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1 Winter Education Conference January 15, 2015 west virginia chapter Accounting and Auditing Update.

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Presentation on theme: "1 Winter Education Conference January 15, 2015 west virginia chapter Accounting and Auditing Update."— Presentation transcript:

1 1 Winter Education Conference January 15, 2015 west virginia chapter Accounting and Auditing Update

2 2 Norman serves as Partner-in-Charge of Assurance for the Western Mid-Atlantic region focusing in the areas of healthcare, not-for-profit and insurance. A certified healthcare financial professional, Norman was previously a partner with a Big Four firm, where he worked for 24 years. With his involvement with the American Institute of Certified Public Accountants Healthcare Expert Panel and FASB not-for-profit advisory committee, Norman is actively involved in accounting, financial reporting, and other matters impacting the healthcare and not-for-profit industries. His significant healthcare experience includes financial reporting, acquisition due diligence, corporate compliance, process analysis, A-133 auditing and reporting requirements, and third-party reimbursement for various types of healthcare entities including academic medical centers, community hospitals, nursing homes, home health agencies, physician practices, and research organizations. He also has experience performing audits in accordance with Government Auditing Standards and OMB Circular A-133 including Medicaid. Norman has developed and led healthcare training programs at the local, area, and national levels. PROFESSIONAL AND CIVIC ORGANIZATIONS American Institute of Certified Public Accountants (AICPA), Former Council Member and Healthcare Expert Panel Member, National Healthcare Conference Chairman, Alternative Investments Taskforce West Virginia Society of Certified Public Accountants (WVSCPA), Past President and Board of Directors Charleston Chapter of WVSCPAs, Past President Financial Accounting Standards Board (FASB), Not-for-Profit Advisory Committee Government Finance Officers Association, Special Review Committee Member Marshall University College of Business Advisory Board, President Healthcare Financial Management Association, Past Board Member Marshall University Alumni Association, Past Board Member Rotary Club, Past President and Paul Harris Fellow EDUCATION Marshall University, Bachelor of Business Administration, Accounting, summa cum laude CONTACT INFORMATION 500 Virginia Street, East Suite 800 Charleston, WV direct Norman C. Mosrie, CPA, CHFP, FHFMA

3 3 Topics 1.ASU : Revenue Recognition Background and Overview 2.FASB Project: NFP Financial Reporting Model 3.Business Associates 4.Rp-2014: New Morality Tables Released 5.Common Practice Issues: RAC Audits 6.Accounting for ICD-10 Costs 7.ASU : Continuing Care Retirement Communities – Refundable Advance Fees 8.ASU : Classification of the Statement of the Sole Proceeds of Donated Financial Assets in the Statement of Cash Flows 9.ASU : Obligations Resulting from Join and Several Liability Arrangements 10.ASU : Services Received from Personnel of an Affiliate 11.ASU : Business Combinations – Pushdown Accounting 12.ASU : Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern

4 4 Discuss recent accounting standards as well as emerging practice issues related to healthcare entities 4

5 5 Coincidence…or NOT???IF… A B C D E F G H I J K L M N O P Q R S T U V W X Y ZEQUALS… Then… K+N+O+W+L+E+D+G+E = 96% H+A+R+D+W+O+R+K = 98% Both are important, but fall just short of 100%

6 6 Coincidence…or NOT??? BUT… = 100% __+__+__+__+__+__+__+__

7 7 Coincidence…or NOT???

