hfma – healthcare accounting update · 2015-03-25 · in january 2014, the financial accounting...

5/19/14

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HFMA – Healthcare Accounting Update

Meredith Douglas, Accounting & Assurance Services, LBMC Healthcare Services Buck Freeman, Accounting & Assurance Services, LBMC Healthcare Services

Today’s Presentation

•  Hot Topics in Healthcare •  Financial Accounting Standards Board

(“FASB”) Updates •  Governmental Accounting Standards

Board (“GASB”) Updates

•  Exposure Drafts / What’s Coming

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Hot Topic - ICD-10

Implementation of International Classification of Diseases, 10th Edition (“ICD-10”)

• Billing codes expanded from 24,000 to 155,000 • Transition from ICD-9 to ICD-10 to occur no earlier than October 2015

ICD-10 continued…

•  Applicable guidance – AICPA TIS Section 6400.48 – Technical

Practice Aid available to assist – ASC 350-40 (Internal Use Software Costs) – ASC 720-45 (Business Project

Reengineering) •  Most costs will likely be expensed •  Some costs associated with “upgrades/

enhancement” may be capitalized

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ICD–10 continued…

•  Costs – capitalize vs. expense –  Process re-engineering - expense –  Preliminary stage activities - expense –  Application development stage activities – capitalize

and/or expense –  Post implementation/operation stage activities

•  Specific facts and circumstances, plus professional judgment

•  Modifications that do not result in additional functionality are expensed

Chart from ASC 720-45-55

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FASB Updates

•  ASU 2013-04 - Obligations Resulting from Joint and Several Liability Arrangements for which the Total Amount of the Obligation is Fixed at the Reporting Date

•  ASU 2013-06 - Services Received from Personnel of an Affiliate

•  ASU 2013-07- Liquidation Basis of Accounting

•  ASU 2013-11 – Income Taxes

•  ASU 2013-12- Definition of a Public Business Entity

FASB Updates continued…

•  ASU 2014-02- Intangibles- Goodwill and Other

•  ASU 2014-03- Derivatives and Hedging

•  ASU 2014-07- Consolidation

•  ASU 2014-08- Presentation of Financial Statements and Property, Plant, and Equipment

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ASU 2013-04

•  ASU 2013-04 - Obligations Resulting from Joint and Several Liability Arrangements for which the Total Amount of the Obligation is Fixed at the Reporting Date –  Issued: February 2013 –  Objective: Prior to this guidance there was no guidance

on the issue. –  Affected entities: Applies to all entities, both public and

nonpublic, that have obligations resulting from the arrangements covered by the guidance.

–  Effective: Fiscal years beginning after December 15, 2013.

ASU 2013-06

•  ASU 2013-06 - Services Received from Personnel of an Affiliate –  Issued: April 2013 –  Objective: Standardizes not-for-profit entity recognition

of services received from personnel of an affiliate. –  Affected entities: Applies to all not-for-profit entities. –  Effective: Fiscal years beginning after June 15, 2014.

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ASU 2013-07

•  ASU 2013-07- Liquidation Basis of Accounting –  Issued: April 2013 –  Objective: Increase guidance on liquidation basis of

accounting. –  Affected entities: Applies to all entities presenting

financial statements in conformity with GAAP. –  Effective: Annual reporting periods beginning after

December 15, 2013.

ASU 2013-11 •  ASU 2013-11- Income Taxes – Presentation of an Unrecognized Tax

Benefit When a Net Operating Loss Carryforward or Tax Credit Carryforward Exists

–  Issued: July 2013 –  Objective: Provide guidance on the presentation of an unrecognized

tax benefit –  Affected entities: Applies to all entities that have unrecognized tax

benefits when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists at the reporting date.

–  Effective: Periods beginning after December 15, 2013 for public companies. Periods beginning after December 15, 2014. Early adoption is permitted.

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ASU 2013-12

•  ASU 2013-12- Definition of a Public Business Entity –  Issued: December 2013 –  Objective: To add the definition of a public business

entity to the master glossary. –  Affected entities: All entities considering whether

guidance does or doesn’t apply to public business entities

–  Effective: No effective date but applied in subsequent ASUs.

ASU 2014-02 •  ASU 2014-02- Intangibles—Goodwill and Other

–  Issued: January 2014 –  Objective: To provide guidance on accounting for goodwill. –  Affected entities: Applies to all entities, except for public business

entities and not-for-profit entities as defined in the Master Glossary of the FASB Accounting Standards Codification and employee benefit plans within the scope of Topics 960-965 on plan accounting

–  Effective: Annual periods beginning after December 15, 2014, and interim periods within annual periods beginning after December 15, 2015. Early application is permitted.

