Accounting and Finance Reporting
Changes: What Your Healthcare
Organization Needs to Know
Tyler Bernier, CPA

August 16, 2...
Agenda
•

EHR Incentives
• RAC and Similar Accruals
• Clarified Audit Standards
• FASB Update
•
•
•
•

Bad debt expense an...
Agenda
•

GASB Update
•

GASB codification and clarification
• Reporting entity and component units
• Financial reporting ...
Electronic Health Records
•

Incentives from both Medicare and Medicaid

•

Current guidance
•
•
•

AICPA - preliminary co...
Electronic Health Records
•

Medicare reimbursement
•

Demonstrate meaningful use
•
•

•

•

90 consecutive days – year 1
...
Electronic Health Records
•

AICPA/HFMA white paper
•
•
•
•

Not approved by SEC, FASB, GASB, others
―Reasonable assurance...
Electronic Health Records
•

SEC Method/Model
•

•

―Gain contingency‖ - delays recognition

Relevant Accounting Considera...
Electronic Health Records
•

Medicare EHR reimbursement treatment
method
•

Revenue recognition method - PPS
•
•

•
•

Rec...
Electronic Health Records
•

Medicare EHR reimbursement treatment
method
•

Revenue recognition method - CAH
•

Same as PP...
Electronic Health Records
•

Impact
•
•

•

Potential for change if authoritative guidance is
released
If not deferred for...
Electronic Health Records
•

DISCLAIMER
•
•
•

There is no authoritative guidance
Treatment will need to be analyzed on an...
RAC and Similar Accruals
HFMA Principles and Practices (P&P) Board
Issue Analysis, ―Accounting for RAC Audit
Adjustments a...
RAC and Similar Accruals
•

Applicable situations
•

Notification of RAC audit adjustments
• Notification of a RAC audit a...
RAC and Similar Accruals
•

RAC adjustments represent persuasive
evidence that criteria for revenue recognition
have not b...
RAC and Similar Accruals
•

RAC adjustments
•

For positive adjustments (receivables),
•
•

Only recorded once finalized t...
RAC and Similar Accruals
•

Reserves should be based on specific
identification
•

•

Don’t duplicate reserves already mad...
RAC and Similar Accruals
•

Impacts
•

Review reserves to determine if they are specifically
identified and calculated or ...
Clarified Audit Standards
•

Combination, re-organization, and clarification
of existing standards
•

•

Some new matters ...
Clarified Audit Standards
•

Group Audit Requirements
•
•

•

Definition of group audit
Identification of components

Impa...
Clarified Audit Standards
•

Updated audit opinions
•
•
•

Additional paragraphs
Titles included
―Unmodified‖ vs. ―unquali...
Health Care Accounting Standards Update

FASB Updates

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Bad Debts and Allowance
ASU 2011-07 – ―Presentation and Disclosure of
Patient Service Revenue, Provision of Bad
Debts and ...
Bad Debts and Allowance
•

Affects HC entities that ―recognize significant
amounts of patient service revenue at the time
...
Bad Debts and Allowance
•

Provision for bad debts associated with patient
service revenue will be transferred from an
ope...
Bad Debts and Allowance
Example Disclosure from Accounting Standards Update:

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Bad Debts and Allowance
•

Disclosures
•

Policy for assessing the timing and amount of
uncollectible patient service reve...
Bad Debts and Allowance
•

Disclosures
•

Qualitative and quantitative information about
significant changes in the allowa...
Bad Debts and Allowance
•

Disclosures
•

Two examples in the ASU provide a detailed example
of expected disclosures
•
•

...
Bad Debts and Allowance
•

Impacts on certain financial ratios:
Improved
Operating and Total Margins
Days Cash on Hand
**N...
Malpractice Claims
ASU 2010-24 – ―Health Care Entities (Topic 954)
Presentation of Insurance Claims and Related
Insurance ...
Malpractice Claims
•

Types of Insurance
•
•
•

•

Malpractice Insurance
Workers’ Compensation
Health/Dental Insurance

Ty...
Malpractice Claims
•

Impacts:
•
•
•

Limited, if any expected impact on income statement
Potential additional liabilities...
Goodwill and Intangibles Impairment
ASU 2010-28 – ―Intangibles --- Goodwill and
Other‖
• ASU 2011-08 – ―Intangibles—Goodwi...
Goodwill and Intangibles Impairment
ASU 2010-28 – Goodwill Impairment
•

If goodwill has zero or negative carrying amounts...
Goodwill and Intangibles Impairment
ASU 2011-08 – Goodwill Impairment
•

Optional pre-step 1 assessment
• Qualitative asse...
Goodwill and Intangibles Impairment
ASU 2012-02 – Intangibles Impairment
•

Relates to indefinite-lived intangible assets,...
Goodwill and Intangibles Impairment
•

Impacts:
•
•
•

Qualitative analysis will need to be documented, rather
than a quan...
Business Combinations
•

ASU 2010-29 – ―Business Combinations‖

•

Expanded disclosure requirements for business
combinati...
Business Combinations
•

Disclosure of revenue and earnings of the
combined entity as though the combination
occurred at t...
Fair Value
•

ASU 2011-04 – ―Fair Value Measurement‖

•

Additional explanation of FV measurement and
expanded disclosures...
Fair Value
•

Expanded Disclosures for Public Entities
•
•

Information about transfers between Level 1 and 2
Sensitivity ...
Cash Flows – Donated Financial
Assets
•

ASU 2012-05 – ―Statement of Cash Flows‖

•

Donated financial assets should be re...
Joint & Several Obligations
•

ASU 2013-04 – ―Liabilities‖

•

Reporting and disclosure requirements in
certain joint and ...
Joint & Several Obligations
•

Entity involved in joint & several liability
arrangement which is fixed at the reporting da...
Contributed Services
•

