Generally Accepted Accounting Principles (GAAP) at Colleges and Universities

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Introduction

In using generally accepted accounting principles (GAAP), it is critical to distinguish whether public or private colleges and universities express their statement in different forms. Public or private colleges and universities have different operations, which can help distinguish them. There is a need for clarification on which institution follows the same reporting guidelines as non-governmental organizations. Integration of financial statement presented by either private or college and university help understand their operations and preparedness. Lastly, the essay will discuss financial reporting differences for public and private colleges and universities with formulation on revenues and statements accrued on restricted resources.

Identifying Whether an Institution is Public or Private

A few critical issues determine if an institution is private or public. Uniquely, public institutions are funded mainly by the state government and inform state appropriations. In contrast, private universities/institutions are funded by their endowment funds and students’ tuition fees or donations. Private institutions have higher tuition levels and small class sizes. The selection of students is small as they major on a more technical and professional level, which is evaluated based on the owner’s interest (Copley, 2022). In private, there is full attendance where most of the students live in the on-campus residence. In public institutions, a class might have over 200 students, higher enrollment in student rates, and a larger selection of professors and majors evaluated based on their level of teaching (Sepasi et al., 2019). However, some public students are commuters and have that notion of part-time attendance.

Private or Public: Reporting Strategies as Non-governmental, Not-for-profit Organizations

Private colleges and universities always adhere to almost all of the set standards established by the Financial Accounting Standards Board (FASB). They comply with the same guidelines as those on non-governmental not-for-profit organizations. Public institutions abide by set standards that Government Auditing Standards Board (GASB) establishes. Most public measures and procedures give a report with a special purpose on how government participates in business-related activities (Sepasi et al., 2019). Based on this influence and impactful view, both private and public institutions have the measure which accrues based on accounting and how various economic resources have that realignment of focus where its reporting accrue on the level of change as per the accounting level.

Analysis of Financial Statements Prepared by Private and Public Institutions

Private and public institutions give out their financial reports in the effect of audits for the college or university. Some of the financial statements considered are the balance sheet, the statement of change in fund balance, and the statement of current funds revenue amongst expenditures. The usefulness of this statement is vital as it enhances change in employee ratio analysis which is similar to defined commercial analysis. Therefore, various financial statements prepared in public universities and colleges are balance sheet, statements of revenues, and expenses (Copley, 2022). There are also management discussions and analyses and changes in funds’ net position and cash flow statement, which are more direct methods. The required financial statement for private institutions is a statement of activities, balance sheet, statement of cash flow, indirect or direct, and notes that comply with financial statements.

Major Format Differences in Financial Reporting for Public or Private Institutions

Various major format differences concur with financial reporting for private and public institutions. For instance, in a statement of activities, its presentation makes a huge difference where major focus aligns on whether interests are shown as separate or allocated to functional activity. The residual equity account titles concur with balances as of major impact in the balance sheet. Equity on accounts for public institutions is a new investment in capital assets and unrestricted net position based on a section of the new position investment (Dillard & Vinnari, 2019). Equity on accounts for private institutions is net assets that act without donor restrictions and net assets that affect donor restrictions as per the statement of financial position section.

At the level of statement cash flows, public institutions require a direct method and format it into four sections with different definitions for each set term. State appropriations and Pell grants are reported in this case. They relate to financial activities where interest expense is reported amongst financial level and how its investment is reported on invested activity (Dillard & Vinnari, 2019). Private colleges and universities are allowed for a select indirect method with three valid sections.

Opinion on Transparent Information Regarding Revenue and Restricted Resources

Various provided statements give more transparent information regarding revenue and the number of restricted resources, more so on the activity statement. FASB standards require the recording of unconditional pledges that give support, while GASB standards do not permit recording some of the restricted revenue. Therefore, a statement is used to easily understand how much fund is restricted temporarily (Copley, 2022). In another view, it helps determine available unrestricted funds in which the financial year must be evaluated based on expenses, revenue, and other changes in position concerning the restriction.

Conclusion

Public institutions mostly obtain their funds from the state government, while private institutions obtain donations, tuition, and other credited income. Private institutions are set on standards formed by FASB, while public institutions are set on standards formed by GASB. These institutions measure their reports based on transactions and credit though they are similar and have minimal changes. Public institutions mostly utilize GAAP set measures, while private institutions recognize some unconditional support permitted on revenue restriction.

References

Copley, P.A. (2022). Essentials of accounting for governmental and not-for-Profit organizations (13^th ed.). McGraw Hill

Dillard, J., & Vinnari, E. (2019). Critical dialogical accountability: From accounting-based accountability to accountability-based accounting.Critical Perspectives on Accounting, 62, 16-38.

Sepasi, S., Braendle, U. and Rahdari, A.H. (2019). Comprehensive sustainability reporting in higher education institutions.Social Responsibility Journal, 15(2),155-170.

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