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ASU 2014-02 Example Footnote: In January 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update No. 2014-02 ("ASU 2014-02"), an amendment to Accounting Standards Codification 350 ("ASC 350"), Intangibles - Goodwill and Other. This update allows certain privately-held entities to elect an accounting alternative to amortize goodwill on a straight-line basis over 10 years, or less than 10 years if the entity demonstrates that another useful life is more appropriate. An entity that elects the accounting alternative is further required to make an accounting policy election to test goodwill for impairment at either the entity level or the reporting unit level. Goodwill would be tested for impairment when a triggering event occurs that indicates that the fair value of the entity (or a reporting unit) may be below its carrying value. The accounting alternative, if elected, would be applied prospectively to goodwill existing as of the beginning of the period of adoption. Early adoption of the standard is permitted. Effective January 1, 2013, the Company elected to adopt the alternative accounting for goodwill under the provisions of ASU 2014-02. Under these provisions, goodwill is amortized over a period of 10 years from the date goodwill is generated or from the implementation date of ASU 2014-02 if generated prior to the adoption of that guidance. Management has elected to perform impairment testing at the entity level which is required only when impairment indicators are identified.

ASU 2014-03 •  ASU 2014-03- Derivatives and Hedging

–  Issued: January 2014 –  Objective: To provide guidance on accounting for certain receive-

variable, pay-fixed interest rate swaps- simplified hedge accounting approach.

–  Affected entities: Applies to all entities, except for public business entities and not-for-profit entities as defined in the Master Glossary of the FASB Accounting Standards Codification, employee benefit plans within the scope of Topics 960-965 on plan accounting, and financial institutes.


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ASU 2014-07 •  ASU 2014-07- Consolidation

–  Issued: March 2014 –  Objective: Provide guidance on applying variable interest entities

guidance to common control leasing arrangements –  Affected entities: This update applies to all entities other than a public

business entity, a not-for-profit entity, or an employee benefit plan within the scope of Topics 960 through 965 on plan accounting


Mayer Hoffman McCann P.C. https://www.mhmcpa.com/home/ctl/detail/mid/632/itemid/481.aspx

ASU 2014-07

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ASU 2014-08 •  ASU 2014-08- Presentation of Financial Statements and Property, Plant,

and Equipment

–  Issued: April 2014 –  Objective: Provide guidance on reporting discontinued operations and

disclosures of disposals of components of an entity. –  Affected entities: This update applies to an entity that has either a

component that is disposed of or held for sale (205-20-45-1E), or a business or nonprofit activity, on acquisition, that is classified as held for sale(205-20-45-1E).

–  Effective: Generally, December 15, 2014

GASB Updates

•  GASB 61 - The Financial Reporting Entity: Omnibus – an amendment of GASB Statements No. 14 and No.34

•  GASB 65 - Items Previously Reported as Assets and Liabilities

•  GASB 67, 68 and 71 – all relating to Accounting and Financial Reporting for Pensions

•  GASB 69 – Government Combinations and Disposals of Government Operations

•  GASB 70 - Accounting and Financial Reporting for Nonexchange Financial Guarantees

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GASB 61

•  GASB 61 - The Financial Reporting Entity: Omnibus – an amendment of GASB Statements No. 14 and No.34

–  Issued: December 2010 –  Objective: Improve financial reporting for a governmental entity.

Modifies certain requirements for inclusion of component units in the financial reporting entity.

–  Affected entities: All governmental entities. –  Effective: Effective for periods beginning after June 15, 2012.

Early application is permitted.

GASB 65

•  GASB 65 - Items Previously Reported as Assets and Liabilities –  Issued: March 2012 –  Objective: Clarify the appropriate reporting of certain assets

and liabilities. –  Affected entities: All governmental entities. –  Effective: Effective for financial statements for periods

beginning after December 15, 2012. Earlier application is encouraged.

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GASB 67, 68 and 71

•  GASB 67 - Financial Reporting of Pension Plans – an amendment of GASB Statement No. 25

•  GASB 68 – Accounting and Financial Reporting for Pensions – an amendment of GASB Statement No. 27

•  GASB 71 – Pension Transition for Contributions Made Subsequent to the Measurement Date—an amendment of GASB Statement No.68

GASB 67, 68 and 71 continued

–  Issued: 67 and 68 - June 2012, 71 – November 2013 –  Objective: Improve financial reporting for Pension

plans.

–  Affected entities: Entities with specific types of Pension plans as described in the statement.

–  Effective: Fiscal years beginning after June 15, 2013. Earlier application is encouraged.

