Accounting and Tax Update
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Accounting and Tax Update Presented by: Bob Prill, CPA and Tori Bryson, CPA Hoffman, Stewart & Schmidt, P.C.
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Accounting and Tax Update. Presented by: Bob Prill, CPA and Tori Bryson, CPA Hoffman, Stewart & Schmidt, P.C. Session Objectives. Provide an update of recent activities among accounting standard setters Financial Accounting Standards Board (FASB) - PowerPoint PPT Presentation
Transcript of Accounting and Tax Update
Accounting and Tax Update
Accounting and Tax UpdatePresented by:Bob Prill, CPA and Tori Bryson, CPAHoffman, Stewart & Schmidt, P.C.Session ObjectivesProvide an update of recent activities among accounting standard setters
Financial Accounting Standards Board (FASB)American Institute of Certified Public Accountants (AICPA)U.S. Government Accountability Office (GAO) and Office of Management and Budget (OMB)
Discuss issues related to Internal Revenue Service Form 990FASB ActivitiesConvergence with International Financial Reporting Standards (IFRS)
Joint project between FASB and IFRS
Goal of establishing a single set of accounting standards
Adoption uncertainty and where do nonprofits fit in?
Accounting for LeasesExposure draft issued in August, 2010
Waiting for revised exposure draft 2013?
Will change how entities report leasing activity
Accounting for LeasesCurrent methods:Operating leasesCapital leases
Proposed methodRight of use modelAccounting for Leases
Accounting for LeasesRecognition models
Straight-line method
Front loaded methodMeasuring Charity Care for DisclosureIssue addressed by Accounting Standards Update (ASU) 2010-23 in August, 2010
Effective for fiscal years beginning after December 15, 2010
Intended to reduce diversity in practice regarding the measurement basis
Requires that healthcare entities use the cost basis of measurement for charity care disclosures cost is defined as the direct and indirect costs of providing careMeasuring Charity Care for DisclosureEntities should disclose a description of the method used to calculate costUse of estimates is permitted (for example cost to charge ratio)
Entities should disclose reimbursements received intended to compensate for providing charity care
Charity Care Sample DisclosureXYZ provides care to patients who are unable to pay for the health care services they receive. XYZ does not pursue collection of amounts determined to qualify as charity care, and accordingly, these amounts are not reported as net patient service revenue. The cost of providing these services was determined by [describe the method used] and totaled approximately $XX for the year ended December 31, 20XX. During the year ended December 31, 20XX, XYZ received $XX for the support of its charity care program.ASU 2011-07Health Care Entities Presentation and Disclosure of Patient Service Revenue, Provision for Bad Debts, and the Allowance for Doubtful Accounts for Certain Health Care Entities
Issued July, 2011
For nonpublic entities, is effective for the first annual period ending after December 15, 2012. Early adoption is permitted
ASU 2011-07Some health care entities will display bad debt expense as a deduction from patient service revenue (net of contractual allowances), rather than as expense
ASU applies to health care entities with a significant gross up of revenue and bad debt associated with providing care
Bad debt expense related to non-patient service revenue will continue to be reported as an expenseASU 2011-07Scope of the ASULimited to those entities that recognize significant amounts of patient service revenue at the time the services are rendered even though the entities do not assess a patients ability to pay
The ASU does not define the term significant
Is the entity required by law to provide services?
