Healthcare Audit and Accounting Update Presented

December 3, 2013

Prepared for Tennessee Society of CPA’s Healthcare Conference

Healthcare Audit and Accounting Update

Tennessee Society of CPA’s Healthcare Conference

December 3, 2013

Presented by Doug Arnold, CPA, Principal

Knoxville, TN

December 3, 2013


Overview

• Recently Issued/Effective Accounting Standards Updates (ASU)

• Recently Issued/Effective Governmental Accounting Standards Board (GASB) Pronouncements

• Other Healthcare Specific Items

December 3, 2013


Recently Issued/Effective Accounting

Standards Updates (ASU)

December 3, 2013


Accounting Standards Updates

• Perspective of not-for-profit and governmental healthcare entities

• For-profit organizations may be impacted by:

– ASU 2013-11, Income Taxes (Topic 740)

– ASU 2013-05, Foreign Currency Matters (Topic 830)

– ASU 2013-02, Comprehensive Income (Topic 220)

December 3, 2013


ASU 2011-11, Balance Sheet (Topic 210): Disclosures about Offsetting Assets and Liabilities

• Effective: Retrospectively periods beginning on or after (PBOA) January 1, 2013

• Impact: Expanded disclosure about items eligible for offsetting. Both gross and net information should be disclosed. Applicable to all financial instruments and derivative investments

• Other:

– Should be presented in tabular format

December 3, 2013


ASU 2012-01, Health Care Entities (Topic 954): Continuing Care Retirement Communities -

Refundable Advance Fees

• Effective: Public Periods beginning after (PBA) December 15, 2012

Non-Public PBA December 15, 2013

Retrospectively• Impact:

– Advance fees should be classified as deferred revenue if required to be refunded upon reoccupancy and which limits a refund to proceeds of reoccupancy

– Refundable advance fees that are contingent on reoccupancy but not limited should be displayed as a liability at the estimated refundable amount

– Deferred revenue is amortized into income, consistent with the method for calculating depreciation

December 3, 2013


ASU 2012-02, Intangibles - Goodwill and Other (Topic 350): Testing Indefinite-Lived Intangible Assets for Impairment

• Effective: PBA September 15, 2012

• Impact: Similar to goodwill ASU. Allows an entity to first perform an assessment of qualitative factors to determine whether it is more likely than not that an indefinite-lived intangible asset is impaired

December 3, 2013


ASU 2012-05: Statement of Cash Flows (Topic 230): Not-for-Profit Entities: Classification of the Sale Proceeds of Donated Financial

Assets in the Statement of Cash Flows

• Effective: Prospectively PBA June 30, 2013

• Impact: Cash flow statement presentation for cash flows from the sale of donated assets:

– Operating Activities: Converted nearly immediately to cash (unless restricted to long-term use: then Financing)

– Investing Activities: Not sold immediately

December 3, 2013


ASU 2013-01: Balance Sheet (Topic 210): Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities

• Effective: PBOA January 1, 2013

• Impact: Clarification that ASU 2011-01, Balance Sheet (Topic 210): Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities, does not apply to financial assets and liabilities subject to a master netting arrangement. Clarifies that derivative instruments accounted for under Topic 815, and reverse repurchase agreements and securities borrowing/lending transactions are subject to 2011-01

December 3, 2013


ASU 2013-03: Financial Instruments (Topic 825): Clarifying the Scope and Applicability of a Particular Disclosure to Nonpublic Entities

• Effective: Upon issuance

• Impact: For non-public entities with more than $100 million in assets or which have derivative instruments. Clarifies the fair value hierarchy disclosure for items not measured at fair value (only disclosure of fair value) does not apply

December 3, 2013


ASU 2013-04: Liabilities (Topic 405): Obligations Resulting from Joint and Several Liability Arrangements for Which the Total

Amount of the Obligation Is Fixed at the Reporting Date

• Effective: Public December 15, 2013

Non-Public December 15, 2014

Retrospectively

• Impact: Requires an entity to measure obligations for joint and several obligations for which the total amount of the obligation is fixed as of the reporting date as:

– The amount the entity has agreed to repay, plus

– Any additional amount the entity expects to pay on behalf of co-obligors

December 3, 2013


ASU 2013-04: Liabilities (Topic 405): Obligations Resulting from Joint and Several Liability Arrangements for Which the Total

Amount of the Obligation Is Fixed at the Reporting Date

• Impact (Continued): Expanded disclosure

• Other

– Fixed amount. However for line of credit changes or changes due to interest rate – not an exception

– “Arrangement” – formal or not?

