Before preparing any financial statements for a Public Health Center, we need to review the financial reporting requirements for governmental and nonprofit organizations.
It is understood that there is a governing authority for regulating the financial reporting on this specific situation. It should be taken into focus and consideration the quality of nonprofit organization financial reporting. Nonprofit and governmental entities’ financial reporting requirements, objective functions, and governance mechanisms are different from those of for-profit firms.
Yetman and Yetman (2004) spelled out Nonprofit Financial Reporting Requirements in details to provide guidelines and appropriate analysis in preparing governmental organizations financial statements that the basic source of publicly available nonprofit financial information is the Internal Revenue Service form 990.2 The 990 contains typical financial statements including a statement of revenues and expenses and a balance sheet, as well as a substantial amount of other information related to the nonprofit’s charitable purpose and activities. IRS regulations determine the form and content of the 990 and provide required accounting rules. In most cases the IRS accounting rules mirror Generally Accepted Accounting Principles, although there are several important differences. All nonprofits with revenues over $25,000 must file the 990 annually. Congressional reports suggest that the intent of the IRS 990 is to provide the public with the necessary information to evaluate the performance of a nonprofit, and that the IRS 990 is the primary source of publicly available nonprofit financial information (Joint Committee on Taxation 2000). To ensure and gear carefully the wide dissemination of 990 information, the IRS Statistics of Income (SOI) division sponsors the Urban Institute to collect and make freely available 990 data for virtually all nonprofits.
Subsequently, nonprofits do not have investors in the traditional sense, in some cases donors act as investors in that they providing funds in exchange and in lieu for some measure of non-wealth type utility. In fact some distinction of donors are handed in through contractual authority to oversee the existing nonprofit recipients within a specific organization standards.
The Governing Authority for Regulating Financial Reporting of both Governmental and Non-Profit Organization
The Internal Revenue Service is the primary federal organization charged with overseeing the financial reporting activities of nonprofit organizations. Both the legal governance metric (LEGAL) and the reporting governance metric (REPORT) vary across states but do not vary across nonprofits within a state, nor do they vary across time (because they are based on current laws). Because of this, we restrict all analysis using LEGAL and REPORT to a single year. Another source of nonprofit regulation arises from the use of a Certified Public Accountant (CPA) to prepare the IRS 990. Many nonprofits have outside CPAs prepare their IRS Form 990, while others prepare the forms in-house. IRS Circular 230 governs the duties of external CPAs in preparing IRS forms, and failure to follow those guidelines can result in suspension to practice and possible civil or criminal penalties (Yetman and Yetman, 2004).
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Because nonprofits do not have access to traditional capital (stock) markets, debt financing through municipal bonds is one way that nonprofits can acquire large amounts of funds for capital projects. Technically nonprofits do not issue municipal bonds directly, but rather receive the proceeds of bond offerings sponsored by various state and city municipalities. Although the issuance is conducted through under the auspices of a governmental agency, the ultimate liability. Furthermore, the issuing municipal bonds subjects nonprofits to intensive financial reporting oversight from several sources. The Securities and Exchange Commission enforces the provisions of the Securities and Exchange Act of 1934 rule 15c2-12, which requires that before issuance the firm must file a “final official statement,” which is a comprehensive set of documents prepared by the issuer containing the terms of the issue and extensive financial and operating disclosures. The SEC also enforces the annual reporting requirements of rule 15c2-12, which mandates that all municipal bond issuers file annual financial and operating reports according to rules promulgated by the Municipal Securities Rulemaking Board, which was established in 1975 by Congress. The Board’s purpose is to develop rules regulating securities firms and banks involved in underwriting, trading, and selling municipal securities and is overseen by the SEC. The Board, which is composed of members from the municipal securities dealer community and the public, sets standards for all municipal securities dealers for the bonds resides with the nonprofit (Yetman, 2004 and other authors).
Yetman and Yetman (2004) anchoring discussions on Schipper and Vincent concepts specifically articulated the existing elements concerning the content of reporting as what the Congressional reports suggest that the 13 intent of the form 990 is to provide the public with the necessary information to evaluate the performance of a nonprofit (Joint Committee on Taxation 2000), and the Financial Accounting Standards Board (FASB) espouses a similar intent for the financial statements of both for-profit and nonprofit organizations (Concepts Statement No. 1 and 5, FASB 1978, para. 34 et. Seq.). The standards applied by both of these regulators imply a decision usefulness context to financial reporting for both the IRS 990 and nonprofit financial statements.
The primary concern regarding government financial reporting at this time was to demonstrate legal compliance, including both restricted asset and budgetary accountability and the ultimate outcome of the budget process is a determination of how financial resources will be raised (inflows of expendable financial resources) to finance and pay for the activities of the government (outflows of expendable financial resources) for the period. The conceptual underpinnings and achoring of modified accrual accounting are rooted primarily in an effort to present a logical matching of governmental fund expenditures with the revenues and other financial resources raised to pay for those expenditures; such as, that the governmental fund balance sheet reports all financial assets Financial assets
Claims on real assets.
….. Click the link for more information. and related liabilities that are payable in the current period from the portion of financial assets that can be used to pay the related liabilities of the period; the operating statement operating statement
See income statement.
….. Click the link for more information. essentially reflects the extent to which financial resources that became available; and expenditures for materials and supplies and prepaid items are permitted to be reported as expenditures either in the period purchased or in the period used. (Gale Cengage Learning, 2010).
Thus, financial reporting preparation by state and local governments is vital in bracing and considering social, environmental, political, economic decision-making and in the genuine assessment of accountability. Moreover, the governing authority for regulating financial reporting of both non-profit and governmental organizations exists to monitor, evaluate, and account the on-going status or condition of such organization under certain financial circumstances considering elements such as, the actual financial output with the legally adopted budget, the financial circumstances and conditions’ output of operations, the compliance of existing operation with finance-laws, rules, and regulations, and the evaluation of efficiency and effectiveness.
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Financial reporting is definitely essential yet crucial. Nobody can simply play with accountability with its corresponding obligations and responsibility showing what’s really happening and what’s really needed and how the expenses and financial working elements inside the organization roll their sheets. Thus, it is expected organization has to manage financial elements within the cash flow of the evolving operation in careful emphasis and implementation which should be manifesting accordingly to certain financial controls, and governing state laws and regulations understanding legal procedures and generate financial strategic plan to ensure financial condition’s security and integrity within the operation of the organization itself. Thus, the greatest challenge is how skillful the organization is in managing its cash flow without sacrificing to meet and achieve the organization’s set goals and objectives.
Anonymous, Gale Cengage Learning (2010). Modified Accrual: Decision Useful &
Accountability Centered. Web. Retrieved 12 Oct., 2010 from
McNamara, Carter. Basic Guide to Non-Profit Financial Management. Retrieved 12 Oct.,
2010, from http://managementhelp.org/finance/np_fnce/np_fnce.htm.
Yetman, Michelle H. & Yetman, Robert J. (2004). The Effects of Governance on the
Financial Reporting Quality of Non-Profit Organizations. Web. Retrieved 12 Oct.,
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