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GASB 69

•  GASB 69 – Government Combinations and Disposals of Government Operations –  Issued: January 2013 –  Objective: Establish standards relating to mergers,

acquisitions and transfers of operations. –  Affected entities: Governmental entities –  Effective: Periods beginning after December 15, 2013.

Earlier application is encouraged.

GASB 70

•  GASB 70 - Accounting and Financial Reporting for Non exchange Financial Guarantees –  Issued: April 2013 –  Objective: Improve accounting and financial reporting by state

and local governments that extend and receive nonexchange financial guarantees. Recognize a liability if factors indicate it is more likely than not the guarantor will be required to make a payment.

–  Affected entities: Governmental entities who extend financial guarantees without directly receiving equal or approximately equal value in exchange.

–  Effective: Periods beginning after June 15, 2013. Earlier application is encouraged.

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Exposure Drafts / What’s Coming

– FASB Exposure Drafts – GASB Exposure Drafts – Revenue recognition – Private Company reporting – Not-For-Profit

FASB Exposure Drafts –  Business Combinations (Topic 805) – Pushdown Accounting –  Compensation – Stock Compensation (Topic 718) – Accounting for

Share-based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period

–  Derivatives and Hedging (Topic 815) – Determining Whether the Host Contract in a Hybrid Financial Instrument Issued in the Form of a Share Is More Akin to Debt or to Equity

–  Presentation of Financial Statements (Topic 205) - Disclosure of Uncertainties about an Entity's Going Concern Presumption

–  Developing Stage Entities (Topic 915): Elimination of Certain Financial Reporting Requirements

–  Business Combinations (Topic 805): Accounting for Identifiable Intangible Assets in a Business Combination

–  A few others –  A revision of the 2010 proposed FASB Accounting Standards Update,

Leases

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•  Business Combinations (Topic 805) – Pushdown Accounting

•  Open for Comments until July 31, 2014 •  Issued: April 28, 2014 •  Objective: Provide guidance/clarity to private companies

for applying pushdown accounting •  Affected Entities: Acquired companies – change in

control

FASB Exposure Drafts

•  Compensation – Stock Compensation (Topic 718) – Accounting for Share-based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period

•  Closed for comment •  Issued: October 23, 2013 •  Objective: Provide guidance/clarity on certain stock

compensation activities •  Affected Entities: Companies that issue share-based

awards that have performance targets


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•  Derivatives and Hedging (Topic 815) – Determining Whether the Host Contract in a Hybrid Financial Instrument Issued in the Form of a Share Is More Akin to Debt or to Equity

•  Closed for comment •  Issued: October 23, 2013 •  Objective: Provide guidance on determining the

classification of components of hybrid financial instruments

•  Affected Entities: All companies



•  Presentation of Financial Statements (Topic 205) - Disclosure of Uncertainties about an Entity's Going Concern Presumption –  Issued: June 26, 2013 –  Closed for comment –  Objective: The proposed amendments would provide guidance in U.S.

GAAP about management's responsibilities in evaluating an entity's going concern uncertainties, and about the timing and content of related footnote disclosures.

–  Affected entities: All entities

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•  Developing Stage Entities (Topic 915): Elimination of Certain Financial Reporting Requirements –  Issued: November 7, 2013 –  Closed for comment –  Objective: Reduce the cost and complexity associated with the

incremental reporting for developing stage entities –  Affected Entities: New companies with no significant revenues


•  Business Combinations (Topic 805): Accounting for Identifiable Intangible Assets in a Business Combination –  Issued: July 1, 2013 –  Closed for comment –  PCC Initiative –  Objective: Simplify the purchase price allocation of intangibles

methodology in acquisitions of private companies –  Affected Entities: Mainly private companies

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Other FASB Exposure Drafts

•  OTHER EXPOSURE DRAFTS TO BE AWARE OF: -Income Taxes (Topic 740): Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward or Tax Credit Carryforward Exists (FASB EITF) -Financial Instruments-Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities -Insurance Contract (Topic 834) -Conceptual Framework for Financial Reporting: Chapter 8: Notes to Financial Statements -Private Company Decision-Making Framework: A Guide for Evaluating Financial Accounting and Reporting for Private Companies… more on this later…


•  FASB ASU A revision of the 2010 proposed FASB Accounting Standards Update, Leases –  Issued: May 16, 2013 –  Comments Due: September 13, 2013 –  Main Provisions: The core principle of the proposed

requirements is that an entity should recognize assets and liabilities arising from a lease.

–  Who’s affected: Any entity that enters into a lease, with some specified scope exemptions.

