Generally Accepted Accounting Principles at Universities Analysis

The Generally Accepted Accounting Principles (GAAP) is a set of commonly-applied regulations that typically form the basis of financial reporting today. Although Generally Accepted Accounting Principles primary objective is to promote financial accountability and transparency from among different organizations, fundamental differences can still be deduced in its functioning within the context of public and private universities. This paper will, therefore, begin by reviewing the importance of identifying whether an institution is categorized as private or public. Furthermore, clarification will also be provided on reporting guidelines related to not-for-profit organizations that are also non-governmental in structure and design. An analysis of financial statements in public and private universities will also be provided, major format differences, and my views on which of the two is more dependable.

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The Importance of Identifying whether the University is Private or Public

Today, individuals conducting any form of financial audit are required to have a firm understanding of universities and how they function. Part of this information now includes information on whether an institution is private or public since fundamental differences underpin both establishments. Evident among these is that public institutions are funded primarily by the federal government through financial appropriations that are part of state appropriations (Lessambo, 2018). On the other hand, private institutions are self-funded, with a majority of their monies coming from tuition fees, grants, endowment funds, and donations. This may explain why private institutions opt for higher tuition fees in order to meet the wide range of financial demands encountered. Nevertheless, they compensate for this by specializing on specific areas of practice and a stricter regimen where students and instructors are routinely evaluated to ensure they perform their core duties. Furthermore, private institutions subscribe to accounting principles and regulations provided by the Governmental Accounting Standards Board (GASB). On the other hand, private institutions are party to accounting standards specified by the Financial Accounting Standards Board (FASB).

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Reporting Guidelines

  Public institutions are party to accounting standards specified by Governmental Accounting Standards Board. Parts of the specifications identified under its structure are stipulations for exceptional determination of the activities they can engage in. For instance, public institutions are permitted to engage in business-type endeavors and any other major federally-sanctioned business activity. This system ensures that the federal government remains fully aware of an institutions source of funding as one of the most practical solutions when aspiring to promote accrual transparency within federally-funded public institutions. Conversely, private institutions are party to accounting standards specified by Financial Accounting Standards Board under directives listed under Statement 117 (Barth et al., 2014). This requires them to openly declare their financial statements public when requested by interested parties during any given period in time. Furthermore, such institutions are typically required to present a comprehensive balance sheet with a three-tier classification of levels of donor restrictiveness.

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Major Format Differences in Financial Reporting For Public Universities and Private Universities

            Key differences also exist in the manner in which financial reporting is conducted in both public and private institutions. For instance, the typical financial statement for a public institution contains its restricted, unrestricted, and gross assets.  They are also required to provide a complete statement containing all sources of income, relevant data on expenditure, and any variations in net assets which may have been recorded within the past year. On the other hand, private institutions are only required to declare their financial position on unrestricted, provisional, and permanently restricted assents. This may also include key information on the institution’s cash flow and a complete breakdown of the income statement.

Transparency in Revenues and Restricted Resources

            Financial transparency has long been regarded as the centerpiece of accountability within any given organization or institution. This is typically due to the unique opportunities it affords stakeholders to review financial information in order to make an informed judgment about the current state of the market, price levels, and any previously-reviewed financial reports (Rückriegel, 2017). Furthermore, investors can also review an institution’s current financial status to ascertain whether it corresponds with funding received over a specified period. Transparency in revenues and restricted resources is also crucial as one of the most reliable methods of assuring donors that the funds provided in form of endowments and charitable were put to good use and likely to bolster its position in the long haul. This results in the development of a degree of trust between all parties involved that ultimately culminates in investors demonstrating their faith in the institutions in question. An investor provided with a complete Governmental Accounting Standards Board 54 statement by a public institution is, therefore, better placed to make an informed conclusion about its current financial status, revenue streams, and specific restricted resources at its disposal (Barth et al., 2014). Moreover, the unconditional pledges that are normally required under FASB standards creates a sense of obligation where involved parties abide by all

My Opinion on Transparency in Revenues and Restricted Resources

            I hold the view that the statement activity is the foundation of transparency. Both public and private institutions are, therefore, likely to provide an honest account of finances within any given financial year as a matter of obligation to their respective accounting standard. Restricted funds are also accounted for at any given moment; providing a complete breakdown of how exactly funds are utilized, with all relevant transactions recorded as required. Public institutions, in particular, eventually thrive in honest financial accounting that benefits the entire establishment in the long haul.

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