pya gives healthcare financial professionals overview of latest news in accounting and auditing

February 7, 2014

Prepared for Georgia Society of CPAs Healthcare Conference

Accounting and Auditing Update Overview

Georgia Society of CPAs Healthcare Conference

February 7, 2014

Presented by Doug Arnold, CPA, PrincipalPershing Yoakley & Associates, P.C.

February 7, 2014


Overview

• Recently Issued/Effective Accounting Standards Updates (ASU)

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

• Other Healthcare Specific Items

February 7, 2014


Accounting Standards Updates

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

• Other recent ASUs:

– ASU 2014-04, Receivables - Troubled Debt Restructurings by Creditors (Subtopic 310-40)

– ASU 2014-01, Investments - Equity Method and Joint Ventures (Topic 323)

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

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

February 7, 2014


Recently Issued/Effective Accounting

Standards Updates (ASU)

February 7, 2014


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

February 7, 2014


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

February 7, 2014


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

[Apply 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

February 7, 2014


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

February 7, 2014


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

February 7, 2014


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

February 7, 2014


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

[Apply 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 agree to repay, plus

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

February 7, 2014


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

– 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

February 7, 2014


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

February 7, 2014


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”

February 7, 2014


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

February 7, 2014


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

February 7, 2014


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

February 7, 2014


ASU 2013-12: Definition of a Public BusinessEntity – An Addition to the Master Glossary

• Effective: No actual effective date

• Impact:

– Identifies entities within the scope of the Private Company Decision-Making Framework (the Guide)

– Clarifies those entities which potentially qualify for alternative financial accounting and reporting guidance

February 7, 2014


ASU 2013-12: Definition of a Public BusinessEntity – An Addition to the Master Glossary

• Overview:– Provides a single definition of “Public Business Entity”

(generally one that files financial statements with the SEC)

– Excludes all NFPs from this definition. Change from past practice of “conduit debt” as indicator

– Board will consider NFPs on a standard-by-standard basis as to when NFPs may utilize alternative reporting

– Does not affect existing requirements

– As a future project, will determine if it is necessary to undertake a project for existing GAAP “public company” requirements

February 7, 2014


ASU 2014-02: Intangibles – Goodwilland Other (Topic 350)

• Effective: If elected, apply prospectively to existing goodwill and new goodwill for PBA December 15, 2014. Early application permitted.

• Impacts: All entities except “Public Business Entities,” NFPs and benefit plans

• Overview:

– Amortize goodwill, straight-line, over ten years (or less if appropriate)

– Test goodwill when triggering event occurs

– Qualitative approach, then quantitative

February 7, 2014


ASU 2014-03: Derivatives and Hedging (Topic 815)

• Effective: PBA December 15, 2014. Two approaches to adoption: modified retrospective or full retrospective

• Impacts: All entities except “Public Business Entities,” NFPs, benefit plans and financial institutions

February 7, 2014


ASU 2014-03: Derivatives and Hedging (Topic 815)

• Overview:

– Simplified approach. Interest charged on income statement (in a hedge transaction) is similar to that as if entity had directly entered into the fixed-rate borrowing

– May assume no ineffectiveness for designated hedges

– Six criteria must be met

– Measure swap at settlement value versus fair value (no non-performance risk)

February 7, 2014


Recently Issued/Effective Governmental Accounting Standards Board (GASB)

Pronouncements

February 7, 2014


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”

February 7, 2014


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

February 7, 2014



• 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

February 7, 2014




– 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

February 7, 2014




– 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

February 7, 2014


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

February 7, 2014


Other HealthcareSpecific Items

February 7, 2014


Other Healthcare Specific Items• ICD-10 implementation (TPA 6400.48)

• Presentation of Claims Liabilities and Insurance Recoveries (TPA 6400.49)

• Accrual of Legal Costs Associated with Contingencies Other than Malpractice (TPA 6400.50)

• Insurer Payment of Claims Directly (TPA 6400.51)

• Insurance Recoveries from Certain Retrospectively Rated Insurance Policies (TPA 6500.52)

February 7, 2014


Questions?

Contact information for Doug Arnold (800) 270-9629

[email protected]

pya gives healthcare financial professionals overview of latest news in accounting and auditing

Health & Medicine