ASU 2013-06 – ―Not-for-Profit Entities‖

•

Related to contributed serviced from an affiliate
orga...
Contributed Services
•

Recorded at cost of affiliate
•

If considered to over or understate value, an election
may be mad...
Health Care Accounting Standards Update

GASB Updates

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GASB Codification
GASB Statement No. 62 – ―Codification of
Accounting and Financial Reporting Guidance
Contained in Pre-No...
GASB Codification
•

The objective is to incorporate into the GASB
statements, pronouncements issued on or
before November...
GASB Codification
•

Additional Topics Considered
•

Includes sections related to a variety of transactions
• From FASB an...
GASB Codification
•

Impacts
•
•
•

Cannot make accounting policy option
Need to ensure previous treatments under FASB or
...
Reporting Entity and Component Units
GASB Statement No. 61 – ―The Financial
Reporting Entity: Omnibus an amendment of
GASB...
Reporting Entity and Component Units
•

Financial Accountability
•
•

Primary Government (PG) appoints voting majority of
...
Reporting Entity and Component Units
•

Provide Specific Benefits To, or Impose
Financial Burdens On…
PG can access PCU’s ...
Reporting Entity and Component Units
•

Amendments to the Major Component Unit
Requirements
•

•

Based on the nature and ...
Reporting Entity and Component Units
•

Blended Component Unit Reporting
Requirements
•

Clarifies that funds of a blended...
Reporting Entity and Component Units
•

Impacts:
•

Potential change in entities which qualify and a CU or
blended CU
• Re...
Financial Reporting
GASB Statement No. 63 – ―Financial Reporting
of Deferred Outflows of Resources, Deferred
Inflows of Re...
Financial Reporting
•

Identifies 5 elements that make up a statement
of financial position (balance sheet)
•
•

•
•
•

As...
Financial Reporting
•

Accounting Equations
•

Governmental activities –
Statement of Net Position
Assets + Deferred Outfl...
Financial Reporting
•

Deferred Outflows of Resources
•
•

•

Consumption of net position by the government that
is applic...
Financial Reporting
•

Net Position (previously net assets)
•

Residual of all elements presented in a statement of
financ...
Financial Reporting
Statement No. 65 – ―Items Previously Reported
as Assets and Liabilities‖
•

Effective for periods begi...
Financial Reporting
•

Continue to Report as an Asset
•
•

•

Prepayments and Inventory
Circumstances in which a pension p...
Financial Reporting
•

Report as Outflow of Resources
•
•

•

Debt issuance costs
Net balance (debit) of direct loan origi...
Financial Reporting
•

Report as Deferred Inflow of Resources
•
•

Resources received in advance in relation to an
imposed...
Financial Reporting
•

Disclosures
•

Details of the deferred amounts, if aggregated
•

•

Only if information is not disp...
Financial Reporting
•

Impacts
•

Potential change in recording certain transactions
•
•
•

•

Debt refinancing
Property t...
Pension Plans – employer accounting
•

GASB Statement No. 68 – ―Accounting for
Financial Reporting for Pensions‖
•
•

•

E...
Pension Plans – employer accounting
•

Establishes standards for:
•
•

Measuring and recognizing items in the statement of...
Pension Plans – employer accounting
•

Defined Benefit Plans
•

Measurement of liability
•

•

Net pension liability = PV ...
Pension Plans – employer accounting
•

Projections of Benefit Payments
•
•

Based on benefit terms and legal agreements
ex...
Pension Plans – employer accounting
•

Single and Agent Employer Plans
•

Recognize a liability equal to the Net Pension L...
Pension Plans – employer accounting
•

Single and Agent Employer Plans
•

Notes to financial statements
•
•
•
•
•

Benefit...
Pension Plans – employer accounting
•

Single and Agent Employer Plans
•

Required supplementary information
•

Present fo...
Pension Plans – employer accounting
•

Cost-Sharing Plans
•
•
•

Recognize liability for proportionate share of NPL.
Emplo...
Pension Plans – employer accounting
•

Cost-Sharing Plans
•

Recognized in pension expense in a systematic and
rational ma...
Pension Plans – employer accounting
•

Defined Contribution Pensions
•

Pension expense
•
•
•

Contributions to employees’...
Pension Plans – employer accounting
•

Defined Contribution Pensions
•

Notes to financial statements
•
•
•

Descriptive i...
Other GASB Updates
GASB Statement No. 64 – ―Derivative
Instruments: Application of Hedge Accounting
Termination Provisions...
Other GASB Updates
GASB Statement No. 67
•
•

•

Effective for financial statements for fiscal years
beginning after June ...
Lease Proposal
•

Proposed ASU was issued in August 2010
• Announced in July 2011 it will be re-exposed
• June 13, 2012 – ...
Lease Proposal
•

Lessee accounting
•

Leases over 1 year will be recorded on the balance
sheet at present value of lease ...
Lease Proposal
2 Types of Leases
•

Type A – other than property
•

•

Discount on lease as interest and amortization of a...
Lease Proposal
•

Impacts
•
•

Additional assets and liabilities on the balance sheet
If treated as long-term debt:
•
•

•...
Proposed Single Audit Changes
•

Proposed changes to single audits – no
effective dates, but preliminarily expected to be
...
Proposed Single Audit Changes
•

Change in major program determination
•

High-risk Type A program requirements
• Small Ty...
Proposed Single Audit Changes
•

Increased detail in reported audit findings

•

Increase in questioned cost threshold for...
Proposed Single Audit Changes
•

Change in compliance requirements to be tested – from
14 to 6
1. Activities Allowed or Un...
??? Questions ???

www.eidebai lly.com
Presenter

Tyler Bernier, CPA
Senior Manager
Eide Bailly LLP
Minneapolis, MN
tbernier@eidebailly.com
612.253.6568

www.eid...
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hfma hospital financial management