8 8 ASU Revenue Recognition Background and Overview

9 9 ASU : Revenue Recognition Objective: single, principle-based revenue standard Improve accounting for contracts with customers More robust framework for recognizing revenue Increased comparability across industries and capital markets Better disclosures Substantially converged with IFRS on major provisions

10 10 ASU : Summary FASB created a new Topic 606 that will replace Topic 605 when this standard is adopted –ASU will supersede most industry-specific guidance Core principle is to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services Guidance specifies the accounting for an individual contract with a customer; however, as a practical expedient, an entity may apply guidance to a portfolio of contracts (or performance obligations) with similar characteristics if the entity reasonably expects that the effects on the financial statements would not differ materially from applying guidance to individual contracts

11 11 Scope All contracts with customers, except –Lease contracts –Insurance contracts –Financial instruments –Guarantees –Non-monetary exchanges between entities in the same line of business to facilitate sales to customers Also excluded: contributions, collaborative arrangements Sales/Transfers of nonfinancial assets outside of the entity’s ordinary activities (Subtopic ) –Recognition and measurement guidance

12 12 Five steps to apply standard Recognize revenue to depict the transfer of goods or services in an amount that reflects the consideration to which the entity expects to be entitled Identify the contract(s) with a customer Identify the performance obligations in the contract Determine the transaction price Allocate the transaction price to the performance obligations in the contract Recognize revenue when (or as) the entity satisfies a performance obligation 12345

13 13 Effective Date Fiscal years, and interim periods within those years, beginning after December 15, 2016 (no early adoption) Public business entities and certain not-for-profit entities including conduit bond obligors Fiscal years beginning after December 15, 2017, interim periods in fiscal years beginning after December 15, 2018 (can adopt at same time as public business entities) All other entities

14 14 Transition Approaches The following chart summarizes the transition options available to entities (based on a calendar fiscal year for NFP conduit bond obligor) Transition Approach Date of Cumulative Effect Adjustment Full RetrospectiveRestate for all contracts Apply to all contracts January 1, 2016 Retrospective Using One or More Practical Expedients Restate for all contracts except for contracts or estimates covered by the practical expedients elected by the entity Apply to all contracts January 1, 2016 Cumulative Effect at the Date of Adoption No contracts restated; reported on the basis of legacy guidance Apply to all contracts January 1, 2017

15 15 ASU : Implementation FASB: Joint Transition Resource Group –To identify and discuss broader issues, including those that may warrant follow-up standard-setting activity by the FASB –Similar to what we’ve done in the past following issuance of FAS 157 (Valuation Resource Group) and certain other broad standards AICPA: Various Industry-focused Groups –Includes one for Healthcare and one for NFPs –Work to culminate in the issuance of a Revenue Recognition Guide Significant effort likely to be expended as the U.S. moves from the current industry-specific guidance to this new, broader, principles-based approach

16 16 AICPA Revenue Recognition Task Forces Develop a new Accounting Guide on Revenue Recognition Guide to provide helpful hints and Illustrative examples on how to apply the standard Guidance will not be prescriptive but instead intended to be a resource Full implementation issues will be posted for comment after review from the overall Revenue Recognition Working Group and FinREC List of issues by industry is posted on the AICPA website –www.aicpa.orgwww.aicpa.org

17 17 ASU An entity shall consider the terms of the contract and its customary business practices in determining the transaction price Indicates that the entity should consider its intention to offer price concessions to the customer, which would be applicable to uninsured patients in a provider setting

18 18 Revenue Recognition Project: Provider Specific Considerations Revenue transactions involving multiple contractual relationships –Many different parties may be associated with a revenue transaction involving a hospital –The “customer” is the patient Third-party payor makes payment on the patient’s behalf; it is not a separate “contract with a customer” Many implementation issues will likely arise. Two issues identified as having potential significant impact on providers are: –Accounting for uninsured patients –Estimating variable consideration from governmental payors

19 19 Revenue Recognition Project: Provider Specific Considerations Issue #1: How are services performed from uninsured patients accounted for? See sections through 105 –Provider evaluates the patient’s intent and ability to pay –Estimate of variable consideration based on collection history of patients in the customer class (i.e. discounts and price concessions) –The amount estimated to be uncollectible from uninsured patients is considered a price concession Gross charges of $10,000 but only expect to receive $1,000 recognize $1,000 of revenue assuming other criteria under are met

20 20 Financial Reporting - Presentation of Bad Debts Under current practice, ASU requires some healthcare providers to present bad debt as a deduction from patient service revenue Under the new standard, bad debts will be presented as an operating expense