ASU 2011-07Expanded disclosure requirements
Policy for assessing collectibility with respect to the timing and amount of revenue recognized
Revenue (net of contractual allowances and discounts) before any provision for bad debt
Quantitative and qualitative information about significant changes in the allowance for doubtful accounts related to patient accounts receivableASU 2011-07Presentation on statement of activities:
ASU 2011-07Policy for assessing collectibility:
Entity A recognizes patient service revenue associated with services provided to patients who have third-party payor coverage on the basis of contractual rates for the services rendered. Entity A recognizes significant amounts of patient service revenue at the time services are rendered event though it does not assess the patients ability to pay. For uninsured patients who do not qualify for charity care, Entity A recognizes revenue on the basis of its standard rates for services provided (or on the basis of discounted rates, if negotiated or provided by policy). On the basis of historical experience, a significant portion of Entity As uninsured patients will be unable or unwilling to pay for the services provided. Thus, Entity A records a significant provision for bad debts related to uninsured patients in the period the services are provided. Patient service revenue, net of contractual allowances and discounts (but before the provision for bad debts), recognized in the period from these major payor sources, is as follows:
ASU 2011-07FASB Codification 954-310-55-1 has an illustrative disclosure of the qualitative and quantitative information about changes in the allowance for doubtful accounts
Statement of activities display provisions applied retrospectively
Disclosure provisions of this ASU applied prospectivelyAccounting for Costs Incurred During Implementation of ICD-10The U.S. health care system is scheduled to transition from International Classification of Diseases, 9th edition (ICD 9) to ICD 10 Number of available codes to go from 24,000 to over 155,000Expected to provide the following benefits to health care entities:Improved precision in documentation of clinical careHigher quality and more specific data that can be used to improve disease management and clinical outcomesAccounting for Costs Incurred During Implementation of ICD-10Applicable guidanceFASB ASC 350-40 (Internal Use Software)FASB 720-45 (Business Project Reengineering)AICPA Technical Practice Aid (TPA) 6400.48
Generally, costs of modifying existing systems are expensed
Costs that add additional functionality can be capitalized
Accounting for Costs Incurred During Implementation of ICD-10Functionality factorsExtent and types of changes made to software design
Extent of additional coding required and software processes developed
Ability to use additional coding capabilities
Past history of system upgrades
Accounting for Costs Incurred During Implementation of ICD-10Specific facts and circumstances will need to be evaluated
Much of the cost will likely be expensed
Some costs associated with upgrades/enhancements may qualify for capitalization21AICPA Risk AlertRisk alert identifies several risk areas:
Collectibility of receivables
Rising costs
Staffing concerns/segregation of duties
Violations of regulatory requirements
Industry trend towards consolidationAccounting for Combination of NFPsMany entities may be applying the guidance in FASB ASC 958-805 for the first time
Merger vs. acquisitionMerger two or more organizations cede control of those entities to create a new nonprofit organizationAcquisition An organization obtains control of one or more nonprofit organizations or activities
Proper accounting depends on type of transaction
Accounting for Combination of NFPsMerger should be accounted for using the carryover method (similar to the pooling of interest method)Assets and liabilities of merged entities brought in from their separate GAAP basis financial statements
Acquisition should be accounted for at fair valueFair value is the price that would be received to sell an asset or transfer a liability in an orderly transaction between market participants at the measurement dateAICPA Audit Guide Health Care EntitiesIssued in 2011 replaced the 1996 edition Scope remains unchangedOrganized into 15 chaptersContains expanded disclosure and commentaryNo longer contains illustrative financial statements
Health Care Guide vs. Not-for-Profit GuideAICPA Audit Guide Not-for-Profit EntitiesMajor overhaul in process exposure draft issuedExpect final version to be released soonEnhancements made to minimize diversity in practice in several areas:Reporting relationships with other entitiesMeasurement and reporting of gifts-in-kindIncome tax considerationsNet assets and reporting of expiration of donor-imposed restrictions
AICPA Clarity ProjectDesigned to make audit standards easier to read, understand, and apply
Effective for periods ending on or after December 15, 2012
