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Accounting and Tax Update Presented by: Bob Prill, CPA and Tori Bryson, CPA Hoffman, Stewart & Schmidt, P.C.
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Presented by: Bob Prill, CPA and Tori Bryson, CPA Hoffman, Stewart & Schmidt, P.C.

Dec 18, 2015

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  • Slide 1
  • Presented by: Bob Prill, CPA and Tori Bryson, CPA Hoffman, Stewart & Schmidt, P.C.
  • Slide 2
  • Session Objectives Provide an update of recent activities among accounting standard setters Financial Accounting Standards Board (FASB) American Institute of Certified Public Accountants (AICPA) U.S. Government Accountability Office (GAO) and Office of Management and Budget (OMB) Discuss issues related to Internal Revenue Service Form 990
  • Slide 3
  • FASB Activities Convergence with International Financial Reporting Standards (IFRS) Joint project between FASB and IFRS Goal of establishing a single set of accounting standards Adoption uncertainty and where do nonprofits fit in?
  • Slide 4
  • Accounting for Leases Exposure draft issued in August, 2010 Waiting for revised exposure draft 2013? Will change how entities report leasing activity
  • Slide 5
  • Accounting for Leases Current methods: Operating leases Capital leases Proposed method Right of use model
  • Slide 6
  • Accounting for Leases
  • Slide 7
  • Recognition models Straight-line method Front loaded method
  • Slide 8
  • Measuring Charity Care for Disclosure Issue addressed by Accounting Standards Update (ASU) 2010-23 in August, 2010 Effective for fiscal years beginning after December 15, 2010 Intended to reduce diversity in practice regarding the measurement basis Requires that healthcare entities use the cost basis of measurement for charity care disclosures cost is defined as the direct and indirect costs of providing care
  • Slide 9
  • Measuring Charity Care for Disclosure Entities should disclose a description of the method used to calculate cost Use of estimates is permitted (for example cost to charge ratio) Entities should disclose reimbursements received intended to compensate for providing charity care
  • Slide 10
  • Charity Care Sample Disclosure XYZ provides care to patients who are unable to pay for the health care services they receive. XYZ does not pursue collection of amounts determined to qualify as charity care, and accordingly, these amounts are not reported as net patient service revenue. The cost of providing these services was determined by [describe the method used] and totaled approximately $XX for the year ended December 31, 20XX. During the year ended December 31, 20XX, XYZ received $XX for the support of its charity care program.
  • Slide 11
  • ASU 2011-07 Health Care Entities Presentation and Disclosure of Patient Service Revenue, Provision for Bad Debts, and the Allowance for Doubtful Accounts for Certain Health Care Entities Issued July, 2011 For nonpublic entities, is effective for the first annual period ending after December 15, 2012. Early adoption is permitted
  • Slide 12
  • ASU 2011-07 Some health care entities will display bad debt expense as a deduction from patient service revenue (net of contractual allowances), rather than as expense ASU applies to health care entities with a significant gross up of revenue and bad debt associated with providing care Bad debt expense related to non-patient service revenue will continue to be reported as an expense
  • Slide 13
  • ASU 2011-07 Scope of the ASU Limited to those entities that recognize significant amounts of patient service revenue at the time the services are rendered even though the entities do not assess a patients ability to pay The ASU does not define the term significant Is the entity required by law to provide services?
  • Slide 14
  • ASU 2011-07 Expanded disclosure requirements Policy for assessing collectibility with respect to the timing and amount of revenue recognized Revenue (net of contractual allowances and discounts) before any provision for bad debt Quantitative and qualitative information about significant changes in the allowance for doubtful accounts related to patient accounts receivable
  • Slide 15
  • ASU 2011-07 Presentation on statement of activities:
  • Slide 16
  • ASU 2011-07 Policy for assessing collectibility: Entity A recognizes patient service revenue associated with services provided to patients who have third-party payor coverage on the basis of contractual rates for the services rendered. Entity A recognizes significant amounts of patient service revenue at the time services are rendered event though it does not assess the patients ability to pay. For uninsured patients who do not qualify for charity care, Entity A recognizes revenue on the basis of its standard rates for services provided (or on the basis of discounted rates, if negotiated or provided by policy). On the basis of historical experience, a significant portion of Entity As uninsured patients will be unable or unwilling to pay for the services provided. Thus, Entity A records a significant provision for bad debts related to uninsured patients in the period the services are provided. Patient service revenue, net of contractual allowances and discounts (but before the provision for bad debts), recognized in the period from these major payor sources, is as follows:
  • Slide 17
  • ASU 2011-07 FASB Codification 954-310-55-1 has an illustrative disclosure of the qualitative and quantitative information about changes in the allowance for doubtful accounts Statement of activities display provisions applied retrospectively Disclosure provisions of this ASU applied prospectively
  • Slide 18
  • Accounting for Costs Incurred During Implementation of ICD-10 The U.S. health care system is scheduled to transition from International Classification of Diseases, 9 th edition (ICD 9) to ICD 10 Number of available codes to go from 24,000 to over 155,000 Expected to provide the following benefits to health care entities: Improved precision in documentation of clinical care Higher quality and more specific data that can be used to improve disease management and clinical outcomes
  • Slide 19
  • Accounting for Costs Incurred During Implementation of ICD-10 Applicable guidance FASB ASC 350-40 (Internal Use Software) FASB 720-45 (Business Project Reengineering) AICPA Technical Practice Aid (TPA) 6400.48 Generally, costs of modifying existing systems are expensed Costs that add additional functionality can be capitalized
