Accounting Standards for Public and Private Universities and Colleges

Cite this

Introduction

Notably, public and private colleges and universities have a common objective of providing quality education to learners. However, significant differences occur in their ownership, management, funding, expenditure, the profit motive. Therefore both private and institutions adhere to GAAP standards of accounting but differently. Both types of institutions receive Generally Accepted Accounting Principles (GAAPs) from different accounting boards.

Cut 15% OFF your first order
We’ll deliver a custom Education System paper tailored to your requirements with a good discount
Use discount
322 specialists online

For instance, accounting standards for public institutions come from Government Accounting Standard Board (GASB), while private institutions receive accounting rules from Financial Accounting Standards Board (FASB). For this reason, identification of whether an institution is public or private is vital in understanding the differences in standards they follow to promote their accountability and transparency.

Differences between GAAPs for Public and Private Colleges and Universities

Notably, both FASB and GASB are part of the GAAPs but portray significant differences when applied by private and public universities and colleges, respectively. For instance, FASB is GAAPs serving to provide creditors and investors with information on private colleges and universities’ financial status. In contrast, GASB standards serve to inform the government and the public about the transparency and accountability of public colleges and universities in using state funds. In addition, both FASB and GASB portray assets differently on the balance sheet. For instance, a balance sheet under FASB rules contains a list of assets arranged in liquidity order (Granof et al., 2016).

However, GASB rules require the classification of assets on a balance sheet to reflect current and non-current assets. Another apparent difference between FASB and GASB concerns the restriction of funds and assets. Funds or assets of institutions operating under FASB can only be restricted by donors. In contrast, external parties including, creditors, donors, contracts, and legislation, have the power to restrict funds or assets for institutions under GASB.

Importance of Identifying an Institution as Public or Private

Both GASB and FASB are accounting standards originating from GAAPs to provide public and private universities and colleges respectively with ways to present their financial reports. FASB provides private colleges and universities with guidelines on submitting their financial information to inform creditors and investors. On the other hand, GASB provides guidelines on how public institutions should present and conduct their financial reports to enhance accountability and transparency concerning the use of public funds (Granof et al., 2016). There is a slight difference between the classification of financial information under FASB and GASB accounting standards, making it hard for many to distinguish between the statements under both GAAPs. Therefore, categorizing institutions into either private or public during financial reporting is essential to enable ordinary people to distinguish between financial statements under GASB and FASB.

Private Colleges and Universities Follow Reporting Guidelines Similar to Nongovernmental Not-For-Profit Organizations

Conventionally, public institutions operate using accounting standards provided by the GASB. As a result, the government requires all public universities and colleges to adopt a standard financial reporting model, similar to local or state governments. However, public universities and colleges fall under particular governments conducting business-based only activities, required to provide financial statements on funds (Granof et al., 2016). On the other hand, private universities and colleges must adhere to the guidelines provided by the FASB, similar to non-government non-profit institutions. As a result, private colleges and universities should provide stakeholders with current and future financial statements similar to other private non-profit organizations.

On-Time Delivery!
Get your customised and 100% plagiarism-free paper done in as little as 3 hours
Let’s start
322 specialists online

Financial Statements that Private and Public Colleges and Universities Must Prepare

Both FASB and GASB require respective colleges and universities to prepare several financial statements portraying their financial status to parties of interest. For instance, the FASB accounting standards require private universities or colleges to prepare a balance sheet, cash flow statements, and statement of activities. Thus, private colleges and universities enjoy exercising flexibility while preparing the aforementioned financial statements, just like for-profit private entities.

However, for public universities and colleges, GASB requires them to prepare a report of income, expenses, and changes in net financial position, a cash flow statement, and a balance sheet (Granof et al., 2016). Thus, GASB provides public colleges and universities with more structure but limits their flexibility during financial statement preparation, contrary to the FASB.

Differences in Financial Reporting For Public and Private Higher Education Institutions and Opinion

There are several visible differences concerning how public and private universities and colleges conduct their financial reporting. For instance, private colleges and universities classify investment revenues into both non-operating and operating income during financial reporting. In contrast, public universities and colleges operate under GASB standards and thus report net revenues of respective expenses, which cannot fall under operating income unless it comes from student loans. Similarly, institutions operating on GASB classify their net assets on the balance sheet into restricted, temporarily restricted, unrestricted, and permanently restricted net assets.

On the other hand, institutions operating under accounting standards issued by FASB recognize net assets as either restricted or unrestricted during financial reporting (Granof et al., 2016). After observing FASB and GASB’s financial reporting on revenues and restricted resources, it becomes clear that FASB provided more details on revenue but fewer details on net assets reporting than GASB.

Get a custom-written paper
For only $13.00 $11/page you can get a custom-written academic paper according to your instructions
Let us help you
322 specialists online

Conclusion

In conclusion, private and public colleges use different accounting standards provided by FASB and GASB, respectively. The main difference between FASB and GASB originates from their purpose, but other discrepancies are minor and complex for an ordinary person to notice. For this reason, accountants should indicate whether financial statements belong to private or public institutions. All private colleges and universities apply to similar FASB accounting standards as other non-governmental, non-profit organizations. Both GASB and FASB require respective institutions to prepare several financial statements, including cash flow statements and balance sheets. During financial reporting, GASB provides more details on net assets but fewer details on investment revenue than FASB.

Reference

Granof, M. H., Khumawala, S. B., Calabrese, T. D., & Smith, D. L. (2016). Government and not-for-profit accounting: Concepts and practices. John Wiley & Sons.

Cite this paper

Select style

Reference

ChalkyPapers. (2022, August 18). Accounting Standards for Public and Private Universities and Colleges. Retrieved from https://chalkypapers.com/accounting-standards-for-public-and-private-universities-and-colleges/

Reference

ChalkyPapers. (2022, August 18). Accounting Standards for Public and Private Universities and Colleges. https://chalkypapers.com/accounting-standards-for-public-and-private-universities-and-colleges/

Work Cited

"Accounting Standards for Public and Private Universities and Colleges." ChalkyPapers, 18 Aug. 2022, chalkypapers.com/accounting-standards-for-public-and-private-universities-and-colleges/.

References

ChalkyPapers. (2022) 'Accounting Standards for Public and Private Universities and Colleges'. 18 August.

References

ChalkyPapers. 2022. "Accounting Standards for Public and Private Universities and Colleges." August 18, 2022. https://chalkypapers.com/accounting-standards-for-public-and-private-universities-and-colleges/.

1. ChalkyPapers. "Accounting Standards for Public and Private Universities and Colleges." August 18, 2022. https://chalkypapers.com/accounting-standards-for-public-and-private-universities-and-colleges/.


Bibliography


ChalkyPapers. "Accounting Standards for Public and Private Universities and Colleges." August 18, 2022. https://chalkypapers.com/accounting-standards-for-public-and-private-universities-and-colleges/.