Download Impact of New Revenue Recognition Standards on Health Care

{FASB Current Updates}
Central Ohio HFMA : Spring Conference
March 21, 2014
Agenda
 New Accounting Standards
 Pending Accounting Standards
EDIT IN MASTER: CLIENT OR PRESENTATION NAME
PLANTE MORAN
2
New Accounting Standards
EDIT IN MASTER: CLIENT OR PRESENTATION NAME
PLANTE MORAN
3
Effective Standards
FASB Updates discussed previously :
 Cash Flow Classification of Proceeds from Donated Securities (ASU 2012-05)
 Effective for years beginning after June 15, 2013, with early adoption permitted
 Joint and Several Liability (ASU 2013-04)
 Effective for annual periods ending after December 15, 2014 with early adoption
permitted
 Testing of Indefinite-Lived Intangible Assets for Impairment (ASU 2012-02)
 Effective for annual periods beginning after September 15, 2012 with early
adoption permitted
 Donated Personnel Services Received from Affiliates (ASU 2013-06)
 Effective for periods beginning after June 15, 2014, with early adoption
PLANTE MORAN
EDIT IN MASTER: CLIENT OR PRESENTATION NAME
permitted
4
Definition of Public Business Entity

The FASB Accounting Standards Codification currently includes several definitions of “public
entity” and “nonpublic entity”

FASB conclude to develop a new definition of a public business entity to determine which
entities are within the scope of the Private Company Decision Making Framework


Able to adopt the private company alternatives introduced by the Private Company Council
(PCC)
ASU 2013-02 was issued in December 2013 to provide a single definition of a public business
entity for use in future accounting and reporting standards

No changes made to existing definitions in the Codification

Not-for-profit entities(NFP) and employee benefit plans (EBP) are specifically excluded

FASB will consider whether NFP and EBPs will be able to adopt accounting alternatives and
standards intended for nonpublic business entities on a standard-by-standard basis
EDIT IN MASTER: CLIENT OR PRESENTATION NAME
PLANTE MORAN
5
Definition of Public Business Entity

A public business entity is a business entity meeting any one of the criteria below. Neither a
not-for-profit entity or an employee benefit plan is a business entity.

Entity is required by the SEC to file or furnish financial statements or does file or furnish
financial statements, with the SEC

Entity is required by the Securities Exchange Act of 1934, as amended, or rules or
regulations promulgated under the Act, to file or furnish financial statements with a
regulatory agency

Entity is required to file or furnish financial statements with a regulatory agency in
preparation for sale of securities or for purposes of issuing securities

Entity has(or is a conduit bond obligor for) unrestricted securities that are traded or can be
traded on an exchange or over-the-counter market