21 21 Revenue Recognition Project: Provider Specific Considerations Issue #2:How should providers estimate variable consideration from arrangements from governmental payors? Determination of the transaction price for third-party settlements –Medicare/Medicaid cost report settlements –RAC accruals –Risk adjustments for Prepaid Health plans

22 22 Revenue Recognition Project: Provider Specific Considerations Issue #2 (cont’d): How does the use of expected amount/most likely amount ( ) differ from today’s “best estimate”? –Use method which entity expects to better predict the amount of consideration to which it will be entitled Use of Expected Value (probability-weighted amount) Use of Most Likely Amount (single most likely amount in a range of possible considerations)

23 23 Other Healthcare Issues identified Identifying the performance obligation and recognition of refundable and non- refundable entrance fees for CCRC’s Prepaid Health Services Accountable Care Organizations Contract acquisition costs

24 24 FASB Projects Not-for-profit Financial Reporting Model

25 25 NFP financial reporting project Goals –Better align activity in operating and cash flow statements –Better align reporting between NFP HCOs and other NFPs Statement of Operations categories Statement of Cash Flows categories Business and charitable activities Operating activities Investing activities Nonoperating activities Financing activities

26 26 Financial Performance: Operating Measure Defined a required intermediate operating measure for all NFPs—based on two dimensions: Mission (Business & Charitable Activity): based on whether resources are from or directed at carrying out an NFP’s purpose for existence (vs. investing and financing) Availability: based on whether resources are available for current period activities and reflecting limits of both: - external donor-imposed limitations and -internal actions of an NFP’s governing board Presentation of Transfers, to depict internal actions: Separate section within operating measure, after revenue and expense subtotal Includes gifts of/ for capital items when placed in service

27 27 Operating Measure NFP business-oriented health care entities no longer required to present the performance indicator Remove req. that if an operating measure is presented, then the change in unrestricted net assets must be shown (ASC )

28 28 Net Assets Unrestricted Temp. Restricted Perm. Restricted Without Donor Restrictions With Donor Restrictions Amount and purpose of board designations Nature and amount of donor restrictions Current GAAP Proposed GAAP Disclosures + “ Underwater” Endowments Revised net asset classification: Reflected in net assets with donor restrictions rather than in net assets without donor restrictions Enhanced disclosure in addition to current GAAP

29 29 Without Donor Restrictions With Donor Restrictions Business and charitable activities (operating) Operating revenuesXXX Operating expensesXXX Revenues in excess of expensesXXX Transfers in/(out)XXX New performance (operating) measureXXX Nonoperating activities (financing/investing/other) Interest expenseXXX Investment returnXXX OCI itemsXXX Transfers in/out(XXX) Change in net assetsXXX Proposed new performance statement The basic framework

30 30 Today’s model Proposed new model Interest expense

31 31 Reporting of Investment Expenses Net presentation of investment expenses against investment return on the face of the statement of activities Netting limited to external and direct internal expenses How to present? Disclosure of investment expenses no longer required, except for the disclosure of the amount of internal salaries and benefits that have been netted (if any) against investment return What to disclose?

32 32 Today’s model Proposed new model Investment return

33 33 Today’s model Proposed new model Contributions

34 34 Without Donor Restrictions With Donor Restrictions Business and charitable activities (operating) Cash gifts restricted for PP&E$ ---$ 100 Release of restriction100(100) Gift of building to be used in operations90 Revenues in excess of expensesXXX Transfers: Gifts of/for long-lived assets(190) New performance (operating) measureXXX Nonoperating (financing/investing/other) Transfers: Gifts of/for long-lived assets190 Change in net assetsXXX Contributions for PP&E If instead, NPO planned to sell the building (e.g. to obtain cash for investment), no transfer to nonoperating would be made

