Special Reporting – Charter Schools

Charter schools are tuition-free schools that are authorized by either a local school board or the state Board of Elementary and Secondary Education (BESE).

Charter schools differ from local school boards in that local school boards are local government agencies, and charter schools are set up under nonprofit corporations. Another difference is that local school boards are managed locally, and the day-to-day operations of charter schools are often outsourced to management corporations.

The audit law (Louisiana Revised Statute (R.S.) 24:514) requires that the annual financial reports of local auditees be prepared in accordance with generally accepted accounting principles or GAAP. Preparing financial statements in accordance with GAAP ensures consistency and comparability between the financial reports of like entities.

Local school board audit reports are prepared on the governmental model (see Reporting for Local Governments). Because charter schools are set up as nonprofits, they may report on the nonprofit model (see Reporting for Nonprofits). However, because charter schools have characteristics of government agencies, and because they receive a substantial amount of their funding from governmental sources, the Louisiana Legislative Auditor (LLA) will accept a report of a charter school that is prepared on the governmental model.

Financial Accounting Standards Board Accounting Standards Update (ASU) No. 2016-14 enacted significant changes to the financial reporting model for nonprofits; including the requirement for all nonprofits to report their expenses by both natural and functional expense classifications.

Prior to the implementation of ASU No. 2016-14, only voluntary health and welfare organizations were required by GAAP to present the allocation of their expenses by natural classifications among the functions of the nonprofit. Now all nonprofits (including charter schools) are required to present this disaggregated expense information in their financial statements.

Examples of natural expense classifications include salaries and wages, employee benefits, professional services, supplies, interest expense, rent, utilities and depreciation. Examples of functional classifications include program services and supporting services. This information may be presented on the face of the statement of activities; as a schedule in the notes to the financial statements; or in a separate financial statement.

ASU No. 2016-14 is effective for financial periods with fiscal years beginning after December 15, 2017; and for interim periods within fiscal years beginning after December 15, 2018. Charter schools that report on the nonprofit model should follow the guidance in ASU No. 2016-14 in preparing their financial statements.

Charter schools and their auditors should also be aware that charter schools are required to report certain performance measures in their audit report, if these performance measures are not reported with a local school board. See Special Reporting – School Board Performance Measures and Agreed-Upon Procedures Report.