At the 2013 Tennessee Society of Certified Public Accountants Healthcare Conference , PYA Principal Doug Arnold, CPA, provided a “Healthcare Audit and Accounting Update.” The presentation outlined emerging accounting developments impacting healthcare financial reporting--from recently issued and now-in-effect Accounting Standards Updates (ASUs) to Governmental Accounting Standards Board (GASB) Pronouncements to other healthcare-specific items, such as ICD-10.

1. Healthcare Audit and
Accounting Update
Tennessee Society of CPA’s Healthcare Conference
December 3, 2013
Presented by Doug Arnold, CPA, Principal
Knoxville, TN
Prepared for Tennessee Society of CPA’s Healthcare Conference
December 3, 2013
Page 0

2. Overview
• Recently Issued/Effective Accounting Standards
Updates (ASU)
• Recently Issued/Effective Governmental Accounting
Standards Board (GASB) Pronouncements
• Other Healthcare Specific Items
Prepared for Tennessee Society of CPA’s Healthcare Conference
December 3, 2013
Page 1

3. Recently Issued/
Effective Accounting
Standards Updates (ASU)
Prepared for Tennessee Society of CPA’s Healthcare Conference
December 3, 2013
Page 2

4. Accounting Standards Updates
• Perspective of not-for-profit and governmental
healthcare entities
• For-profit organizations may be impacted by:
– ASU 2013-11, Income Taxes (Topic 740)
– ASU 2013-05, Foreign Currency Matters (Topic 830)
– ASU 2013-02, Comprehensive Income (Topic 220)
Prepared for Tennessee Society of CPA’s Healthcare Conference
December 3, 2013
Page 3

5. ASU 2011-11, Balance Sheet (Topic 210):
Disclosures about Offsetting Assets and Liabilities
• Effective: Retrospectively periods beginning on or
after (PBOA) January 1, 2013
• Impact: Expanded disclosure about items eligible
for offsetting. Both gross and net information
should be disclosed. Applicable to all financial
instruments and derivative investments
• Other:
– Should be presented in tabular format
Prepared for Tennessee Society of CPA’s Healthcare Conference
December 3, 2013
Page 4

6. ASU 2012-01, Health Care Entities (Topic 954):
Continuing Care Retirement Communities Refundable Advance Fees
• Effective:
Public
Periods beginning after (PBA)
December 15, 2012
Non-Public
PBA December 15, 2013
Retrospectively
• Impact:
– Advance fees should be classified as deferred revenue if required to be
refunded upon reoccupancy and which limits a refund to proceeds of
reoccupancy
– Refundable advance fees that are contingent on reoccupancy but not limited
should be displayed as a liability at the estimated refundable amount
– Deferred revenue is amortized into income, consistent with the method for
calculating depreciation
Prepared for Tennessee Society of CPA’s Healthcare Conference
December 3, 2013
Page 5

7. ASU 2012-02, Intangibles - Goodwill and Other (Topic 350):
Testing Indefinite-Lived Intangible Assets for Impairment
• Effective: PBA September 15, 2012
• Impact: Similar to goodwill ASU. Allows an entity to
first perform an assessment of qualitative factors to
determine whether it is more likely than not that an
indefinite-lived intangible asset is impaired
Prepared for Tennessee Society of CPA’s Healthcare Conference
December 3, 2013
Page 6

8. ASU 2012-05: Statement of Cash Flows (Topic 230): Not-for-Profit
Entities: Classification of the Sale Proceeds of Donated Financial
Assets in the Statement of Cash Flows
• Effective: Prospectively PBA June 30, 2013
• Impact: Cash flow statement presentation for cash
flows from the sale of donated assets:
– Operating Activities: Converted nearly immediately
to cash (unless restricted to long-term use: then
Financing)
– Investing Activities: Not sold immediately
Prepared for Tennessee Society of CPA’s Healthcare Conference
December 3, 2013
Page 7

9. ASU 2013-01: Balance Sheet (Topic 210): Clarifying the Scope
of Disclosures about Offsetting Assets and Liabilities
• Effective: PBOA January 1, 2013
• Impact: Clarification that ASU 2011-01, Balance
Sheet (Topic 210): Clarifying the Scope of
Disclosures about Offsetting Assets and Liabilities,
does not apply to financial assets and liabilities
subject to a master netting arrangement. Clarifies
that derivative instruments accounted for under
Topic 815, and reverse repurchase agreements and
securities borrowing/lending transactions are
subject to 2011-01
Prepared for Tennessee Society of CPA’s Healthcare Conference
December 3, 2013
Page 8