35 35 Business and charitable activities (operating) Unrestricted contributionsxxx Release of restrictionxxx Revenues in excess of expensesxxx Transfers in (out): Board-designated for quasi-endowment(XX) Spending rate on endowmentXXX New performance (operating) measureXXX Nonoperating (financing/investing/other) Transfers in (out): Board-designated for quasi-endowmentXX Spending rate on endowment(XXX) Change in net assetsXXX Operating: contributions that are available for current spending Transfers: used to reflect impact of governing board designations Other Transfers

36 36 Financial Performance: Cash Flow Statement Require Direct Method for operating cash flows - Indirect method no longer permitted Re-categorize certain items to better align “operating” with activities statement and operating measure –Purchases and proceeds on sales of PP&E –Cash restricted for PP&E –Cash from interest and dividends –Interest paid on long-term debt

37 37 Cash Flow Statement Cash Flows from Operating Activities Cash received from service recipients Cash received from donors Cash paid to employees Cash paid to vendors Purchase of property and equipment Proceeds on sale of property and equipment Contributions restricted for property and equipment Net cash from operating activities Cash Flows from Investing Activities Cash received from interest and dividends Purchase of investment assets Proceeds from sale of investments Net cash from investing activities Cash Flows from Financing Activities Payments of principal on long-term debt Interest paid on long-term debt Contributions restricted for endowment Net cash from financing activities Net increase in cash Cash at the beginning of year Cash at end of year

38 38 FUNCTION * Reporting of Expenses Program ActivitiesSupporting Activities Total Operating Expenses Non- Operating Total Expenses Program AProgram BM&GFundraising Salaries & Benefits Grants to Others Equipment Rental & Maintenance Occupancy Cost Depreciation Information Technology Professional Service Fees Supplies Travel Printing & Publication Interest Other Total * * Either (or both) on face of Statement of Activities Not functionalized Qualitative disclosure on cost allocation among program and support functions required Also, will provide better guidance on ‘Management and general’ activities

39 39 Liquidity 1.Quantitative information about: a)The total amount of financial assets b)Amounts that are not available to meet cash needs within the time horizon because of (1) external limits and (2) internal actions of a governing board c)The total amount of financial liabilities that are due within that time horizon. 2.Qualitative information about how the entity manages its liquidity. For example, an entity might disclose: a)Its strategy for addressing entity-wide risks that may affect liquidity, including its use of lines of credit b)Its policy for establishing liquidity reserves c)Its basis for determining the time horizon used for managing liquidity Asset type / debt maturity Donor / other external restrictions and internal limits The Board decided that an entity should define the time horizon it uses to manage its liquidity (for example, 30, 60, or 90 days) and disclose the following information:

40 40 NFP Financial Statements: Next Steps Exposure Draft (ED)—proposed ASU exposed for comments (estimated: Q1 2015) –Board to have final cost-benefit discussion prior to issuance Comment period (Q1-Q2 2015): more outreach, field visits/ workshops, roundtables, etc. Begin redeliberations in Q3 2015

41 41 Business Associates HIPAA / HITECH

42 42 Background-HIPAA Health Insurance Portability & Accountability Act of 1996 (HIPPA) –Governs the access, use, and disclosure of protected health information by covered entities Covered entity: –health plan, –health care clearinghouse, –or a health care provider who transmits any health information in electronic form in connection with a transaction covered by HIPAA

43 43 Background-HIPAA Protected Health Information (“PHI”): Individually identifiable health information that is transmitted or maintained in any form or medium. –Individually Identifiable Health Information: Information, including demographic information, created or received by a health care provider, health plan, employer, or health care clearinghouse that can be used to identify an individual and that relates to the person’s health care.