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  • Differing accounting conceptsPrimarily for PPS facilities
  • Colorado – attest to the adoption, implementation, or upgrade of a certified EHR 3 payments – 50% in year 1; 40% in year 2; 10% in year 3
  • “Reasonable assurance” funds will be received and conditions for payment metCliff or ratable method – when is assurance supported?Not-for-profit hospitals – in performance indicator; generally operating revenue, separate from patient revenue, but dependent on facts/circumstancesGovernment hospitals – operating revenues, separate from patient revenueInvestor-owned hospitals – operating revenues, separate from patient revenue
  • “Gain contingency” accounting model for income recognitionDelays recognition compared to AICPA/HFMA modelHospital Corporation of America (HCA) treated as, “when its eligible hospitals have demonstrated meaningful use of certified EHR technology for the appropriate period and the cost report information for the full cost report year that will determine the final calculation of the HITECH payment is available.”
  • Final calculation means end of fiscal year after attestationRevenue deferral over life of asset or 4 years
  • Final calculation means end of fiscal year after attestationRevenue deferral over life of asset or 4 yearsBased on matching concept (i.e. depreciation expense on qualified EHR assets will be expensed in future years without related reimbursement)Consider 20% incentiveDifference between Medicare and Medicaid for CAHs
  • MIC – Medicaid Integrity ContractorMAC – Medicare Administrative ContractorZPIC – Zone Program Integrity Contractor previously program safeguard contractor & Medicare prescription drug integrity contractor
  • Communications:
  • Does not require a split – for example, elective surgeriesPublic entities – conduit debtPeriods beginning after December 15, 2012
  • Including “bad debts related to receivables from patient service revenue if the entity only recognizes revenue to the extent it expects to collect that amount.”
  • GASB History FASB had the standard setting authority for gov’t until 1989 Governments were required to implement all GASB pronouncements and FASB pronouncements issued prior to Nov. 1989 which didn’t conflict with new GASBsIn 2009, FASB adopted Accounting Standards Codification, which made the old FASB standards obsoleteGASB 62 incorporates all relevant FASB and AICPA standards issued prior to 1989Allowed enterprise funds and business type activities to apply post November 30, 1989 FASB Statements and Interpretations – as long as they didn’t conflict with or contradict GASB StatementsGASB has since issued standards for most topicsFor financial reporting issues not yet addressed by GASB, preparers could consult FASB or other literature for guidance even though it is not authoritativeNo. 20 allowed governmental financial statements and similar entities in the private sector to be comparableGovernmental entities did so as they GASB hadn’t addressed these issues yetMay still with to consult FASB literature even though not considered authoritative
  • Statement was to adopt the accounting and financial reporting requirements of FASB and the AICPA pronouncements in pre 1989 formA few modifications to the language to update for the effects of the governmental environmentNot intended to establish new reporting requirementsBroad TransactionsCapitalization of interest cost provisionsRevenue recognition for exchange transactionsStatement of net assets classifications
  • Statement was to adopt the accounting and financial reporting requirements of FASB and the AICPA pronouncements in pre 1989 formA few modifications to the language to update for the effects of the governmental environmentNot intended to establish new reporting requirementsBroad TransactionsCapitalization of interest cost provisionsRevenue recognition for exchange transactionsStatement of net assets classifications
  • Financial Accountability – PG is accountable if it appoints voting majority of the organization’s governing body and is able to impose its will on the at organization or there is a potential for the organization to provide spe
  • Component Unit – legally separate entity where the elected officials of the primary government are financially accountable or the component unit’s exclusion would render the financial statements misleading or incompleteMisleading to exclude – “the PG , may determine, through exercise of professional judgment, that the inclusion of an organization that doesn’t meet the financial accountability criteria is necessary in order to prevent the reporting entity’s financial statements from being misleading””Professional judgmentEmphasizes the consideration rather than required inclusion
  • Reporting requirements – major component unit 1. presenting each major CU in a separate column in the reporting entity’s statements of net assets and activities 2. Including combining statements of major component units 3. Presenting condensed financial statements in the notes to the reporting entityServices provided to the citizenry are considered essential to the financial statement usersSignificant transactions with the PGSignificant financial benefit or burden relationship with PGRemoved requirement that the determination include consideration of each component unit’s significance relative to other component units.Exclusive benefit – financing servicess provided solely to the PG
  • Exclusive benefit – financing servicess provided solely to the PGNotes to financials:Brief description of component unit and relationship to the PGDiscussion of the rationale for including component unit and whether it is discretely presented, blended, or included in the fiduciary find financial statement
  • 1. Should be in effect for all entities now
  • Statements 53 – accounting for derivative investments and 60 – reporting for concession arrangements, require deferralsLater, we will discuss other deferrals for statements 67 and 68 related to pensions
  • DisclosuresDetails of the different types of deferred amounts in the notes to the f/s if significant components of the amounts are obscured by aggregationNeeded only if the information is not displayed on the face of the f/sDifference between a deferred outflow of resources or deferred inflows of resources and the balance of the related asset or liability is significant, an explanation of that effect on its net position in the notes should be provided
  • Deferred outflow – qualified hedging derivativesDeferred inflows – concession projects
  • Net investment in capital assetsNet capital assets Less: outstanding debt related to capital assets Adjusted for: deferred outflows and deferred inflows of resources related to the acquisition, construction or improvement of capital assets or related debt Less: any unspent debt proceeds or deferred inflows of resources related to debtRestrictedRestricted, less liabilities and deferred inflows of resources related to those assetsUnrestrictedNet amounts of assets, deferred outflows of resources, liabilities, and deferred inflows of resources that are not included in the determination of net investments in capital assets or the restricted component of net position
  • The purpose of this statements is to establish accounting and financial reporting standards that reclassify, as deferred outflows of resources or deferred inflows of resources, certain items that were previously reported as assets and liabilities and recognizes, as outflows of resources or inflows of resources, certain items that were previously reported as assets and liabilities.Concepts statement 4, Elements of financial statements – introduced these conceptsPreviously only statement 53 – accounting and financial reporting for derivative instruments and statement 60 – concession arrangements were applicable
  • Prepayments and Inventory – board determined they are an asset as the entity controls the use of the prepaymentsPension – the board deliberated on this one as the assets are not under direct control but they could be use for future benefit accruals
  • DisclosuresDetails of the different types of deferred amounts in the notes to the f/s if significant components of the amounts are obscured by aggregationNeeded only if the information is not displayed on the face of the f/sDifference between a deferred outflow of resources or deferred inflows of resources and the balance of the related asset or liability is significant, an explanation of that effect on its net position in the notes should be provided
  • DisclosuresDetails of the different types of deferred amounts in the notes to the f/s if significant components of the amounts are obscured by aggregationNeeded only if the information is not displayed on the face of the f/sDifference between a deferred outflow of resources or deferred inflows of resources and the balance of the related asset or liability is significant, an explanation of that effect on its net position in the notes should be provided
  • Effective for pension plans that are administered through trusts with the following characteristics;Contributions and earnings are irrevocableAssets are dedicated to providing pensions to plan membersLegally protected from creditors of employers, non-employers contributing entities, plan administrator and plan members (if the plan is a Defined Benefit Plan)
  • Procedures to roll forward amounts from a previous actuarial valuation are required if not completed on measurement date
  • Long-term expected rate of return - to the extent that the plan’s fiduciary net position is projected to be sufficient to pay benefits and plan assets are expected to be invested using a strategy to achieve that rate of returnTax-exempt, high-quality municipal bond rate - to the extent that the conditions for use of the long-term expected rate of return are met.
  • Assignment – swap agreement is amended to replace an original counterparty, but all the other terms of the swap are the sameIn-substanceCounterparty is replacedOriginal swap is ended and the replacement swap in entered the same dateTerms that affect changes in fair values and cash flows in the original and replacement swaps are identicalAny difference in exit price of old and entry price of new is attributable to the based on a computation specifically permitted under the original swap agreement
  • Effective for pension plans that are administered through trusts with certain considerations
  • hfma hospital financial management

