MEMORANDUM Date From To CPA Senior Partner Subject Reporting Requirements Objectives This memo is prepared with two objectives as follows 1 To provide analysis reporting requirement both of a small county hospital SCH and a private not for profit nursing home PNH 2 To provide comparison and contrast accounting practices between the two entities Analysis Reporting Requirements for a Small County Hospital Based on the standard setting of authoritative body a small county hospital as a special purpose entity has to follow the accounting and reporting standards of GASB Statement 34 Category A GAAP and the AICPA Health Care Guide Category B GAAP Consequently the components of financial report the SCH has to prepare statements Statement of Net Assets Statement of Revenues Expenses and Changes in Fund Net Assets Statement of Cash Flows In addition to statement includes Management Discussion and Analysis MD A Notes to the Financial Statements and Required Supplementary Information other than MD A This SCH chooses as enterprise activity uses accrual basis accounting and economic measurements focus with modifications as required by the AICPA Health Care Guide Consequent to the Health Care Guide the SCH has different equity accounts than non governmental entities Cash Flows the SCH use the four category GASB format of cash flows 1 from operating activities 2 from noncapital financing activities 3 from capital and related financing activities and 4 from investing activities with its reconciliation of net operating revenues to net cash provided by operating activities Statement of net assets Balance sheet presentation required classification of current and non current of assets and liabilities Equity section presents Net Assets Invested in Capital Assets Care Organizations Net of Related Debt Restricted Net Assets and Unrestricted Net Assets Statement of Revenues Expenses and Change in Fund Net Assets required the statement of operations and must include a performance indicator that distinct reports results of operating and non operation of revenue and expenses Items should not be included Internal transaction other than in exchange for services unrealized gains losses on investment other than those classified as trading securities a such as identified by FASB Revenue Patient service revenue be reported net of estimated adjustments and does not include charity care Include note disclosures of method revenue recognition and management s policies for providing charity care and notes charity care provided Operating revenues cover patient service revenue premium revenue based on agreement for a fixed fee other revenue from parking fees gift shop cafeteria and tuition The unrestricted gifts investment income for current unrestricted purposes be classified according to the policy there in Classifications Expenses follow natural classification or their functional classifications Property plant and equipment acquired by restricted or unrestricted resources could be initially recorded as temporarily restricted or as unrestricted and then reclassified in accordance with the depreciation schedule Analysis Reporting Requirement for a Private Not for Profit Nursing Home The FASB is responsible for setting the reporting requirements for private not for profit organizations such as the nursing home that is under consideration Private not for profit organizations are commonly financed through voluntary contributions as a result the financial statements are intended primarily for use by its donors Private not for profit organizations are required to comply with unique standards that result from the contributions by its donors as well as typical FASB standards Private not for profits use the accrual basis of accounting to report both current and long term assets and liabilities as well as to measure revenues and expenses FASB Statement 117 established the standardized not for profit financial statements three statements are required by the FASB Statement of Financial Position Statement of Activities and Statement of Cash Flows The Statement of Financial Position reports assets liabilities and net assets Net assets are broken down into unrestricted temporarily restricted or permanently restricted assets The Statement of Activities reports revenues expenses gains losses and reclassifications Separate columns are kept for each class of net assets Contributions are recorded as revenue in the appropriate net asset class All expenses are recorded and reported as unrestricted expenses and are accounted for by decreasing unrestricted net assets The Statement of Cash Flows uses the standard FASB categories operating investing and financing and can be prepared using either the direct method or the indirect method Classifications In addition to these three statements a statement of functional expenses is required for voluntary health and welfare organizations The statement of functional expenses presents a matrix of expenses classified by function and by classification Copley Engstrom 2011 Accounting Comparison Small County Hospital vs Private Not for Profit Nursing Home The SCH would have to follow GASB accounting standards and use the accrual basis and economic resource measurement focus while the PNH home would have to follow FASB standards and us the accrual method The SCH would be required to include the following components in their financial reports MD A Statement of Net Assets Statement of Revenues Expenses and Changes in Fund Net Assets Statement of Cash Flows Notes to the Financial Statements and RSI other than MD A As well as the following components of the equity section of Balance Sheets Net Assets Invested in Capital Assets Net of Related Debt Restricted Net Assets Unrestricted Net Assets While the PNH would be required to include the following components in their financial reports Balance Sheet Statement of Financial Position Statement of Operations Statement of Changes in Net Assets Statement of Cash Flows and Notes to the Financial Statements In addition to the following for their equity section of the balance sheet Unrestricted Net Assets Temporarily Restricted Net Assets and Permanently Restricted Net Assets Conclusion The three types of health care entities follow different set of the GAAP however the main difference is in their financial presentation All use accrual basis and present comparable performance measures References Copley P A Engstrom J H 2011 Essentials of Accounting for Governmental