44 44 Background-HITECH Health Information Technology for Economic and Clinical Health Act (HITECH), –Enacted as part of the American Recovery and Reinvestment Act of 2009 (“Stimulus Bill”), P.L Amends HIPAA to impose significant new duties on covered entities and business associates to notify patients, the Federal Government, and the media of breaches of unsecured PHI Requires breach investigation and notification Increased penalties and sanctions

45 45 Business Associate Business Associate: third-party (not an employee of the covered entity) that performs or assists in performing a function or activity involving the use or disclosure of PHI –Vendors –Service providers (billing, tech support) –Accounting firms, law firms

46 46 Business Associate Agreements Health plans and providers are required to enter into business associate agreements (“BAAs”) with business associates BAAs impose on the business associate similar obligations to those on the health plan or provider Either party to a BAA must take action if aware that the other party has violated confidentiality Business associates now have affirmative duty to notify covered entities of breaches of unsecured PHI and to take steps to prevent and mitigate breaches. Business associates can be directly liable for breaches and are subject to the same penalties as covered entities.

47 47 Rp-2014 New Mortality Tables Released

48 48 New RP-2014 Mortality Tables Released The Society of Actuaries released new RP mortality tables in October These new mortality tables should be used in estimating pension and other obligations with measurement dates of October 2014 and forward. Tables reflect an increase in life expectancy so obligations are expected to increase. Management should discuss the new mortality tables with plan actuaries that they plan to rely on as specialists.

49 49 Common Practice Issues 49 RAC Audits

50 50 Common Practice Issues: RAC Audits revenue reserve at the date the services are renderedQuestion: Is it appropriate for an HCO to record a revenue reserve at the date the services are rendered for Medicare revenue that it believes CMS will “take back” as a result of future adjustments and/or findings? make a reasonable estimate of the amounts it expects to receive from third-party payers services are renderedHCOs should make a reasonable estimate of the amounts it expects to receive from third-party payers and such estimates shall be recorded in the period that the related services are rendered reported in the period during which the services are provided even though the actual amounts may become known at a later date –ASC states “Estimates of contractual adjustments, other adjustments, and the allowance for uncollectibles shall be reported in the period during which the services are provided even though the actual amounts may become known at a later date.

51 51 Common Practice Issues: RAC Audits There is significant diversity in practice on how healthcare entities are estimating and recording recoveries for claims under appeal. When an entity receives notification from CMS of the payment reduction it indicates that the revenue criteria may not been met…so the company must evaluate whether this is –a change in estimate, or –a correction of a prior period error.

52 52 Common Practice Issues: RAC Audits If this is considered to be a change in estimate then –an accrual for RAC adjustment should be recorded –this is generally a contra revenue adjustment along with the set up of a corresponding liability There is a diversity of practice on when to record a receivable for recoveries on appealed claims. There are two alternate views on this topic…

53 53 Common Practice Issues: RAC Audits View 1: –This view is based on ASC , Contingencies. –Since it is not certain that the provider’s appeal will be successful, no receivable or related gain should be recorded until the appeals process is complete.

54 54 Common Practice Issues: RAC Audits View 2: –This view is based on SOP 00-1,“Auditing Health Care Third-Party Revenues and Related Receivables,” which states that “The fact that information related to the effects of future program audits, administrative reviews, regulatory investigations, or other actions does not exist does not lead to a conclusion that the evidence supporting management's assertions is not sufficient to support management's estimates”. –Under this view, estimating recoveries for the successful appeal of denied RAC claims would be appropriate.

55 55 Common Practice Issues: RAC Audits –However, this estimate should be based on provider specific facts and circumstances and the success rate of the organization during prior appeals process related to similar claims. –While industry data can (i.e. AHA, RACTRAC) be used to corroborate company estimates, many believe that can’t be the sole support for recording claims recoveries. –Some firm’s have taken the position that View 1 is the only acceptable response in absence of provider specific data as described above so need to discuss with your auditor early in the estimation process.