– Additional amounts to recognize – “Better estimate than others” or minimum amount

– Disclosures: Nature of arrangements, total outstanding amount, nature of recourse provisions (if any), impact in initial period and in any subsequent periods with substantial changes

December 3, 2013


ASU 2013-06: Not-for-Profit Entities (Topic 958): Services Received from Personnel of an Affiliate

• Effective: PBA June 15, 2014. Modified retroactive adoption

• Impact: Expense and “contribution” from commonly controlled affiliates must be recognized in recipient’s financial statements. Usually recognized at cost but entity can elect fair value if cost is not deemed appropriate. The amount is shown outside of the Performance Indicator as an equity transfer.

December 3, 2013


ASU 2013-06: Not-for-Profit Entities (Topic 958): Services Received from Personnel of an Affiliate

• Other:

– Applies only to personnel costs

– Not applicable if compensation is received

– Applies to services received from not-for-profit or for-profit affiliates

– Cannot be a “contra-expense”

December 3, 2013


ASU 2013-07: Presentation of Financial Statements (Topic 205): Liquidation Basis of Accounting

• Effective: PBA December 15, 2013

• Impact: Requires liquidation basis when liquidation is imminent, defined as when there is a remote likelihood entity will return from liquidation and either:

– Liquidation plan has been approved and unlikely it will be blocked or

– A plan of liquidation is being forced by other forces

• Other:

– Recognize assets not previously recognized

– Expanded disclosure

December 3, 2013


ASU 2013-10: Derivatives and Hedging (Topic 815): Inclusion of the Fed Funds Effective Swap Rate (or Overnight Index Swap Rate)

as a Benchmark Interest Rate for Hedge Accounting Purposes

• Effective: Prospectively for new or redesignated hedging relationships on or after July 17, 2013

• Impact: Expands benchmark rates to include federal funds rates

December 3, 2013


ASU 2013-11: Income Taxes (Topic 740): Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward,

a Similar Tax Loss, or a Tax Credit Carryforward Exists

• Effective: Public - PBA December 15, 2013

Non-public - PBA December 15, 2014

• Impact: Required disclosure of uncertain tax positions when it is unlikely there will be an actual tax payment due to net operating loss carryovers. ASU 2013-11 requires that instead of recording a liability for uncertain tax positions, deferred tax assets would be reduced

December 3, 2013


Recently Issued/Effective Governmental Accounting Standards Board (GASB)

Pronouncements

December 3, 2013


GASB 65: Items Previously Reported as Assets and Liabilities • Effective: PBA December 15, 2012. Restate earlier periods

• Impact: Identify items previously reported as assets/ liabilities as deferred outflows/inflows of resources (GASB 63)

• Other:– Refunding of debt-report as deferred inflow/outflow

– Debt issuance costs/loan origination costs - expense in period incurred

– Gain/loss on sale/leaseback – reclassify as deferred inflow/outflow

– Prepaid debt insurance - recognize as asset and amortize

– Limit the use of the word “deferred”

December 3, 2013


GASB 68: Accounting and Financial Reporting for Pensions - an amendment of GASB Statement No. 27

• Effective: PBA June 15, 2014. To the extent practical restate prior periods presented

• Impact:

– Defined benefit plans:

• A liability should be recognized for the total pension liability less legally restricted plan assets. Previously, only recognized difference in amounts paid versus actuarially determined annual contribution

December 3, 2013



• Impact (Continued):

– Defined benefit plans (Continued):

• If pension plan's assets exceed the total pension liability, then a net pension asset would be recognized

• GASB 68 requires the entry age actuarial cost method be utilized

• Ad hoc benefit increases should be included if substantively automatic

December 3, 2013




– Defined benefit plans (Continued):

• Pension expense will be recognized as change in net pension liability, introducing more volatility

• Changes in net pension liability not recognized in expense should be reported as deferred inflows/ outflows

• Changes in amortization period for gains/losses, including investment gains/losses

December 3, 2013




– Expanded disclosures

– Defined contribution plans:

• Recognize pension expense for the amount of contributions or credits to employees' accounts, net of forfeited amounts that are removed from employees’ accounts

• Recognize pension liability equal to the difference between amounts recognized as pension expense and amounts paid by the employer to the pension plan

December 3, 2013


GASB 70: Accounting and Financial Reporting for Nonexchange Financial Guarantees

• Effective: PBA June 15, 2013. Restate prior years

• Impact: Recognize a liability when more likely than not, the government will be required to make a payment on a guarantee

• Other:

– Record best estimate

– No best estimate: NPV of minimum amount in range

December 3, 2013


Other HealthcareSpecific Items

December 3, 2013


Other Healthcare Specific Items

• ICD-10 implementation (TPA 6400.48)

• Insurer pays claims directly (TPA 6400.51)

• HMA/EMR restatement

December 3, 2013


Questions?

Contact information for Doug Arnold (800) 270-9629

[email protected]

Healthcare Audit and Accounting Update Presented

Health & Medicine

Transcript of Healthcare Audit and Accounting Update Presented