Reporting Requirements Memo - Essay Example

The memo ends with the comparison of the accounting reporting practices of the two entities. Reporting requirements for private sector, not-for-profit organizations under Financial Accounting Standard Board guidance The Financial Accounting Standard Board has specific accounting reporting requirements for all types and kinds of health care organizations. This also includes the private sector not for profit nursing homes. The Financial Accounting Standard Board have issued several standards especially for private not for profit nursing homes.

Few of the standards that have been introduced are “Accounting for Contributions Received and Contributions Made,” “Financial Statements of Not-for-Profit Organizations” and “Accounting for Certain Investments Held by Not-for-Profit Organizations”. The American Institute of Certified Public Accountants’ (AICPA’s) accounting and audit guide for Health Care Organizations have made these statements mandatory. Both AICPA and FASB promote the accrual method of accounting. An accrual method accounting gives a complete, accurate and meaningful report about the financial condition of the organization.

The accounting period should span for one year. A private sector not for profit nursing home’s financial statements should have a balance sheet, a statement of operations, cash flow statements and statements showing changes in net asset. If the not for profit organization decides to invest in financial assets the transactions that involves financial instruments have to be recognized on the settlement date. Any transactions that involve a third party have to be measured at fair value. For investments in debt securities, the securities that are not held up to the maturity period are recorded at fair value with subsequent changes in net assets and net income.

The organization can invest in debt bonds at amortized rate without any restriction. The debt security should be measured at fair value and any changes in net income should be recorded. The principles for investment in equities are that the shares that are quoted in the active market should be recorded at the fair price and the resulting change in the net assets should also be recorded. Unquoted equities can be measured at the actual market price (Carmichael & Rosenfield, 2003). Investments in mutual funds will also be considered as equity investments.

Derivatives that involve hedging characteristics should be measured at fair price. A private nonprofit organization should be very careful in selecting the methods it wants to use to measure its investments so that its relationships with its benefactors are not compromised. It should successfully incorporate the unrealized losses and gains in its financial statements. Transaction costs that arise due to purchasing of financial instruments should be capitalized and will be measured at the amortized cost.

At the end of each accounting period the organization has to check for assets that are impaired. If there is any such asset its carrying amount should be reduced to the highest of the amount the organization expects to generate by selling the asset or the present value of the expected future cash flow of the financial instrument. Accounts receivable will be treated in the same way as debt securities. But receivables that are not due for a minimum of one year and are without market rates