The development of hospital financial accounting in the USA

Abstract

This paper examines the history of financial accounting in American hospitals from the turn of the twentieth century to the present. It argues that, prior to the 1970s, the financial accounting practices of hospitals differed significantly from their counterparts in the business world as health-service organisations, institutions and legislation rather than accounting bodies and standards were the principal influence on their development. The paper moreover argues that the increasing influence of the Financial Accounting Standards Board on financial accounting in American hospitals has resulted in a growing convergence between accounting practices in hospitals and the wider economy since the early 1970s.

Keywords:

• hospitals
• accounting history
• accounting
• not-for-profit

Disclosure statement

No potential conflict of interest was reported by the authors.

Notes

1. Some would argue that SFAS No. 32, which affirmed the acceptability of AICPA Statements of Position and Industry Audit Guides, was the first FASB pronouncement dealing with NFPs. SFAS No. 32 cited 26 Statements of Position, four industry accounting guides, and 14 Industry Audit Guides as being acceptable. These included Financial Accounting and Reporting by Hospitals Operated by a Governmental Unit, Accounting Principles and Reporting Practices for Certain Nonprofit Organizations, and Hospital Audit Guide.

2. It is interesting to note that after being frustrated with the development of accounting standards in Canada, the Accounting Standards Authority of Canada also tried to institute a competing standard-setting body to the Canadian Institute of Chartered Accountants’ Accounting Standards Board. Its efforts, however, were short-lived (1981–1998) after encountering numerous obstacles (Richardson 2011).

3. Legal enforceability is not required to recognise an asset or liability. SFAC No. 6 states that although the ability of an entity to obtain benefit from an asset and to control others’ access to it generally rests on a foundation of legal rights, legal enforceability of a claim to the benefit is not a prerequisite for a benefit to qualify as an asset if the entity has the ability to obtain and control the benefit in other ways.

4. Voluntary health and welfare organisations received the majority of their revenues from donor contributions rather than from charging patients for services performed.