    1. 1. Accounting and Finance Reporting Changes: What Your Healthcare Organization Needs to Know Tyler Bernier, CPA August 16, 2013 www.eidebai lly.com
    2. 2. Agenda • EHR Incentives • RAC and Similar Accruals • Clarified Audit Standards • FASB Update • • • • Bad debt expense and allowance disclosures Malpractice claims Charity care disclosure Other Updates www.eidebai lly.com
    3. 3. Agenda • GASB Update • GASB codification and clarification • Reporting entity and component units • Financial reporting – Deferred inflows and outflows and net position • Pension plans – employer accounting • Other GASB updates • Proposed Changes • • Lease Accounting – FASB/IASB Single Audit www.eidebai lly.com
    4. 4. Electronic Health Records • Incentives from both Medicare and Medicaid • Current guidance • • • AICPA - preliminary conclusion SEC - additional guidance White Paper by Health Care Expert Panel/HFMA www.eidebai lly.com
    5. 5. Electronic Health Records • Medicare reimbursement • Demonstrate meaningful use • • • • 90 consecutive days – year 1 Within a Federal Fiscal Year Maintain meaningful use and attest annually Medicaid reimbursement • Varies by state • • Idaho: attestation similar to Medicare – 50/40/10 payments Some states reimburse before meeting meaningful use www.eidebai lly.com
    6. 6. Electronic Health Records • AICPA/HFMA white paper • • • • Not approved by SEC, FASB, GASB, others ―Reasonable assurance‖ Cliff or ratable method Recommended revenue location: • • • In performance indicator Separate from patient revenue Generally, operating www.eidebai lly.com
    7. 7. Electronic Health Records • SEC Method/Model • • ―Gain contingency‖ - delays recognition Relevant Accounting Considerations • Gain contingency • Revenue recognition • Matching www.eidebai lly.com
    8. 8. Electronic Health Records • Medicare EHR reimbursement treatment method • Revenue recognition method - PPS • • • • Record upon attestation Record upon receipt – more conservative approach Record when final calculation available – most conservative Recommend - other operating www.eidebai lly.com
    9. 9. Electronic Health Records • Medicare EHR reimbursement treatment method • Revenue recognition method - CAH • Same as PPS, except option to defer revenue • Based on matching concept • Defer based on avg. lives of related EHR equipment or 4 years • • Recommend - other operating Other Considerations www.eidebai lly.com
    10. 10. Electronic Health Records • Impact • • • Potential for change if authoritative guidance is released If not deferred for CAH, operating revenues will be overstated in year 1 and understated in future years based on recognition of expenses Without authoritative guidance, disclosure of policy is most important aspect www.eidebai lly.com
    11. 11. Electronic Health Records • DISCLAIMER • • • There is no authoritative guidance Treatment will need to be analyzed on an individual entity basis Result should reasonably follow authoritative guidance framework www.eidebai lly.com
    12. 12. RAC and Similar Accruals HFMA Principles and Practices (P&P) Board Issue Analysis, ―Accounting for RAC Audit Adjustments and Exposures‖ • Accounting for Recovery Audit Contractor (RAC) audit settlement liabilities • Potentially relates to other audit contractors – MIC, MAC, ZPIC, etc. www.eidebai lly.com
    13. 13. RAC and Similar Accruals • Applicable situations • Notification of RAC audit adjustments • Notification of a RAC audit adjustment recovery • Billing and/or payment for services that are potentially non-reimbursable • Concerned about RAC audit adjustments not yet identified www.eidebai lly.com
    14. 14. RAC and Similar Accruals • RAC adjustments represent persuasive evidence that criteria for revenue recognition have not been met • Liability and contractual adjustment in period of notification • Consideration of causes of adjustments and whether they apply to other accounts within the scope (lookback period) of RAC audits • Consider potentially successful appeals www.eidebai lly.com
    15. 15. RAC and Similar Accruals • RAC adjustments • For positive adjustments (receivables), • • Only recorded once finalized through CMS Gain contingency accounting • Changes in estimates recorded in current period • Apply historical take-backs to future claims, unless process is corrected www.eidebai lly.com
    16. 16. RAC and Similar Accruals • Reserves should be based on specific identification • • Don’t duplicate reserves already made General reserves should not be recorded • • SOP 00-1 – ―Auditing Health Care Third Party Reserve and Related Receivables‖ Other entity experience only applies if operating and billing procedures are identical www.eidebai lly.com
    17. 17. RAC and Similar Accruals • Impacts • Review reserves to determine if they are specifically identified and calculated or general in nature • Identify root cause of RAC adjustments and whether they apply to existing balances • Potential identification of billing/documentation issues resulting in self-reporting • Discuss with legal counsel, if discovered www.eidebai lly.com
    18. 18. Clarified Audit Standards • Combination, re-organization, and clarification of existing standards • • Some new matters incorporated Why does this matter to you as the provider? www.eidebai lly.com
    19. 19. Clarified Audit Standards • Group Audit Requirements • • • Definition of group audit Identification of components Impacts on You • • • Increased communications Potentially lowered testing scopes Potentially expanded scope of testing www.eidebai lly.com
    20. 20. Clarified Audit Standards • Updated audit opinions • • • Additional paragraphs Titles included ―Unmodified‖ vs. ―unqualified‖ www.eidebai lly.com
    21. 21. Health Care Accounting Standards Update FASB Updates www.eidebai lly.com