56 56 Program Integrity Audits (Cont’d) Recovery Audit Contractors (RACs) Recent CMS 68% Settlement Offer –All outstanding appeals of denied short-term IP stays –Hospitals had 14 days to submit final list of claims and signed Administrative Agreement after accepting –Deadline to accept was 10/31/14 56

57 57 Common Practice Issues: RAC Audits For more information on this topic, please refer to the HFMA white paper at:

58 58 ICD-10 Accounting for ICD-10 Costs

59 59 Accounting for Costs Incurred During Implementation of ICD-10 Effective Date –ICD-10 implementation deadline of 10/1/14 10/1/15 Impact –Costs incurred are either capitalized or expensed: Business process re-engineering - Expense as incurred Education and training of coders, clinicians, and business office personnel - Expense as incurred Project consultants - Capitalize/expense as appropriate –Allocate contract price to project components based on relative fair values, then treat accordingly Modification and replacement of billing and medical records information systems - Capitalize/expense as appropriate

60 60 Accounting for Costs Incurred During Implementation of ICD-10 Impact –Modification and replacement of billing and medical records information systems: Property and equipment – Capitalize based on capitalization policy –Allocate maintenance/service costs and report separate from fixed assets Software development and modification –Only upgrades and enhancements that result in additional functionality can be capitalized »Preliminary project stage – Expense as incurred »Application development stage - Capitalize/expense using internal-use software guidance »Post implementation-operation stage – Expense as incurred

61 61 ASC Illustration Internal-Use Software Implementation Costs Legend: a -Expense as incurred per ASC b -Expense as incurred per ASC c -Capitalize per ASC

62 62 ASU Continuing Care Retirement Communities – Refundable Advance Fees

63 63 ASU : Health Care Entities, Continuing Care Retirement Communities – Refundable Advance Fees Continuing care retirement communities should classify advance fees as deferred revenue only when –A resident contract provides that a portion of the advance fee is refundable upon re-occupancy by a subsequent resident –The refund is limited to the proceeds from the new occupant, and –Legal and management policy and practice support the withholding of refunds under this condition. Otherwise amounts would be classified as a refundable fee liability. Reported as cumulative effect adjustment to beginning net assets or retained earnings of the earliest year presented.

64 64 ASU : Health Care Entities, Continuing Care Retirement Communities – Refundable Advance Fees Effective Date –For public entities, effective fiscal periods beginning after December 15, 2012 If your organization has publicly traded debt or conduit debt, you would be considered a public entity for reporting purposes. For example, tax exempt bonds issued through an issuing authority would be conduit debt. –For non-public entities, fiscal periods beginning after December 15, –Retrospective application to all prior periods presented upon the date of adoption is permitted. 64

65 65 Classification of the Statement of the Sale Proceeds of Donated Financial Assets in the Statement of Cash Flows ASU

66 66 ASU : Not-for-Profit Entities: Classification of the Sale Proceeds of Donated Financial Assets in the Statement of Cash Flows Affects entities within the scope of ASC 958 that accept donated financial entities Not-for-profit entities receive donations in many forms, including various types of financial assets (e.g., equity and debt securities, partnership interests). Many NFPs have policies requiring that donated financial assets be sold shortly after being received from the donor

67 67 ASU : Not-for-Profit Entities: Classification of the Sale Proceeds of Donated Financial Assets in the Statement of Cash Flows A not-for-profit entity should classify the sale of donated securities that are directed to be sold upon receipt in the near-immediate future and that can be sold in the near-immediate future as operating activities in the statement of cash flows However, if the donor restricted the use of the contributed resources to long-term purpose, then those cash receipts should be classified as cash flows from financing activities 67

68 68 ASU : Not-for-Profit Entities: Classification of the Sale Proceeds of Donated Financial Assets in the Statement of Cash Flows Effective Date –Effective prospectively for fiscal years, and interim periods within those years, beginning after June 15, 2013 –Retrospective application to all prior periods presented upon the date of adoption is permitted 68

69 69 ASU Obligations Resulting from Joint and Several Liability Arrangements

70 70 ASU : Liabilities, Obligations Resulting from Joint and Several Liability Arrangements Affects entities that are jointly and severally liable with other entities The ASU requires entities to “measure obligations resulting from joint and several liability arrangements for which the total amount of the obligation within the scope of this guidance is fixed at the reporting date, as the sum of the following: –The amount the reporting entity agreed to pay on the basis of its arrangement among its co-obligors –Any additional amount the reporting entity expects to pay on behalf of its co-obligors Additional required disclosures 70

