Presentation on theme: "Www.eidebailly.com Tyler Bernier, CPA August 16, 2013 Accounting and Finance Reporting Changes: What Your Healthcare Organization Needs to Know."— Presentation transcript:
www.eidebailly.com Tyler Bernier, CPA August 16, 2013 Accounting and Finance Reporting Changes: What Your Healthcare Organization Needs to Know
www.eidebailly.com 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
www.eidebailly.com 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
www.eidebailly.com 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
www.eidebailly.com 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
www.eidebailly.com 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
www.eidebailly.com Electronic Health Records SEC Method/Model “Gain contingency” - delays recognition Relevant Accounting Considerations Gain contingency Revenue recognition Matching
www.eidebailly.com 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
www.eidebailly.com 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
www.eidebailly.com 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
www.eidebailly.com 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
www.eidebailly.com 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.
www.eidebailly.com 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
www.eidebailly.com 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 (look- back period) of RAC audits Consider potentially successful appeals
www.eidebailly.com 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
www.eidebailly.com 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
www.eidebailly.com 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
www.eidebailly.com Clarified Audit Standards Combination, re-organization, and clarification of existing standards Some new matters incorporated Why does this matter to you as the provider?
www.eidebailly.com 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
www.eidebailly.com Clarified Audit Standards Updated audit opinions Additional paragraphs Titles included “Unmodified” vs. “unqualified”
www.eidebailly.com Health Care Accounting Standards Update FASB Updates
www.eidebailly.com 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”
www.eidebailly.com 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
www.eidebailly.com 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
www.eidebailly.com Bad Debts and Allowance Example Disclosure from Accounting Standards Update:
www.eidebailly.com 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
www.eidebailly.com 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
www.eidebailly.com 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
www.eidebailly.com 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
www.eidebailly.com 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
www.eidebailly.com Malpractice Claims Types of Insurance Malpractice Insurance Workers’ Compensation Health/Dental Insurance Types of Coverage Claims made policies Excess insurance coverage Umbrella coverage, etc.
www.eidebailly.com 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
www.eidebailly.com 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”
www.eidebailly.com 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
www.eidebailly.com 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
www.eidebailly.com 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
www.eidebailly.com 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
www.eidebailly.com 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
www.eidebailly.com 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
www.eidebailly.com 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
www.eidebailly.com 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
www.eidebailly.com 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.
www.eidebailly.com 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.
www.eidebailly.com 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.
www.eidebailly.com 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.
www.eidebailly.com 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
www.eidebailly.com Health Care Accounting Standards Update GASB Updates
www.eidebailly.com 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.
www.eidebailly.com 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
www.eidebailly.com 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
www.eidebailly.com 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
www.eidebailly.com 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
www.eidebailly.com 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
www.eidebailly.com 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
www.eidebailly.com 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
www.eidebailly.com 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
www.eidebailly.com 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
www.eidebailly.com 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
www.eidebailly.com 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
www.eidebailly.com 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
www.eidebailly.com 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
www.eidebailly.com 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
www.eidebailly.com 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
www.eidebailly.com 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
www.eidebailly.com 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
www.eidebailly.com 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
www.eidebailly.com 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
www.eidebailly.com 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.
www.eidebailly.com 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.
www.eidebailly.com 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
www.eidebailly.com 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.
www.eidebailly.com 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
www.eidebailly.com 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
www.eidebailly.com 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
www.eidebailly.com 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
www.eidebailly.com 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.
www.eidebailly.com 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.
www.eidebailly.com 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
www.eidebailly.com 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
www.eidebailly.com 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
www.eidebailly.com 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
www.eidebailly.com 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
www.eidebailly.com 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.”
www.eidebailly.com 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
www.eidebailly.com 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
www.eidebailly.com 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
www.eidebailly.com 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
www.eidebailly.com 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
www.eidebailly.com 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)