10. ASU 2013-03: Financial Instruments (Topic 825):
Clarifying the Scope and Applicability of a
Particular Disclosure to Nonpublic Entities
• Effective: Upon issuance
• Impact: For non-public entities with more than $100
million in assets or which have derivative
instruments. Clarifies the fair value hierarchy
disclosure for items not measured at fair value (only
disclosure of fair value) does not apply
Prepared for Tennessee Society of CPA’s Healthcare Conference
December 3, 2013
Page 9

11. ASU 2013-04: Liabilities (Topic 405): Obligations Resulting from
Joint and Several Liability Arrangements for Which the Total
Amount of the Obligation Is Fixed at the Reporting Date
• Effective:
Public
December 15, 2013
Non-Public
December 15, 2014
Retrospectively
• Impact: Requires an entity to measure obligations for joint
and several obligations for which the total amount of the
obligation is fixed as of the reporting date as:
– The amount the entity has agreed to repay, plus
– Any additional amount the entity expects to pay on behalf of
co-obligors
Prepared for Tennessee Society of CPA’s Healthcare Conference
December 3, 2013
Page 10

12. ASU 2013-04: Liabilities (Topic 405): Obligations Resulting from
Joint and Several Liability Arrangements for Which the Total
Amount of the Obligation Is Fixed at the Reporting Date
• Impact (Continued): Expanded disclosure
• Other
– Fixed amount. However for line of credit changes or changes
due to interest rate – not an exception
– “Arrangement” – formal or not?
– Additional amounts to recognize – “Better estimate than
others” or minimum amount
– Disclosures: Nature of arrangements, total outstanding
amount, nature of recourse provisions (if any), impact in initial
period and in any subsequent periods with substantial changes
Prepared for Tennessee Society of CPA’s Healthcare Conference
December 3, 2013
Page 11

13. ASU 2013-06: Not-for-Profit Entities (Topic 958):
Services Received from Personnel of an Affiliate
• Effective: PBA June 15, 2014. Modified retroactive
adoption
• Impact: Expense and “contribution” from commonly
controlled affiliates must be recognized in recipient’s
financial statements. Usually recognized at cost but
entity can elect fair value if cost is not deemed
appropriate. The amount is shown outside of the
Performance Indicator as an equity transfer.
Prepared for Tennessee Society of CPA’s Healthcare Conference
December 3, 2013
Page 12

14. ASU 2013-06: Not-for-Profit Entities (Topic 958): Services
Received from Personnel of an Affiliate
• Other:
– Applies only to personnel costs
– Not applicable if compensation is received
– Applies to services received from not-for-profit or forprofit affiliates
– Cannot be a “contra-expense”
Prepared for Tennessee Society of CPA’s Healthcare Conference
December 3, 2013
Page 13

15. ASU 2013-07: Presentation of Financial Statements
(Topic 205): Liquidation Basis of Accounting
• Effective: PBA December 15, 2013
• Impact: Requires liquidation basis when liquidation is
imminent, defined as when there is a remote likelihood entity
will return from liquidation and either:
– Liquidation plan has been approved and unlikely it will be
blocked or
– A plan of liquidation is being forced by other forces
• Other:
– Recognize assets not previously recognized
– Expanded disclosure
Prepared for Tennessee Society of CPA’s Healthcare Conference
December 3, 2013
Page 14

16. ASU 2013-10: Derivatives and Hedging (Topic 815): Inclusion of
the Fed Funds Effective Swap Rate (or Overnight Index Swap Rate)
as a Benchmark Interest Rate for Hedge Accounting Purposes
• Effective: Prospectively for new or redesignated
hedging relationships on or after July 17, 2013
• Impact: Expands benchmark rates to include
federal funds rates
Prepared for Tennessee Society of CPA’s Healthcare Conference
December 3, 2013
Page 15

