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31 CHAPTER 31

NOT-FOR-PROFIT ORGANIZATIONS:PUBLIC NPOs

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31FOCUS OF CHAPTER 31

Accounting for Public Health Care Organizations

The AICPA’s New HCO Audit & Accounting Guide

Accounting for Public Colleges & Universities

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31PART I

PUBLIC HEALTH CAREORGANIZATIONS (HCOs)

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31

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).

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31 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.”

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31 Public HCOs: The AICPA’s1996 HCO Audit Guide

SAS 117 (para. 3) allows AICPA’s 1996 audit guide to provide 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.

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31 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

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31 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.

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31 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 2 categories (restricted and unrestricted) rather than 3 categories (UR, TR, and PR).

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31 Public HCOs:Operating Statement--Unique Aspects

Compared to private NPOs (Ch. 30) the major OPERATING STATEMENT differences are: Inflows and outflows for the restricted

funds are 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.”

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31 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.

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31 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).

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31 Public HCOs: Statement of Changes in Fund Balance

(Ch. 30) (Ch. 31) Private NPOs Public HCOs Statement of changes in net assets or fund balance used.. NO YESExplanation: (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).

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31 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.

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31 Public HCOs: Receipt of Restricted Contributions

Receipt of Restricted Contributions (both temporary and permanent): 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

LATER when TR restrictions expire.

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31 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 balances AND

INCREASES in the revenues section of the statement of operations by their nature.

The caption “net assets released from restrictions” is NOT used by public HCOs.

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31 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 adjustment

to patient service revenues. Contractual Adjustments (such as

discounts given to third-party payers): Must be reported as an adjustment to

PATIENT SERVICE REVENUES (netted).

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31 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.

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31 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 ALL investment 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.”

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31 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.

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31PART II

PUBLIC COLLEGES AND UNIVERSITIES (C&Us)

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31

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 activities or engaged in both governmental activities and business-type activities (few private C&Us will use this guidance).

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31

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.

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31

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).

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31

Public C&Us: The GASB Guidance (GAS 35)

Guidance Set #1: Engaged only in business-type activities. Operating statement categories: Revenues. Expenses. Nonoperating revenues and expenses Specified items

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31

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.

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31

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.

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31

Public C&Us: The GASB Guidance (GAS 35)

Guidance Set #2: Engaged only in

governmental activities or engaged in both governmental activities and business-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.

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31 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 to HCOs.

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31End of Chapter 31

Time to Clear Things Up--Any Questions?