains over expenses& losses. • The “bottom line” in the statement of operations must be the total increase or decrease in the unrestricted net assets.

  12. Public HCOs: Operating Statement--Unique Aspects • Nonoperating items must be reported separately from operating results: • Extraordinary items, cum. effect of account-ing changes, & discontinued operations. • Net change in fair value of investments. • Equity transfers to/from affiliates. • Unrestricted long-lived asset contributions (and assets released from donor restrictions related to long-lived assets).

  13. Public HCOs: Statement of Changes in Fund Balance (Ch. 30) (Ch. 31) Private NPOsPublic HCOs Statement of changes in net assets or fund balance used.. NO YES Explanation: (not needed) (needed) 1. Private NPOs use a statement of activities that shows (a) ALL categories of net assets AND (b) the change in net assets for the period (an all-inclusive approach). 2. Public HCOs use a statement of operations that EXCLUDES the restricted funds. Thus the additional statement is needed (at least for the excluded funds).

  14. Public HCOs: Statement of Changesin Fund Balance--A Item of Duplicity • The change in the UNRESTRICTED FUND BALANCE for the period is shown in BOTH: • The statement of operations AND • The statement of changes in fund balance. • However, the unrestricted fund balance at the BEGINNING and the END of the period is shown ONLY in: • The statement of changes in fund balance.

  15. Public HCOs: Receipt of Restricted Contributions • Receipt of Restricted Contributions (bothtemporaryandpermanent): • When RECEIVED, report as increases in the restricted column(s) of the statement of changes in fund balances. • Do NOT report in the statement of operations when they are received. • Report in the statement of operations LATERwhen TR restrictions expire.

  16. Public HCOs: Expirations of Restrictions • As restrictions expire on temporary restrictions, they are reported as: • DECREASES in the restricted column of the statement of changes in fund balancesAND • INCREASES in the revenues section of the statement of operationsby their nature. • The caption “net assets released from restrictions” is NOTused by public HCOs.

  17. Public HCOs:Bad Debts and Contractual Adjustments • Bad Debts: • Must be reported as EXPENSES in the statement of revenues and expenses. • Cannot be reported as an adjustmentto patient service revenues. • Contractual Adjustments (such as discounts given to third-party payers): • Must be reported as an adjustment to PATIENT SERVICE REVENUES (netted).

  18. Public HCOs:Charity Care • Charity Care: Health care that is provided free--NOT expected to result in cash inflows. • Nonrecognition: The value of charity care is NOT recognized in the financial statements as receivables or revenues (because no cash inflow is expected). • Disclosures required: • HCO’s policy for providing charity care. • Level of charity care provided.

  19. Public HCOs: Investments--Summary of GAS 31 • Value investments at their FAIR VALUE. • Exception: Most money market investments with a maturity of one year or less at time of purchase may be valued at amortized cost. • Report ALLinvestment income (includes mar-ket adjustments) in the operating statement. • Make no distinction between realized and unrealized gains and losses in presenting the “net change in fair value of investments.”

  20. Public HCOs: Investments--Summary of GAS 31 • Investments in equity securities to which GAS 31 does NOT apply: • Equity securities not having a readily determinable fair value. • Equity securities accounted for under the equity method of accounting.

  21. PART II PUBLIC COLLEGES AND UNIVERSITIES (C&Us)

  22. Public C&Us: The GASB Guidance (GAS 35) • Must follow one of the two sets of guidance for “special purpose governments” that are set forth in GAS 34. Guidance for when: • Guidance Set #1: Engaged only in business-type activities(almost all private C&Us will use this guidance). • Guidance Set #2: Engaged only in governmental activitiesor engaged in bothgovernmental activitiesandbusiness-type activities(few private C&Us will use this guidance).

  23. Public C&Us: The GASB Guidance (GAS 35) • Guidance Set #1: Engaged only in business-type activities. Must present: • Management’s Discussion and Analysis (MDA). • Financial statements required for Enterprise Funds. • Required Supplementary Information (RSI), if applicable.

  24. Public C&Us: The GASB Guidance (GAS 35) • Guidance Set #1: Engaged only in business-type activities. Enterprise Funds: • Use accrual basis. • Report depreciation expense in operating statement. • Use the all-inclusive format in the operating statement (the entire change in net assets for the period).

  25. Public C&Us: The GASB Guidance (GAS 35) • Guidance Set #1: Engaged only in business-type activities. Operating statementcategories: • Revenues. • Expenses. • Nonoperating revenues and expenses • Specified items

  26. Public C&Us: The GASB Guidance (GAS 35) • Guidance Set #1: Engaged only in business-type activities. Nonoperating revenues and expenses include: • Noncapital appropriations • Noncapital gifts. • Investment income • Interest expense on capital asset-related debt. • Other nonoperating revenues.

  27. Public C&Us: The GASB Guidance (GAS 35) • Guidance Set #1: Engaged only in business-type activities. Specified items include: • Capital appropriations. • Capital grants. • Capital gifts. • Additions to permanent endowments.

  28. Public C&Us: The GASB Guidance (GAS 35) • Guidance Set #2: Engaged only in governmental activitiesor engaged in bothgovernmental activitiesandbusiness-type activities. Must report: • In the same manner as state and local governments. Thus must present both: • Fund-based financial statements. • Government-wide financial statements.

  29. Public C&Us: Investments • The two slides that discuss GAS 31 that are at the end of PART I (slides 19 and 20) apply to C&Us as well as toHCOs.

  30. End of Chapter 31 • Time to Clear Things Up--Any Questions?

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