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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