–  Effective date: TBD

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Leases

•  Short-term leases: – Maximum possible lease term of less than 1

year – Follows current operating lease accounting

•  Long-term leases – Leases with terms (including options to renew

or other provisions) which extend to more than 1 year

– Right-of-Use Model (recognize asset and liability)

Right-of-Use

Type A Leases – Underlying asset is not property – Amortization and interest expense

Type B Leases – Underlying asset is property – Straight line lease/rent expense

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Balance Sheet Presentation

•  Disclose separately ROU assets and lease liabilities by type (arising under Type A or B)

•  If not separately listed on BS, disclosures should include which line item they are included

•  Present ROU asset as if the underlying asset were owned

Potential Implications

•  Key balance sheet metrics such as leverage and finance ratios would change

•  Lease expense recognition pattern would be accelerated for some of today’s operating leases

•  change income statement metrics such as EBITDA. •  Debt covenants and borrowing capacity may be affected •  May change decisions to lease vs. buying significant assets

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GASB Exposure Drafts/Projects

•  GASB Measurement of Elements of Financial Statements –  Currently being deliberated –  Objective: Identify concepts for the Board to consider when

developing standards for measurement of elements of financial statements

–  Public hearing scheduled for November 1, 2013


•  Exposure Draft Fair Value Measurement and Application –  Issued: May 5, 2014 –  Objective: Review and potential revision of the following:

•  Definition of Fair Value •  Methods used to measure fair value •  Disclosures about fair value measurement

–  Effective: TBD

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•  GASB The Hierarchy of Generally Accepted Accounting Principles for State and Local Governments –  Issued: December 20, 2013 –  Objective: Consider possible modifications to the GAAP

hierarchy as set forth in GASB 55. –  Effective: TBD

www.lbmc.com

Revenue Recognition

•  IASB & FASB have struggled to agree during this process

•  Effective dates: –  Public: > Dec 2016 –  Private > Dec 2017

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www.lbmc.com

ED on Revenue Recognition (Topic 605)

•  Purpose--to reconcile differences between GAAP and IFRS

•  Revenue recognized (amount received or expected to receive) when goods or services are transferred to customer

•  Eliminate niche rules (ie-Construction)

www.lbmc.com

ED on Revenue Recogni-on (Topic 605)

•  If seller’s obliga-on can be separated into different units/segments; revenue also is separated into same units/segments for recogni-on upon sa-sfac-on

•  If price is variable, can use reasonable es-mate

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www.lbmc.com

Revenue Recogni-on Convergence

http://www.fasb.org/cs/ContentServer?site=FASB&c=Document_C&pagename=FASB%2FDocument_C%2FDocumentPage&cid=1176159791236

www.lbmc.com

Revenue Recogni-on Convergence

http://www.fasb.org/cs/ContentServer?site=FASB&c=Document_C&pagename=FASB%2FDocument_C%2FDocumentPage&cid=1176159791236

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www.lbmc.com

Private Company Reporting

HISTORY:

• Blue Ribbon Panel recommendation—create separate standard-setting board for private company GAAP

• Independent of the FASB but under FAF

www.lbmc.com


•  May 2012 – FAF created Private Company Council (PCC)

•  FASB included, but in reduced role •  PCC is deciding on exceptions/ modifications to GAAP

for private companies •  April 2013 – FASB and PCC issued an invitation to

comment on proposed private company decision-making framework

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www.lbmc.com

•  Exposure Draft •  Private Company Decision-Making Framework – A

Guide for Evaluating Financial Accounting and Reporting for Private Companies

•  Issued: April 15, 2013 •  Significant Differential Factors:

1.  Types and number of financial statement users 2.  Access to management 3.  Investment strategies of equity investors 4.  Ownership and capital structure 5.  Accounting resources 6.  Learning about new financial reporting guidance

Private Company Council

www.lbmc.com


•  Completed Projects: –  Update No. 2014-02—Intangibles—Goodwill and Other (Topic

350): Accounting for Goodwill –  Update No. 2014-03—Derivatives and Hedging (Topic 815):

Accounting for Certain Receive-Variable, Pay-Fixed Interest Rate Swaps—Simplified Hedge Accounting Approach

–  Update No. 2014-07—Consolidation (Topic 810): Applying Variable Interest Entities Guidance to Common Control Leasing Arrangements

•  Current Projects: –  Business Combinations (Topic 805): Accounting for Identifiable

Intangible Assets in a Business Combination –  Private-Company Decision-Making Framework

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www.lbmc.com

Not-for-profit

•  Operating and Non-operating Activities •  Reporting Expenses by Natural and

Functional Classification •  Net Asset Classifications •  Cash Flows

www.lbmc.com

Thank You! [email protected]

[email protected]

hfma – healthcare accounting update · 2015-03-25 · in january 2014, the financial accounting...

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