Health Care Organizations: Checklist and Illustrative Financial Statements

This financial accounting and reporting practice aid is invaluable to anyone who prepares financial statements and reports for health care organizations. The checklists have been updated to reflect AICPA and FASB pronouncements and interpretations issued as of October 31, 2007. These checklists can be used by preparers of health care organizations financial statements prepared in conformity with generally accepted accounting principles and by practitioners who audit, review, or compile those financial statements as they evaluate the adequacy of disclosures made in the basic financial statements, notes to the financial statements, and required supplementary information. Illustrative financial statements and auditor’s reports are included in this practice aid.

This nonauthoritative practice aid has been prepared by the AICPA staff and has not been reviewed, approved, disapproved, or otherwise acted on by any senior technical committee of the AICPA and do not represent official positions or pronouncements of the AICPA.

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Description

.01 Health care organizations may be classified by sponsorship or legal structure within the following broad categories:

Not-for-profit business-oriented: These are essentially self-sustaining from fees charged for goods and services. The fees charged by such organizations generally are intended to help the organization maintain its self-sustaining status rather than to maximize profits for the owner’s benefit. Such organizations often are exempt from federal income taxes and may receive contributions of relatively small amounts.

Not-for-profit non-business-oriented: These are voluntary health and welfare organizations as defined in FASB Statement of Financial Accounting Standards (SFAS) No. 117, Financial Statements of Not-for-Profit Organizations. Such organizations are within the scope of the AICPA Audit and Accounting Guide Not-for-Profit Organizations, rather than that of the Health Care Organizations Guide.

Governmental: Often called public health care entities, the entities are owned and operated by federal, state, city, or county governments or other political subdivisions.

Investor- (or operator-) owned: These organizations operate as stock corporations, partnerships, or sole proprietorships.

.02 Health care organizations include, but are not limited to, the following:

• Clinics, medical group practices, individual practitioners and practice associations, and other ambulatory care organizations
• Continuing care retirement communities (CCRCs)
• Health maintenance organizations and similar prepaid health care plans
• Home health agencies
• Hospitals
• Nursing homes that provide skilled, intermediate, and less intensive levels of health care
• Parent companies, holding companies, and other organizations that primarily plan, organize, and oversee health care services

Applicability of These Checklists

.03 These checklists, and the illustrative financial statements included herein, follow the guidance contained in the AICPA Audit and Accounting Guide Health Care Organizations (with conforming changes as of May 1, 2007), referred to as “the guide.” These checklists and illustrative financial statements should be used for not-for-profit business-oriented and investor-owned health care organizations. These checklists do not apply to not-for-profit nonbusiness-oriented health care organizations. For these types of organizations, follow the guidance in the AICPA Audit and Accounting Guide Not-for-Profit Organizations and the AICPA’s disclosure checklist titled Not-for-Profit Organizations.

.04 Not-for-profit health care providers that receive federal financial assistance may be required to have an audit conducted in accordance with Office of Management and Budget (OMB) Circular A-133 Audits of States, Local Governments, and Non-Profit Organizations. FSP section 11,300 includes guidance for auditors’ reports for audits performed under OMB Circular A-133.

.05 Although the guide also applies to state and local government-owned health care providers, these checklists do not include disclosures or sample financial statements of government-owned providers. Chapter 1 of the guide discusses the application of generally accepted accounting principles (GAAP) to governmental health care providers.

Legislation and Regulation

.06 Significant aspects of health care organization operations are affected by government legislation and regulation with many states adopting laws governing the granting of licenses, as well as scope of services to be rendered. In addition, many independent organizations and governmental agencies, including Medicare and Medicaid, evaluate programs and services of health care organizations to determine compliance with set standards.

Basic Financial Statements

.07 The financial reporting for not-for-profit business-oriented organizations and investor owned health care enterprises generally is consistent except for transactions that clearly are not applicable. For example, not-for-profit business-oriented organizations, by their nature, do not have shareholders’ equity. On the other hand, investor-owned health care enterprises typically do not receive contributions.

.08 The basic financial statements of health care providers generally consist of a statement of financial position or balance sheet, a statement of activities or income statement or statement of operations, a statement of changes in net assets (equity), a statement of cash flows, and notes to the financial statements. The titles of the financial statements will depend upon the business form of the provider (that is, not-for-profit and investor-owned). See the following chart.

Basic Financial Statements

Note: This publication was extracted from sections 11,000 through 11,500 of the AICPA Financial Statement Preparation Manual (FSP).

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