    22. 22. Bad Debts and Allowance ASU 2011-07 – ―Presentation and Disclosure of Patient Service Revenue, Provision of Bad Debts and the Allowance for Doubtful Accounts for Certain Health Care Entities‖ www.eidebai lly.com
    23. 23. Bad Debts and Allowance • Affects HC entities that ―recognize significant amounts of patient service revenue at the time services are rendered even though the entities do not assess a patient’s ability to pay.‖ • Effective for first annual period ending after December 15, 2012 www.eidebai lly.com
    24. 24. Bad Debts and Allowance • Provision for bad debts associated with patient service revenue will be transferred from an operating expense to a deduction from net patient service revenue. • Other bad debts - still an operating expense • Presented on a separate line after NPSR www.eidebai lly.com
    25. 25. Bad Debts and Allowance Example Disclosure from Accounting Standards Update: www.eidebai lly.com
    26. 26. Bad Debts and Allowance • Disclosures • Policy for assessing the timing and amount of uncollectible patient service revenue recognized as bad debts by major payor source of revenue • • Major payor sources shall be identified by the entity consistent with how the entity manages its business Example per standard: Third-party payors Self-pay Total all payors www.eidebai lly.com
    27. 27. Bad Debts and Allowance • Disclosures • Qualitative and quantitative information about significant changes in the allowance for doubtful accounts • • • • Significant changes in estimates and underlying assumptions The amount of self-pay write offs The amount of third-party payor write offs Other unusual transactions impacting the allowance for doubtful accounts www.eidebai lly.com
    28. 28. Bad Debts and Allowance • Disclosures • Two examples in the ASU provide a detailed example of expected disclosures • • Includes charity care and/or uninsured discount policies Also includes allowance for doubtful accounts in third-party payor accounts www.eidebai lly.com
    29. 29. Bad Debts and Allowance • Impacts on certain financial ratios: Improved Operating and Total Margins Days Cash on Hand **Net Days in Accounts Receivable (depending on which net revenue is used for calculation) • More transparency in allowance disclosures www.eidebai lly.com
    30. 30. Malpractice Claims ASU 2010-24 – ―Health Care Entities (Topic 954) Presentation of Insurance Claims and Related Insurance Recoveries‖ • Requires that insurable risk claims be recorded gross - insurance liability and insurance recovery receivable, if applicable • Record based on contingency accounting • Analyze receivable for collectibility www.eidebai lly.com
    31. 31. Malpractice Claims • Types of Insurance • • • • Malpractice Insurance Workers’ Compensation Health/Dental Insurance Types of Coverage • Claims made policies • Excess insurance coverage • Umbrella coverage, etc. www.eidebai lly.com
    32. 32. Malpractice Claims • Impacts: • • • Limited, if any expected impact on income statement Potential additional liabilities on balance sheet Meaning of recording a liability? • • • • • Legal counsel Insurance agency Board If material, disclosures necessary Fiscal years beginning after December 15, 2010 www.eidebai lly.com
    33. 33. Goodwill and Intangibles Impairment ASU 2010-28 – ―Intangibles --- Goodwill and Other‖ • ASU 2011-08 – ―Intangibles—Goodwill and Other (Topic 350) Testing Goodwill for Impairment‖ • • ASU 2012-02 – ―Intangibles – Goodwill and Other‖ www.eidebai lly.com
    34. 34. Goodwill and Intangibles Impairment ASU 2010-28 – Goodwill Impairment • If goodwill has zero or negative carrying amounts, step 1 may be skipped as fair value is expected to exceed $0. • Entity is still required to complete Step 2 of impairment test if it is more likely than not that a goodwill impairment exists. • Effective – beginning after 12/15/11 www.eidebai lly.com
    35. 35. Goodwill and Intangibles Impairment ASU 2011-08 – Goodwill Impairment • Optional pre-step 1 assessment • Qualitative assessment of goodwill • • • More-likely-than-not impairment analysis Several factors listed in ASU to consider for analysis Effective - beginning after 12/15/11 www.eidebai lly.com
    36. 36. Goodwill and Intangibles Impairment ASU 2012-02 – Intangibles Impairment • Relates to indefinite-lived intangible assets, other than goodwill • Qualitative assessment of goodwill, similar to new goodwill analysis – more-likely-than-not • Effective - beginning after 9/15/12 www.eidebai lly.com
    37. 37. Goodwill and Intangibles Impairment • Impacts: • • • Qualitative analysis will need to be documented, rather than a quantitative calculation (step 1 analysis) Should reduce time in assessment of goodwill and other intangible assets Optional steps in impairment assessment www.eidebai lly.com
    38. 38. Business Combinations • ASU 2010-29 – ―Business Combinations‖ • Expanded disclosure requirements for business combinations for public entities • Effective for first annual period beginning on or after December 15, 2010 www.eidebai lly.com
    39. 39. Business Combinations • Disclosure of revenue and earnings of the combined entity as though the combination occurred at the beginning of the comparable period reported (i.e. beginning of PY). • Supplemental pro forma disclosure requirements • Material, nonrecurring pro form adjustments www.eidebai lly.com
    40. 40. Fair Value • ASU 2011-04 – ―Fair Value Measurement‖ • Additional explanation of FV measurement and expanded disclosures • Effective for fiscal years beginning after December 15, 2011 www.eidebai lly.com
    41. 41. Fair Value • Expanded Disclosures for Public Entities • • Information about transfers between Level 1 and 2 Sensitivity of Level 3 measurements • • • To changes in unobservable inputs To interrelationships between unobservable inputs Level of FV for items not measured at FV, but required to be disclosed at FV www.eidebai lly.com
