chapter 19 public and private college and university and health care accounting
TRANSCRIPT
Chapter 19
Public and Private Collegeand University
and Health Care Accounting
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College and university standard-setting
Public universities follow GASB guidance
Private universities follow FASB guidance
Accounting and financial reporting standards are now very different for public and private universities
Publicinstitutions
College and university accounting
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GASB No. 35
New financial reporting model for public colleges and universities
Provides for both fund statements and entity-wide statements
– Statement of Net Assets
– Statement of Changes in Net Assets
– Statement of Cash Flows
Many universities will report as special purpose governments engaged in business-type activities
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Fund accounting
Universities have traditionally used fund accounting
Funds are similar to state and local government funds
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College and university funds
Current funds (unrestricted & restricted)
Loan funds
Endowment and similar funds
Annuity and life income funds
Agency funds
Plant funds (four)
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Current funds: unrestricted
Revenues (tuition, grants, appropriations, etc.)
Expenditures (education, research, student aid, operations, etc.)
Transfers (mandatory & discretionary)
Report assets, liabilities, fund balances
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Current fund: restricted
Revenues arise from governmental grants and contracts, private gifts, and endowment income
Expenditures are generally for instruction, research and student aid
Resources are expenditure driven
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Loan funds
Accounts for resources available for loans
Resources consist mainly of gifts and unrestricted current fund transfers
Additions to fund are recorded directly to the restricted or unrestricted fund balance
Expenditures and losses deducted directly from the fund balance
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Endowment and similar funds
Regular or pure endowments
Term endowments
Quasi-endowments
Investments at fair value - “mark to market”
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Regular and pure endowments
Principal specified by donor as nonexpendable
Earnings on resources invested are available for expenditure
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Term endowments
Principal is expendable after a specified time period or designated event
Resources are added to a unrestricted current fund, unless donor has specified another application
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Quasi-endowments
Funds set aside by a board or controlling body
Funds usually come from unrestricted current funds, or restricted current funds if donor’s limitations are not violated
Discretionary funds
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Annuity funds
Periodic payments are made to the donor or other designated beneficiary for a specific period of time
Accounted for at their market value
Liability recorded for actuarially computed present value of total payments
– excess credited to Annuity Fund Balance
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Life income fund
All income received on contributed assets is paid to donor or other specified recipient for life
Assets recorded at market value and a credit to Life Income Fund Balance is made
Liability established immediately as income is received
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Ending annuity and life payments
Principal is transferred to the donor-specified fund group, or to the unrestricted current fund revenue account
Gains or losses on sale of investments treated as changes in principal
– record in appropriate fund balance account
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Plant funds
Unexpended Plant Funds
– resources are used to acquire properties
Plant Fund Renewals and Replacements
– resources used to keep plant in operating condition
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Plant funds (con’t)
Plant fund for renewals and replacements
– corresponds to debt service fund of a governmental unit
Investment in Plant
– similar to GFAAG and GLTDAG
– controls all plant assets and liabilities except those found in the endowment fund
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Agency funds
Agent of others
– collection, custodianship, disbursement
No fund balance
College and university accounting
Privateinstitutions
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Private college & universities
Applicable FASB Statements
– No. 93: Depreciation
– No. 116:Contributions
– No. 117:Financial Statements
– No. 124:Investments
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FASB No. 116
Separates transactions into exchange, nonexchange, and agency
– exchange: both parties benefit
– contributions: only one party benefits
– agency: acting as intermediary
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Contributions are defined as nonexchange:
Recognize contributions received and unconditional promises to give as revenues or gains in the period received.
Exceptions are made for contributions of services and works of art
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Donor restrictions
Only the donor can restrict the use of assets
All contributions are classified in the period received as:
– unrestricted revenue
– temporarily restricted revenue
– permanently restricted revenue
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Release from donor restrictions
Reclassifications are used to release restrictions:
– operating purpose
– purchase of a fixed asset
– passage of time
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Types of contributions
Cash contributions
Promises to give
Reductions of liabilities
Free use of space/assets
Fixed assets (buildings and/or land)
Each may have donor-imposed conditions and/or restrictions.
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Volunteer services
Recorded at fair market value only if they create or enhance non-financial assets or
Require specialized skills that would have been purchased
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Works of art and treasures
Optional if going into a collection that will be held for research or public exhibition and, if sold, the proceeds will be used to acquire other collectibles
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Donor-imposed conditions
When condition is met recognize revenue:
– conditional donations of cash or property are credits to “refundable advances”
– conditional pledges are not recorded until condition is met (footnote disclosure only)
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Marketable securities
Report at fair market value
Applies to all investments
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Depreciation
All private not-for-profit organizations record depreciation, except for works of art
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Government grants
Considered to be exchange transactions, not contributions
In private universities they are recorded as “refundable deposits” (a liability) until work/service is performed, then they become revenue
Under FASB 116 definitions, grants are not restricted revenue
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FASB No. 117
Minimum display requirements for three required statements
Flexible formats
Report entity-wide totals for each of the three categories of net assets
– unrestricted
– temporarily restricted
– permanently restricted
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FASB No. 117 (con’t)
Statement of Financial Position
– assets, liabilities, net assets
Statement of Activities
– change in unrestricted, temporarily restricted, and permanently restricted
Statement of Cash Flows
– operating, financing, investing
Health care accounting
Publicand Private
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Health care entities
Hospitals, nursing homes, HMOs, etc.
AICPA Audit Guide covers both government and private health care organizations
GASB Statement 34 allows reporting as special purpose government using proprietary fund accounting
Public and private health care organization reporting is similar
Net asset reporting is slightly different
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Health care fund structure
General funds account for resources available for general operations
Donor-restricted funds
– specific purpose funds
– plant replacement and expansion funds
– endowment funds
– annuities or life income funds, or loan funds
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Types of revenues
Operating Revenue relates to principal activity of providing health care services
– patient service revenue
– resident service revenue
– other operating revenue
Nonoperating Revenue
– unrestricted and donor-restricted pledges, gifts, grants, investment income
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Types of expenses
Nursing services
Other professional service
General services expense
Fiscal services expense
Administrative services expense
Interest expense
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Accounting for contributions
If contribution is unconditional and unrestricted
– other operating revenue - unrestricted (on-going and central activities) or
– nonoperating revenue - unrestricted (peripheral or incidental transactions)
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Accounting for contributions (con’t) If contribution is unconditional and
restricted
– other operating revenue - temporarily restricted or
– other operating revenue - permanently restricted
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Volunteers and donated items
Volunteers
– same rules as other not-for-profits
– create or enhance nonfinancial assets or
– require specialized skills and would typically need to be purchased
Donated Items: depending on nature of gift
– other operating revenues - unrestricted
– nonoperating revenues
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Malpractice claims
Insurance premiums are often allocated to administrative services expense
If self-insured
– establish a trust account
– establish an expense and liability for estimated claims and judgments
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Financial statements - public
Government-wide reporting
– Statement of Net Assets
– Statement of Revenues, Expenses, and Changes in Net Assets
– Statement of Cash Flows
Net assets
– Invested in Capital Assets, net of related debt
– Restricted
– Unrestricted
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Financial statements - private
Follow FASB No. 117 - entity-wide reporting
– Statement of Financial Position
– Statement of Activities
– Statement of Cash Flows
Net Assets
– Permanently Restricted
– Temporarily Restricted
– Unrestricted