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Should CPA firm add services for Health Care Organizations?

Outline some of the similarities and differences in accounting and reporting among (a) private, not-for-profit health care organizations, (b) governmental health care organizations, and (c) private, for-profit health care organizations. Include the sources of GAAP, accounting and reporting for equity accounts, and statements required.

Your boss at your accounting firm wants to start offering accounting services to health care organizations and would like your team to brief your entire department on the fundamentals as outlined in problem 12-4.

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Comparison of Not-for-Profit (NFP), Governmental and Private Health Care Accounting and Reporting


In order to expand our client base, we are considering offering accounting services to health care organizations. The auditing standards require that we staff all engagement with those having the proper expertise for the job. If we obtain a healthcare client, we will need to know the fundamental of healthcare accounting, including for-profit (FP), not-for-profit (NFP) and governmental accounting (GOV) and reporting requirements.



Healthcare firms, whether governmental, NFP, FP or GOV, have similarities. They all provide health services, have similar revenue recognition issues, have costs and cash flows. They also have either owners, constituents or authorities to which they are accountable and must report the results of activity for the year, and the resources/liabilities/commitments at year-end. We will have to record transactions, verify balances, count inventory and so forth, as with any client with customers, vendors and employees. They all also have special accounts and transactions that are healthcare specific. For instance, they all offer some level of indigent care which must be disclosed so the accounts must track revenue deductions related to indigent care versus other types of write offs.

All the firms have contractual adjustments to revenue based on insurance and contract prices. They also may have discounts and uncollectible accounts that are larger and more varied that commercial clients that preauthorize customers based on their credit worthiness. Also, collections are more complicated since they often get part of the payment from one or more insurance firms and the rest from the patient.


Although these organization might appear to offer similar services, they are likely offering a different product mix. ...

Solution Summary

Your tutorial is 1019 words and two references and recommends adding these services incrementally. Reasons are given. The discussion includes similarities, differences and sources of GAAP.