    42. 42. Cash Flows – Donated Financial Assets • ASU 2012-05 – ―Statement of Cash Flows‖ • Donated financial assets should be reported as operating inflows or, if restricted, financing activities. • Effective for fiscal years beginning after June 15, 2013. Early adoption permitted. www.eidebai lly.com
    43. 43. Joint & Several Obligations • ASU 2013-04 – ―Liabilities‖ • Reporting and disclosure requirements in certain joint and several liability arrangements. • Effective for fiscal years beginning after December 15, 2013 (2014 for nonpublic). Early adoption allowed. www.eidebai lly.com
    44. 44. Joint & Several Obligations • Entity involved in joint & several liability arrangement which is fixed at the reporting date • • • Record amount entity agreed to in its arrangement with co-obligors. Plus, any additional amounts expected to be paid on behalf of co-obligors. Disclosures of the nature and amounts of total obligation and other related information. www.eidebai lly.com
    45. 45. Contributed Services • ASU 2013-06 – ―Not-for-Profit Entities‖ • Related to contributed serviced from an affiliate organization. • Effective prospectively for periods beginning after June 15, 2014. Early adoption permitted. www.eidebai lly.com
    46. 46. Contributed Services • Recorded at cost of affiliate • If considered to over or understate value, an election may be made for fair value. • For HC entities, should be reported as an ―equity transfer‖ (increase in net assets) • Related to services received from NFP and FP affiliates www.eidebai lly.com
    47. 47. Health Care Accounting Standards Update GASB Updates www.eidebai lly.com
    48. 48. GASB Codification GASB Statement No. 62 – ―Codification of Accounting and Financial Reporting Guidance Contained in Pre-November 30, 1989 FASB and AICPA Pronouncements‖ • Effective for periods beginning after December 15, 2011. www.eidebai lly.com
    49. 49. GASB Codification • The objective is to incorporate into the GASB statements, pronouncements issued on or before November 30, 1989 • FASB Statements and Interpretations • Accounting Principal Board Opinions • Accounting Research Bulletins of the AICPA • Removes GASB 20 accounting policy option www.eidebai lly.com
    50. 50. GASB Codification • Additional Topics Considered • Includes sections related to a variety of transactions • From FASB and AICPA literature • Applies to governmental activities, business-type activities, proprietary funds, but not all governmental funds • 27 broad transactions were included • Has not addressed: • Governmental combinations – GASBS 69 • Fair value measurement – exposure draft anticipated www.eidebai lly.com
    51. 51. GASB Codification • Impacts • • • Cannot make accounting policy option Need to ensure previous treatments under FASB or other literature are consistent with GASB 62 or after If not in GASB, can utilize other guidance (FASB, etc.) or industry practice, but none are authoritative www.eidebai lly.com
    52. 52. Reporting Entity and Component Units GASB Statement No. 61 – ―The Financial Reporting Entity: Omnibus an amendment of GASB Statements no. 14 and no. 34‖ • Component Units Criteria • • • Financial Accountability ―Misleading to Exclude‖ the organization from the financial statements Effective for periods beginning after June 15, 2012 www.eidebai lly.com
    53. 53. Reporting Entity and Component Units • Financial Accountability • • Primary Government (PG) appoints voting majority of board The potential component unit (PCU) if fiscally dependent • • • • Does not set own budget Others levy taxes or sets rates Cannot issue bonded debt without approval Potential for the PCU to provide specific benefits to, or impose specific financial burdens, on the PG www.eidebai lly.com
    54. 54. Reporting Entity and Component Units • Provide Specific Benefits To, or Impose Financial Burdens On… PG can access PCU’s resources • PG is legally obligated and/or assumed the obligation to finance the deficits of, or provide financial support • PG is obligated for the debt • www.eidebai lly.com
    55. 55. Reporting Entity and Component Units • Amendments to the Major Component Unit Requirements • • Based on the nature and significance of relationship Blended Component Unit • CU is legally separate from the PG, but so intertwined that is functions like a department of the PG • Amendment – CU total debt outstanding is expected to be repaid entirely with resources of the PG www.eidebai lly.com
    56. 56. Reporting Entity and Component Units • Blended Component Unit Reporting Requirements • Clarifies that funds of a blended CU have the same financial reporting requirements as a fund of the PG • Equity Interests in CU (formerly Investment Interests) • • Investment, if used to derive income or profit Requires summarized CU f/s in the notes to the f/s www.eidebai lly.com
    57. 57. Reporting Entity and Component Units • Impacts: • Potential change in entities which qualify and a CU or blended CU • Reporting requirements – summarized blended CU information • Changes will also impact MD&A www.eidebai lly.com
    58. 58. Financial Reporting GASB Statement No. 63 – ―Financial Reporting of Deferred Outflows of Resources, Deferred Inflows of Resources and Net Position‖ • Effective for periods beginning after December 15, 2011 www.eidebai lly.com
    59. 59. Financial Reporting • Identifies 5 elements that make up a statement of financial position (balance sheet) • • • • • Assets – resources with present service capacity that the gov’t presently controls Liabilities – present obligations to sacrifice resources that the gov’t has little or no discretion to avoid Deferred outflows of resources Deferred inflows of resources Net position www.eidebai lly.com
