2 Overview of Chapter 12 Who has standard setting authority? What types of entities are included?General reporting principles and Illustrative transactionsExample Financial Statements
3 Private Not-For-Profit: Ownership TypesInvestor Owned:Human Inc. stock is widely held and the company is listed on the New York Stock ExchangePrivate Not-For-Profit:The Hospital is owned by the (Catholic) Archdiocese of AtlantaGovernment Owned:The NY City Health and Hospital Corporation was created by the NY state legislature
4 Ownership Types – Standard Setter Investor Owned:FASB – except standards specifically for not-for-profitsPrivate Not-For-Profit:FASB– particularly, standards for not-for-profits such as SFAS 116 & 117Government Owned:GASB
5 Standard Setting Authority GASB - Category A GAAPAuthority over government related hospitalsFASB -Private not-for-profit hospitalsMajor FASBs 93, 116,117, 124, 136, 164Investor owned hospitalsOther FASBsAdditional guidance is provided by the AICPA Audit Guide for Health Care Organizations.- This is level B GAAP for government related, private not-for-profits, and business oriented
6 What Types of Organizations? ClinicsMedical groupsIndividual practitionersEmergency careLaboratoriesSurgery care centersContinuing careHMOsHome health agenciesHospitalsNursing homesRehabilitation centers
7 Contractual Adjustments Third-party payers commonly receive discounts for services.The amount of these discounts are estimated and recorded at the time of serviceThey are reported as “contra-revenues”
8 Contractual Adjustments vs Charity Care Contractual Adjustment Entry:Contractual Adjustment …. DrPatient Accounts Rec. ……CrCharity care (no expectation of receiving payment)No Journal entry
9 Hospital Financial Statements Balance Sheet,Most use classified balance sheet – exception: continuing care communitiesStatement of Operations,Statement of Changes in Net Assets (or “Changes in Equity” if investor owned)Statement of Cash Flows and Notes
10 Display Issues – Statement of Operations Private not-for-profits and Government related entities must provide a Performance Indicator.This a measure of income which excludes:Equity transfers,Restricted Contributions,Contributions of LT assets,Most unrealized gains and losses,Restricted investment returns, andExtraordinary items
11 Display Issues – Statement of Operations, cont’d Patient service revenues are shown net of contractual adjustments.Patient service revenue excludes charity care (service provided where there is no expectation of payment).The estimate of uncollectible accounts is shown as an operating expense.
12 Display Issues – Statement of Operations, cont’d Operating revenues are often classified asNet patient service revenues, premium (capitation) revenue, and Other Revenue (parking lot, gift shop, cafeteria, and tuition).Unrestricted gifts may be treated as Operating or Nonoperating depending on policy.
13 Display Issues – Balance Sheet FASB vs. GASB net asset accounts:FASB: unrestricted, temporarily restricted, and permanently restricted net assetsThe term restricted used only for donor restrictions;Assets whose use is limited is used to indicate board or bond covenant restrictions.GASB: unrestricted net assets(position), restricted net assets(position), and net investment in capital assets
14 Comparison of Financial Statements Two statements take the place of the Statement of Activities:Statement of Operations:Similar for not-for-profits, Government, BusinessStatement of Changes in Net Assets:not-for-profits must show details of net changes for unrestricted, temporarily and permanently restricted
15 Comparison of Financial Statements Statement of Financial Position:Classified, similar for not-for-profit, Government, and commercial businesses except for the equity section:not-for-profit: unrestricted, temporarily and permanently restricted net assetsGovernment: unrestricted net assets(position), restricted net assets(position), and net investment in capital assetsBusiness: Contributed Capital and Retained EarningsStatement of Cash Flows:Business and not-for-profits use the FASB format (3 sections); Governments use the GASB format (4 sections)