71 71 ASU : Liabilities, Obligations Resulting from Joint and Several Liability Arrangements Effective Date –For public entities, effective for fiscal years beginning after December 31, 2013 (and interim reporting periods within those years) –For nonpublic entities, effective for the first annual period ending on or after December 15, 2014 and interim and annual reporting periods thereafter –The ASU should be applied retrospectively to obligations with joint-and-several liabilities existing at the beginning of an entity’s fiscal year of adoption. –Entities that elect to use hindsight in measuring their obligations during the comparative periods must disclose that fact –Early adoption is permitted 71

72 72 ASU Services Received from Personnel of an Affiliate

73 73 ASU : Not-for-Profit Entities, Services Received from Personnel of an Affiliate Affects not-for-profit entities, including not-for profit, business- oriented health care entities, that receive services from personnel of an affiliate that directly benefit the recipient not-for-profit entity and for which the affiliate does not charge the recipient not-for-profit entity. ASU requires a recipient not-for-profit entity to recognize all services received from personnel of an affiliate that directly benefit the recipient not-for-profit entity. Services should be measured at the cost recognized by the affiliate for the personnel providing those services. In certain instances it may not be appropriate to measure at cost, and the recipient not-for- profit entity may elect to recognize the service received at either (1) the cost recognized by the affiliate for the personnel providing that service or (2) the fair value of that service. 73

74 74 ASU : Not-for-Profit Entities, Services Received from Personnel of an Affiliate Effective date –Effective prospectively for fiscal years beginning after June 15, 2014, and interim and annual periods thereafter –A recipient not-for-profit entity may apply the amendments by using a modified retrospective approach under which all prior periods presented on the adoption date should be adjusted but no adjustment should be made to the beginning balance of net assets for the earliest period presented –Early adoption is permitted 74

75 75 ASU Business Combinations - Pushdown Accounting

76 76 ASU : Business Combinations – Pushdown Accounting Previously no guidance for non SEC registrants and current U.S. GAAP offered limited guidance when and how pushdown accounting should be applied New ASU provides option to apply pushdown accounting when acquirer (defined in Topic 805) obtains control of reporting entity Effective on November 18, 2014

77 77 ASU : Business Combinations – Pushdown Accounting Scope – Applies to the separate financial statements of an acquired entity and its subsidiaries that are a business or non-profit activity (either public or non- public) in which an acquirer obtains control of the acquired entity Main Provisions --- –Acquired entity may elect the option to apply pushdown accounting in the reporting period when the change-in-control event occurred –Acquired entity may elect the option to apply pushdown accounting in a subsequent reporting period (this will be treated as a change in accounting principle in accordance with Topic 250)

78 78 ASU : Business Combinations – Pushdown Accounting An acquirer can obtain control in a variety of ways: a)transferring cash or other assets b)incurring liabilities c)issuing equity interests d)providing more than one type of consideration e)W/O transferring consideration, including by contract alone

79 79 ASU : Business Combinations – Pushdown Accounting If an acquiree elects the option to apply pushdown accounting –Reflect in its separate FS the new basis of accounting established by the acquirer for the individual assets and liabilities –Shall recognize goodwill that arises because of pushdown accounting –Bargain purchase gains recognized by the acquirer shall not be recognized in the income statement of the acquiree The bargain purchase gain shall be recognized as an adjustment to APIC or net assets for a non-profit

80 80 ASU : Business Combinations – Pushdown Accounting Disclosures: The name and a description of the acquirer How they obtained control Acquisition date Acquisition-date FV of the total consideration Amounts recognized by the acquiree for each major class of assets and liabilities Qualitative description of the factors that make up goodwill recognized and intangible assets that do not qualify for separate recognition Info to evaluate the financial effects of the adjustments

81 81 Q & A


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