    60. 60. Financial Reporting • Accounting Equations • Governmental activities – Statement of Net Position Assets + Deferred Outflows – Liabilities – Deferred Inflows = Net Position • Governmental fund format – Balance Sheet Assets + Deferred Outflows = Liabilities – Deferred Inflows + Fund Balance www.eidebai lly.com
    61. 61. Financial Reporting • Deferred Outflows of Resources • • • Consumption of net position by the government that is applicable to a future reporting period Positive effect on net position Deferred Inflows of Resources • • Acquisition of net position by the government that is applicable to a future period Negative effect on net position **Only 2 identified in GASBS 63 www.eidebai lly.com
    62. 62. Financial Reporting • Net Position (previously net assets) • Residual of all elements presented in a statement of financial position – presented in 3 types • Net investment in capital assets • Previously, ―investment in capital assets, net of related debt‖ • • Restricted Unrestricted www.eidebai lly.com
    63. 63. Financial Reporting Statement No. 65 – ―Items Previously Reported as Assets and Liabilities‖ • Effective for periods beginning after December 15, 2012 • Retroactive application by restating financial statements, if practical, for all periods presented www.eidebai lly.com
    64. 64. Financial Reporting • Continue to Report as an Asset • • • Prepayments and Inventory Circumstances in which a pension plan’s net position exceeds the total pension liability Report as a Deferred Outflow of Resources • • Deferred debit amounts resulting from the refunding of debt – not related to issuance costs Net balance (debit) of direct loan origination costs, including any portion related to points, for mortgage loans held for resale prior to the point of sale www.eidebai lly.com
    65. 65. Financial Reporting • Report as Outflow of Resources • • • Debt issuance costs Net balance (debit) of direct loan origination costs… Report as a Liability • • Resources received in advance in relation to a nonexchange revenue transaction Resources received in advance of an exchange transaction www.eidebai lly.com
    66. 66. Financial Reporting • Report as Deferred Inflow of Resources • • Resources received in advance in relation to an imposed nonexchange transaction Deferred credit amounts resulting from the refunding of debt www.eidebai lly.com
    67. 67. Financial Reporting • Disclosures • Details of the deferred amounts, if aggregated • • Only if information is not displayed on the face of the financial statements Use of term ―deferred‖ is only allowed to relate to deferred inflows or outflows or resources www.eidebai lly.com
    68. 68. Financial Reporting • Impacts • Potential change in recording certain transactions • • • • Debt refinancing Property taxes EHR incentive payments Change in financial reporting structure – not yet required, however. www.eidebai lly.com
    69. 69. Pension Plans – employer accounting • GASB Statement No. 68 – ―Accounting for Financial Reporting for Pensions‖ • • • Effective for financial statements for fiscal years beginning after June 15, 2014 Replaces existing guidance related to pension plans that are administered through trusts or equivalent arrangements that meet certain criteria Purpose: Improve accounting and financial reporting by state and local governments for pensions. www.eidebai lly.com
    70. 70. Pension Plans – employer accounting • Establishes standards for: • • Measuring and recognizing items in the statement of net position Identifies methods and assumptions that should be used to: • Project benefit payments • Discount projected benefit payments to actuarial present value • Attribute that present value to periods of employee service www.eidebai lly.com
    71. 71. Pension Plans – employer accounting • Defined Benefit Plans • Measurement of liability • • Net pension liability = PV of projected benefit payments to current active and inactive employees attributed to their past periods of service minus the pension plan’s fiduciary net position Actuarial valuations liability required at least every two years • If not on report date, roll-forward procedures required • Earlier actuarial valuation must be performed within 30 months and 1 day prior to the most recent year-end. www.eidebai lly.com
    72. 72. Pension Plans – employer accounting • Projections of Benefit Payments • • Based on benefit terms and legal agreements existing at the measurement date. Discounted to their actuarial present value using the single rate that reflects • • A long-term expected rate of return on plan investments A tax-exempt, high-quality municipal bond rate www.eidebai lly.com
    73. 73. Pension Plans – employer accounting • Single and Agent Employer Plans • Recognize a liability equal to the Net Pension Liability • • Measured as of a date no earlier than the end of the employer’s prior fiscal year (the measurement date). Pension expense = changes in the net pension liability • • • • Current-period service cost Interest on total pension liability Changes of benefit terms Projected earning on the pension plan’s investment included www.eidebai lly.com
    74. 74. Pension Plans – employer accounting • Single and Agent Employer Plans • Notes to financial statements • • • • • Benefits provided Number of classes of employees Sources of changes in the NPL for the current year Significant assumptions and other inputs used to calculate TPL Date of actuarial valuation used in determination www.eidebai lly.com
    75. 75. Pension Plans – employer accounting • Single and Agent Employer Plans • Required supplementary information • Present for each of the 10 most recent years • Sources of changes in the net pension liability • Components of net pension liability • Actuarially determined contributions or statutorily or contractually required contribution rates, contributions to the plan and related ratios • Notes to the required supplementary information • Significant methods and assumptions used in calculating the actuarially determined contributions • Factors that affect trends www.eidebai lly.com