17. ASU 2013-11: Income Taxes (Topic 740): Presentation of an
Unrecognized Tax Benefit When a Net Operating Loss Carryforward,
a Similar Tax Loss, or a Tax Credit Carryforward Exists
• Effective: Public - PBA December 15, 2013
Non-public - PBA December 15, 2014
• Impact: Required disclosure of uncertain tax
positions when it is unlikely there will be an actual
tax payment due to net operating loss carryovers.
ASU 2013-11 requires that instead of recording a
liability for uncertain tax positions, deferred tax
assets would be reduced
Prepared for Tennessee Society of CPA’s Healthcare Conference
December 3, 2013
Page 16

18. Recently Issued/Effective
Governmental Accounting
Standards Board (GASB)
Pronouncements
Prepared for Tennessee Society of CPA’s Healthcare Conference
December 3, 2013
Page 17

19. GASB 65: Items Previously
Reported as Assets and Liabilities
• Effective: PBA December 15, 2012. Restate earlier periods
• Impact: Identify items previously reported as assets/
liabilities as deferred outflows/inflows of resources (GASB
63)
• Other:
– Refunding of debt-report as deferred inflow/outflow
– Debt issuance costs/loan origination costs - expense in period
incurred
– Gain/loss on sale/leaseback – reclassify as deferred inflow/outflow
– Prepaid debt insurance - recognize as asset and amortize
– Limit the use of the word “deferred”
Prepared for Tennessee Society of CPA’s Healthcare Conference
December 3, 2013
Page 18

20. GASB 68: Accounting and Financial Reporting for
Pensions - an amendment of GASB Statement No. 27
• Effective: PBA June 15, 2014. To the extent
practical restate prior periods presented
• Impact:
– Defined benefit plans:
• A liability should be recognized for the total pension
liability less legally restricted plan assets. Previously,
only recognized difference in amounts paid versus
actuarially determined annual contribution
Prepared for Tennessee Society of CPA’s Healthcare Conference
December 3, 2013
Page 19

21. GASB 68: Accounting and Financial Reporting for
Pensions - an amendment of GASB Statement No. 27
• Impact (Continued):
– Defined benefit plans (Continued):
• If pension plan's assets exceed the total pension
liability, then a net pension asset would be recognized
• GASB 68 requires the entry age actuarial cost method
be utilized
• Ad hoc benefit increases should be included if
substantively automatic
Prepared for Tennessee Society of CPA’s Healthcare Conference
December 3, 2013
Page 20

22. GASB 68: Accounting and Financial Reporting for
Pensions - an amendment of GASB Statement No. 27
• Impact (Continued):
– Defined benefit plans (Continued):
• Pension expense will be recognized as change in net
pension liability, introducing more volatility
• Changes in net pension liability not recognized in
expense should be reported as deferred inflows/
outflows
• Changes in amortization period for gains/losses,
including investment gains/losses
Prepared for Tennessee Society of CPA’s Healthcare Conference
December 3, 2013
Page 21

23. GASB 68: Accounting and Financial Reporting for
Pensions - an amendment of GASB Statement No. 27
• Impact (Continued):
– Expanded disclosures
– Defined contribution plans:
• Recognize pension expense for the amount of
contributions or credits to employees' accounts, net of
forfeited amounts that are removed from employees’
accounts
• Recognize pension liability equal to the difference
between amounts recognized as pension expense and
amounts paid by the employer to the pension plan
Prepared for Tennessee Society of CPA’s Healthcare Conference
December 3, 2013
Page 22

24. GASB 70: Accounting and Financial Reporting
for Nonexchange Financial Guarantees
• Effective: PBA June 15, 2013. Restate prior years
• Impact: Recognize a liability when more likely than
not, the government will be required to make a
payment on a guarantee
• Other:
– Record best estimate
– No best estimate: NPV of minimum amount in range
Prepared for Tennessee Society of CPA’s Healthcare Conference
December 3, 2013
Page 23

25. Other Healthcare
Specific Items
Prepared for Tennessee Society of CPA’s Healthcare Conference
December 3, 2013
Page 24

26. Other Healthcare Specific Items
• ICD-10 implementation (TPA 6400.48)
• Insurer pays claims directly (TPA 6400.51)
• HMA/EMR restatement
Prepared for Tennessee Society of CPA’s Healthcare Conference
December 3, 2013
Page 25

27. Questions?
Contact information for Doug Arnold
(800) 270-9629
darnold@pyapc.com
Prepared for Tennessee Society of CPA’s Healthcare Conference
December 3, 2013
Page 26