1. Accounting and Finance Reporting
Changes: What Your Healthcare
Organization Needs to Know
Tyler Bernier, CPA
August 16, 2013
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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
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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
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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
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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
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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
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7. Electronic Health Records
•
SEC Method/Model
•
•
―Gain contingency‖ - delays recognition
Relevant Accounting Considerations
•
Gain contingency
• Revenue recognition
• Matching
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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
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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
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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
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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
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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.
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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
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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
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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
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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
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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
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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?
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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
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20. Clarified Audit Standards
•
Updated audit opinions
•
•
•
Additional paragraphs
Titles included
―Unmodified‖ vs. ―unqualified‖
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21. Health Care Accounting Standards Update
FASB Updates
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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‖
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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
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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
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25. Bad Debts and Allowance
Example Disclosure from Accounting Standards Update:
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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
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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
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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
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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
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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
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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.
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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
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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‖
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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
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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
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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
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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
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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
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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
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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
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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
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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.
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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.
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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.
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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.
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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
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47. Health Care Accounting Standards Update
GASB Updates
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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.
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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
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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
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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
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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
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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
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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
•
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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
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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
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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
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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
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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
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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
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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
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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
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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
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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
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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
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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
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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
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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.
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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.
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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
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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.
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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
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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
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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
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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
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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.
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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.
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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
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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
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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
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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
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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
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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.‖
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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
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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
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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
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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
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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
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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)
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90. ??? Questions ???
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91. Presenter
Tyler Bernier, CPA
Senior Manager
Eide Bailly LLP
Minneapolis, MN
tbernier@eidebailly.com
612.253.6568
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