    76. 76. Pension Plans – employer accounting • Cost-Sharing Plans • • • Recognize liability for proportionate share of NPL. Employer’s portion of NPL is determined consistently with contributions. Recognize pension expense and deferred outflows and inflows of resources relation to proportionate share. www.eidebai lly.com
    77. 77. Pension Plans – employer accounting • Cost-Sharing Plans • Recognized in pension expense in a systematic and rational manner of a closed period • • Changes in the employer’s proportion of the collective NPL Differences between the employer’s contributions and proportionate share of the total of contributions from employers included in the collective NPL during the measurement period. www.eidebai lly.com
    78. 78. Pension Plans – employer accounting • Defined Contribution Pensions • Pension expense • • • Contributions to employees’ accounts Net of forfeited amounts that are removed from employees’ accounts A change in the pension liability is recognized for the difference between amounts in expense and amounts paid by the employer to the plan www.eidebai lly.com
    79. 79. Pension Plans – employer accounting • Defined Contribution Pensions • Notes to financial statements • • • Descriptive information Contribution rates and how they are determined Amounts attributed to employee service and forfeitures for the current period www.eidebai lly.com
    80. 80. Other GASB Updates GASB Statement No. 64 – ―Derivative Instruments: Application of Hedge Accounting Termination Provisions – an amendment to GASB Statement No. 53‖ • Effective for periods beginning after June 15, 2011 • Objective: clarify whether an effective hedging relationship continues after the replacement of a swap counterparty www.eidebai lly.com
    81. 81. Other GASB Updates GASB Statement No. 67 • • • Effective for financial statements for fiscal years beginning after June 15, 2013 Replaces current guidance related to pension plans that are administered through trusts or equivalent arrangements that meet certain criteria Purpose: improve the usefulness of pension information included in the general purpose external financial reports of state and local governmental pension plans for making decisions and assessing accountability www.eidebai lly.com
    82. 82. Lease Proposal • Proposed ASU was issued in August 2010 • Announced in July 2011 it will be re-exposed • June 13, 2012 – IASB and FASB last agreed on additional changes to draft • Released Exposure Draft – May 16, 2013 • Effective date, if passed (which is expected), ??? • Expected 2015 or 2016 www.eidebai lly.com
    83. 83. Lease Proposal • Lessee accounting • Leases over 1 year will be recorded on the balance sheet at present value of lease payments • • • Right-of-use asset and liability Recorded as separate assets and liabilities on the balance sheet Lease term • ―The non-cancellable period for which the lessee has contracted with the lessor to lease the underlying asset, together with any options to extend or terminate the lease when there is a significant economic incentive for an entity to exercise an option to extend the lease, or for an entity not to exercise an option to terminate the lease.‖ www.eidebai lly.com
    84. 84. Lease Proposal 2 Types of Leases • Type A – other than property • • Discount on lease as interest and amortization of asset separately Type B – property – land and/or building or part of a building • • • Discount on the lease Amortization of asset Total to equal single ―lease cost‖ on a straight-line basis www.eidebai lly.com
    85. 85. Lease Proposal • Impacts • • Additional assets and liabilities on the balance sheet If treated as long-term debt: • • • • • Decreases debt service coverage ratio (negative) Increases long-term debt to capitalization ratio (negative) Increases days cash on hand (positive) Potentially significant amount of time identifying and recording existing lease contracts Allows for different leasing options as treatment will be the same if over 1 year www.eidebai lly.com
    86. 86. Proposed Single Audit Changes • Proposed changes to single audits – no effective dates, but preliminarily expected to be 6/30/14 • Single audit threshold to increase from $500,000 to $750,000 • Type A/B program determination to increase from $300,000 to $500,000 www.eidebai lly.com
    87. 87. Proposed Single Audit Changes • Change in major program determination • High-risk Type A program requirements • Small Type B programs considered to be 25% of Type A/B program threshold • Reduction in high-risk Type B programs required to be tested from 50% of Type A’s selected to 25% • Percentage of coverage to reduce from 50% (normal) and 25% (low-risk) to 40% and 20%, respectively • Low-risk auditee modifications www.eidebai lly.com
    88. 88. Proposed Single Audit Changes • Increased detail in reported audit findings • Increase in questioned cost threshold for reporting from $10,000 to $25,000 • Streamline existing OMB circulars • A-21, A-87, A-89, A-102, A-110, A-122, A-133 into one document • A-50 superceded www.eidebai lly.com
    89. 89. Proposed Single Audit Changes • Change in compliance requirements to be tested – from 14 to 6 1. Activities Allowed or Unallowed and Allowable Costs/Cost Principles (potentially also including period of availability and matching) 2. Cash Management 3. Eligibility 4. Reporting 5. Subrecipient Monitoring 6. Special Tests & Provisions (removed requirements may show up in this area, however) www.eidebai lly.com
    90. 90. ??? Questions ??? www.eidebai lly.com
    91. 91. Presenter Tyler Bernier, CPA Senior Manager Eide Bailly LLP Minneapolis, MN tbernier@eidebailly.com 612.253.6568 www.eidebai lly.com

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