Its securities are unrestricted, and it is required to provide GAAP financial statements to be
made publicly available on a periodic basis pursuant to a legal or regulatory requirement
EDIT IN MASTER: CLIENT OR PRESENTATION NAME
PLANTE MORAN
6
Private Company Council (PCC)
 Formed by the Financial Accounting Foundation in 2012 to assist the FASB in
improving the process of setting standards for private companies
 The PCC and FASB work jointly to determine whether and when alternatives
within US GAAP should be made available for private companies
 Since its formation, the PCC has worked with the FASB on the following projects:
 Private Company Decision-Making Framework- outlines criteria to determine
whether and in what circumstances it is appropriate to adjust financial reporting
requirements for private companies that follows US GAAP.
 Definition of a Public Business Entity
 Alternatives to Existing US GAAP
EDIT IN MASTER: CLIENT OR PRESENTATION NAME
PLANTE MORAN
7
PCC Accounting for Goodwill
 ASC 2014-02 provides private companies with an accounting alternative to simplify
the goodwill accounting model
 Applicable for all entities except for public business entities and not-for-profit
entities
 Effective for years beginning after December 15, 2014 with early adoption
permitted
 If the goodwill alternative is adopted, a private company must apply all the
provisions of ASU 2014-02 prospectively to all of its existing and future goodwill.
EDIT IN MASTER: CLIENT OR PRESENTATION NAME
PLANTE MORAN
8
PCC Accounting for Goodwill
 Key provisions of ASU 2014-02:
 Requires goodwill to be amortized on a straight-line basis over a period of 10
years or less, in certain circumstances
 Make an accounting policy election to test for impairment at either the entity or
reporting unit
 Single step test for impairment, which compares the fair value of the entity or
reporting unit to its carrying amount
 Test goodwill for impairment only when there is a triggering event
EDIT IN MASTER: CLIENT OR PRESENTATION NAME
PLANTE MORAN
9
PCC Accounting for Certain Interest
Rate Swaps
 FASB issued ASU 2014-03 to provide private companies an alternative to apply
hedge accounting to certain receive-variable, pay- fixed interest rate swaps
 Applicable for private companies that are not financial institutions, excludes
public business entities and not-for-profit entities
 Effective for years beginning after December 15, 2014 with early adoption
permitted
 New and existing swaps
 Election made on a swap by swap basis
 Allows for a simplified hedge accounting approach if certain criteria are met.
 Allows for the measurement at settlement value instead of fair value.
EDIT IN MASTER: CLIENT OR PRESENTATION NAME
PLANTE MORAN
10
Pending Accounting Standards
EDIT IN MASTER: CLIENT OR PRESENTATION NAME
PLANTE MORAN
11
Accounting for Goodwill
 In February 2014, the Board considered several alternatives for accounting for
goodwill after a business combination for public business entities and not-for-profit
entities:
 Amortization of goodwill over 10 year or less with testing for impairment only
after a triggering event
 Amortization of goodwill with impairment tests over its useful life not to exceed a
maximum number of years
 The direct writeoff of goodwill
 Simplified impairment test
 No expected completion date
EDIT IN MASTER: CLIENT OR PRESENTATION NAME
PLANTE MORAN
12
Revenue Recognition
 FASB/IASB Joint Project
 In October 2013, the boards completed their last round of re-deliberations on the
remaining key issues and have instructed their staffs to draft a final standard
 Would replace all existing US GAAP revenue recognition literature for exchanged
transactions, including all industry-specific guidance
 Revenue proposal will reverse ASU 2011-07 as cannot have bad debt as a
contra revenue
EDIT IN MASTER: CLIENT OR PRESENTATION NAME
PLANTE MORAN
13
Revenue Recognition
Summary of the proposed model
Identify the contract with the customer
Identify the separate performance obligations in the contract
Determine the transaction price
Allocate the transaction price to the separate performance
obligations
Recognize revenue when a performance obligation is
satisfied
EDIT IN MASTER: CLIENT OR PRESENTATION NAME
PLANTE MORAN
14
Revenue Recognition
Impact of New Revenue Recognition Standards on Health Care Entities
 Revenue recognition for indigent and self-pay patients
 The exposure draft was not clear whether or how health care entities should
recognize revenue associated with indigent and self-pay patients
 Recently, the boards tentatively decided to include a “collectability” threshold for
recognition
 Contracts with Medicare/Medicaid
 Can use either “most likely amount” or “expected value” in estimating variable
consideration, whichever is best predictor
EDIT IN MASTER: CLIENT OR PRESENTATION NAME
PLANTE MORAN
15
Revenue Recognition
Impact of New Revenue Recognition Standards on Health Care Entities
 Revenue transactions involving multiple contractual relationships
 As many as four different parties may be associated with revenue transactions
involving a hospital
 Under the proposal, the “customer” is the patient
 Third-party payor makes payments on the patient’s behalf; it
is not a separate “contract with customer”
 Scope of prepaid health service contracts
 Currently, these contracts are within the scope of ASC 954-Health Care Entities
 Uncertainty exists with respect to whether these contracts are within the scope
of the new exposure draft related to insurance contracts
EDIT IN MASTER: CLIENT OR PRESENTATION NAME
PLANTE MORAN
16
Revenue Recognition
Timeline
 Final standard scheduled to be issued in the first half of 2014
 It will be effective for annual reporting periods beginning on or after December 15,
2016 for public entities with one year deferral for non-public entities
So if effective date is
Years affected would be
Calendar 2017
2016 & 2017
Fiscal year 2018
FY 2017 & FY 2018
EDIT IN MASTER: CLIENT OR PRESENTATION NAME
PLANTE MORAN
17
Leases
 Revised exposure draft was issued in May 2013 with comment period ending in
September 2013
 Boards were set to issue a final standard in the 1st quarter of 2014; however,
feedback from public continued to challenge the benefits provided to users of the
financial statements
 At their January 23, 2014 meeting, the Boards began their red liberations of the
proposals included in the May 2013 exposure draft
 Lessor accounting model
 Accounting for “Type A” leases by the lessors
 Lessee accounting model
 Lessee small-ticket leases
 No established timeframe on a final standard
EDIT IN MASTER: CLIENT OR PRESENTATION NAME
PLANTE MORAN
18
Financial Statements of Not-for-Profit
Entities
 Since 2011, the FASB has been working with the Not-for-Profit Advisory
Committee (NAC) to improve financial reporting of Not-for-Profit entities
 Objective of this project is to reexamine existing standards for financial statement
presentation by not-for-profit entities, focusing on improving:
 Net asset classification requirements
 Information provided in financial statements and notes about liquidity, financial
performance, and cash flows
 Exposure draft expected in second half of 2014
EDIT IN MASTER: CLIENT OR PRESENTATION NAME
PLANTE MORAN
19
Financial Statements of Not-for-Profit
Entities
Decisions reached
 Definition of an intermediate operating measure
 Changes to the terminology and definitions of net asset classes
 Require a direct method of reporting cash flows provided(used) by operating
activities
 Revise the cash flow categories to better align with the intermediate measure of
operations
 Require not-for-profits to report expenses by their nature and retaining the
requirement to report expenses by function
EDIT IN MASTER: CLIENT OR PRESENTATION NAME
PLANTE MORAN
20
Reporting Discontinued Operations
 Amendments change the criteria for reporting discontinued operations and
enhance convergence of the FASB and IASB’s reporting requirements for
discontinued operations
 Stakeholders believe too many disposals of assets qualify for discontinued
operations presentation
 Financial statements are not decision useful for users
 Higher costs for preparers
 Comment period of exposure draft closed on August 30, 2013
EDIT IN MASTER: CLIENT OR PRESENTATION NAME
PLANTE MORAN
21
Reporting Discontinued Operations
 Definition of discontinued operation would be changed:
 Only those components of an entity that represent a separate major line of
business or major geographic area of operations would be eligible for
discontinued operations presented in the financial statement
 Additional disclosures about discontinued operations would be required:
EDIT IN MASTER: CLIENT OR PRESENTATION NAME
PLANTE MORAN
22
{QUESTIONS}
Matt Rakay
Dawn Stark