  • Slide 20
  • Accounting for Costs Incurred During Implementation of ICD-10 Functionality factors Extent and types of changes made to software design Extent of additional coding required and software processes developed Ability to use additional coding capabilities Past history of system upgrades
  • Slide 21
  • Accounting for Costs Incurred During Implementation of ICD-10 Specific facts and circumstances will need to be evaluated Much of the cost will likely be expensed Some costs associated with upgrades/enhancements may qualify for capitalization
  • Slide 22
  • AICPA Risk Alert Risk alert identifies several risk areas: Collectibility of receivables Rising costs Staffing concerns/segregation of duties Violations of regulatory requirements Industry trend towards consolidation
  • Slide 23
  • Accounting for Combination of NFPs Many entities may be applying the guidance in FASB ASC 958-805 for the first time Merger vs. acquisition Merger two or more organizations cede control of those entities to create a new nonprofit organization Acquisition An organization obtains control of one or more nonprofit organizations or activities Proper accounting depends on type of transaction
  • Slide 24
  • Accounting for Combination of NFPs Merger should be accounted for using the carryover method (similar to the pooling of interest method) Assets and liabilities of merged entities brought in from their separate GAAP basis financial statements Acquisition should be accounted for at fair value Fair value is the price that would be received to sell an asset or transfer a liability in an orderly transaction between market participants at the measurement date
  • Slide 25
  • AICPA Audit Guide Health Care Entities Issued in 2011 replaced the 1996 edition Scope remains unchanged Organized into 15 chapters Contains expanded disclosure and commentary No longer contains illustrative financial statements Health Care Guide vs. Not-for-Profit Guide
  • Slide 26
  • AICPA Audit Guide Not-for-Profit Entities Major overhaul in process exposure draft issued Expect final version to be released soon Enhancements made to minimize diversity in practice in several areas: Reporting relationships with other entities Measurement and reporting of gifts-in-kind Income tax considerations Net assets and reporting of expiration of donor-imposed restrictions
  • Slide 27
  • AICPA Clarity Project Designed to make audit standards easier to read, understand, and apply Effective for periods ending on or after December 15, 2012 Extensive revisions to existing audit literature although there are not many substantial changes Requires changes to the independent auditors report
  • Slide 28
  • GAO Developments 2011 revision of Government Auditing Standards (Yellow Book) released in December, 2011 Effective for periods ending on or after December 15, 2012 Stated purpose is to promote the modernization of auditing standards, to streamline Government Auditing Standards to other standard setters, and to address issues that the GAO has observed Most significant change in the 2011 revision relates to auditor independence
  • Slide 29
  • Single Audit Single audit required when Federal expenditures exceed $500,000 within the fiscal year Vendor vs. subrecipient status Loans with continuing compliance requirements Interest subsidies
  • Slide 30
  • Single Audit Auditee responsibilities (A-133 Subpart C) Preparation of the financial statements and the Schedule of Expenditures of Federal Awards (SEFA) Maintain internal control over Federal programs Compliance with laws, regulations, provisions of contracts and grants Ensure Single Audit is performed and submitted when due Follow-up and take corrective action on audit findings
  • Slide 31
  • Single Audit Low-risk auditees must have 25% of Federal expenditures audited each year vs. 50% for non-low risk auditees Various criteria must be satisfied in order to be considered low-risk Major program determinations watch out for clusters
  • Slide 32
  • Single Audit Compliance supplement Updated annually http://www.whitehouse.gov/omb/circulars/a133_compliance_ supplement_2012 Gives auditors authoritative guidance on how to conduct an audit under Circular A-133 Gives auditees and auditors guidance on the specific requirements by Federal program
  • Slide 33
  • Single Audit Common single audit deficiencies Failure to accurately identify and test all major programs Failure to meet the percentage coverage rule Notes not included with the SEFA SEFA missing certain required information
  • Slide 34
  • Single Audit February, 2012 proposal by OMB New 3 tiered single audit threshold Expenditures of Federal awards under $1 million No single audit Expenditures of Federal awards between $1 to $3 million 2 compliance requirements Allowable costs and as determined by Federal agency Expenditures over $3 million Full single audit
  • Slide 35
  • Single Audit Proposed reforms to cost principles Consolidation of cost circulars (A-21, A-81, A-122) into a single document Indirect cost changes option of flat rate rather than negotiated rate Exploring alternatives to time and effort reporting requirements for salaries and wages
  • Slide 36
  • IRS Form 990 Form 990 is the main source of information about your governance, operations and programs that is publicly available Form 990 underwent major overhaul effective for fiscal year 2008 filings Core form consists of 12 pages, with up to 16 supplementary schedules that may need to be completed
  • Slide 37
  • IRS Form 990 In addition to financial information, core form focuses on governance and transparency Conflict of interest policy Whistleblower protection policy Document retention and destruction policy Compensation of key executives
  • Slide 38
  • IRS Form 990 Form is due 5 months after fiscal year-end Automatic 3 month extension by filing page 1 of Form 8868 Additional 3 month extension available (not automatic) by filing page 2 of Form 8868 Must provide reason for second extension request
  • Slide 39
  • Questions?
  • Slide 40
  • Thank You! Bob Prill, CPA [email protected] Tori Bryson, CPA [email protected] Hoffman, Stewart & Schmidt, P.C. 4900 Meadows Road, Suite 200 Lake Oswego, Oregon 97035 (503) 220-5900