Extensive revisions to existing audit literature although there are not many substantial changes
Requires changes to the independent auditors reportGAO Developments2011 revision of Government Auditing Standards (Yellow Book) released in December, 2011Effective for periods ending on or after December 15, 2012Stated purpose is to promote the modernization of auditing standards, to streamline Government Auditing Standards to other standard setters, and to address issues that the GAO has observedMost significant change in the 2011 revision relates to auditor independence
Single AuditSingle audit required when Federal expenditures exceed $500,000 within the fiscal year
Vendor vs. subrecipient status
Loans with continuing compliance requirements
Interest subsidies
Single AuditAuditee responsibilities (A-133 Subpart C)Preparation of the financial statements and the Schedule of Expenditures of Federal Awards (SEFA)Maintain internal control over Federal programsCompliance with laws, regulations, provisions of contracts and grantsEnsure Single Audit is performed and submitted when dueFollow-up and take corrective action on audit findingsSingle AuditLow-risk auditees must have 25% of Federal expenditures audited each year vs. 50% for non-low risk auditees
Various criteria must be satisfied in order to be considered low-risk
Major program determinations watch out for clustersSingle Audit Compliance supplementUpdated annually http://www.whitehouse.gov/omb/circulars/a133_compliance_supplement_2012Gives auditors authoritative guidance on how to conduct an audit under Circular A-133Gives auditees and auditors guidance on the specific requirements by Federal programSingle AuditCommon single audit deficiencies
Failure to accurately identify and test all major programs
Failure to meet the percentage coverage rule
Notes not included with the SEFA
SEFA missing certain required information Single AuditFebruary, 2012 proposal by OMB
New 3 tiered single audit threshold
Expenditures of Federal awards under $1 millionNo single audit
Expenditures of Federal awards between $1 to $3 million2 compliance requirementsAllowable costs and as determined by Federal agency
Expenditures over $3 millionFull single audit
Single AuditProposed reforms to cost principles
Consolidation of cost circulars (A-21, A-81, A-122) into a single document
Indirect cost changes option of flat rate rather than negotiated rate
Exploring alternatives to time and effort reporting requirements for salaries and wagesIRS Form 990Form 990 is the main source of information about your governance, operations and programs that is publicly available
Form 990 underwent major overhaul effective for fiscal year 2008 filings
Core form consists of 12 pages, with up to 16 supplementary schedules that may need to be completedIRS Form 990In addition to financial information, core form focuses on governance and transparency
Conflict of interest policy
Whistleblower protection policy
Document retention and destruction policy
Compensation of key executives
IRS Form 990Form is due 5 months after fiscal year-end
Automatic 3 month extension by filing page 1 of Form 8868
Additional 3 month extension available (not automatic) by filing page 2 of Form 8868Must provide reason for second extension request
Questions?
Thank You!Bob Prill, [email protected]
Tori Bryson, [email protected]
Hoffman, Stewart & Schmidt, P.C.4900 Meadows Road, Suite 200Lake Oswego, Oregon 97035(503) 220-5900Sheet1Current GuidanceOperatingCapitalProposedLeaseLeaseGuidanceStatement ofAssetAssetFinancial PositionN/ALiabilityLiabilityStatement ofInterest expenseInterest expenseActivitiesRent expenseAmortization expenseAmortization expenseStatement ofCash flowsOperating activityFinancing activityFinancing activity
Sheet2
Sheet3
Sheet1
Current GuidanceOperatingCapitalProposedLeaseLeaseGuidance
Statement ofAssetAssetFinancial PositionN/ALiabilityLiability
Statement ofInterest expenseInterest expenseActivitiesRent expenseAmortization expenseAmortization expense
Statement ofCash flowsOperating activityFinancing activityFinancing activity
Sheet2Patient service revenue (net of contractual allowances anddiscounts)$60,000
Provision for bad debts(9,600)
Net patient service revenue50,400
Premium revenue23,000
Other operating revenue14,000
Total revenue$87,400
Sheet3
Sheet1
Current GuidanceOperatingCapitalProposedLeaseLeaseGuidance
Statement ofAssetAssetFinancial PositionN/ALiabilityLiability
Statement ofInterest expenseInterest expenseActivitiesRent expenseAmortization expenseAmortization expense
Statement ofCash flowsOperating activityFinancing activityFinancing activity
Sheet2Patient service revenue (net of contractual allowances anddiscounts)$60,000
Provision for bad debts(9,600)
Net patient service revenue50,400
Premium revenue23,000
Other operating revenue14,000
Total revenue$87,400
Sheet3ThirdParty TotalPayorsSelf-PayAll PayorsPatient service revenue (net of contractual allowances and discounts)$50,000$10,000$60,000
