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

1

Winter Education ConferenceJanuary 15, 2015

west virginia chapter

Accounting and Auditing Update

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, EastSuite 800Charleston, WV 25301

304.414.3913 [email protected]

Norman C. Mosrie, CPA, CHFP, FHFMA

3

Topics

1. ASU 214-09: 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 2012-01: Continuing Care

Retirement Communities –

Refundable Advance Fees

8. ASU 2012-05: Classification of the

Statement of the Sole Proceeds of

Donated Financial Assets in the

Statement of Cash Flows

9. ASU 2013-04: Obligations Resulting

from Join and Several Liability

Arrangements

10.ASU 2013-06: Services Received

from Personnel of an Affiliate

11. ASU 2014-17: Business

Combinations – Pushdown

Accounting

12.ASU 2014-15: Disclosure of

Uncertainties about an Entity’s Ability

to Continue as a Going Concern

4

Discuss recent accounting standards as well as emerging practice issues related to

healthcare entities

4

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 Z

EQUALS…1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26

Then…K+N+O+W+L+E+D+G+E

11+14+15+23+12+5+4+7+5 = 96%

H+A+R+D+W+O+R+K

8+1+18+4+23+15+18+11 = 98%

Both are important, but fall just short of 100%

6


BUT…

1 +20+20+ 9 +20+21+ 4 + 5 = 100%

__+__+__+__+__+__+__+__

7


8

ASU 2014-09

Revenue RecognitionBackground and Overview

9

ASU 2014-09: 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

ASU 2014-09: Summary

• FASB created a new Topic 606 that will replace Topic 605 when

this standard is adopted

– ASU 2014-09 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

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 610-20)– Recognition and measurement guidance

12

Five steps to apply standardRecognize 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 contractRecognize revenue when (or

as) the entity satisfies a performance obligation

1

2

3

4

5

13

Effective Date

Public business entities and certain not-for-profit entities including conduit bond obligors

• Fiscal years, and interim periods within those years, beginning after December 15, 2016 (no early adoption)

All other entities

• 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)

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 2016 2017Date of

Cumulative Effect Adjustment

Full Retrospective Restate 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

ASU 2014-09: 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

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.org

http://www.aicpa.org/

17

ASU 2014-09

• 606-10-32-2-An entity shall consider the terms of the contract and its customary business practices in determining the transaction price

• 606-10-32-7 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

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


Issue #1: How are services performed from uninsured patients accounted for? See sections 606-10-55-102 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 606-10-25-1 are met

20

Financial Reporting - Presentation of Bad Debts

Under current practice, ASU 2011-07 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


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


Issue #2 (cont’d):• How does the use of expected

amount/most likely amount (606-10-32-8) 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

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

FASB Projects

Not-for-profit Financial Reporting Model

25

NFP financial reporting project

• Goals– Better align activity in operating and cash flow

statements– Better align reporting between NFP HCOs

and other NFPsStatement of Operations categories

Statement of Cash Flows categories

Business and charitable activities Operating activities

Investing activities

Nonoperating activities

Financing activities

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

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 958-225-45-10)

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



Business and charitable activities (operating)

Operating revenues XXX XXX

Operating expenses XXX

Revenues in excess of expenses XXX

Transfers in/(out) XXX

New performance (operating) measure XXX

Nonoperating activities (financing/investing/other)

Interest expense XXX

Investment return XXX XXX

OCI items XXX

Transfers in/out (XXX)

Change in net assets XXX XXX

Proposed new performance statement

The basic framework

30

Today’s model Proposed new model

Interest expense

31

Reporting of Investment Expenses

How to present?

• Net presentation of investment expenses against investment return on the face of the statement of activities • Netting limited to external and direct internal expenses

What to disclose?

• 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

32


Investment return

33


Contributions

34



Business and charitable activities(operating)

Cash gifts restricted for PP&E $ --- $ 100

Release of restriction 100 (100)

Gift of building to be used in operations 90

Revenues in excess of expenses XXX

Transfers:

Gifts of/for long-lived assets (190)


Nonoperating (financing/investing/other)

Transfers:

Gifts of/for long-lived assets 190

Change in net assets XXX XXX

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

Business and charitable activities (operating)

Unrestricted contributions xxx

Release of restriction xxx

Revenues in excess of expenses xxx

Transfers in (out):

Board-designated for quasi-endowment (XX)

Spending rate on endowment XXX


Nonoperating (financing/investing/other)

Transfers in (out):

Board-designated for quasi-endowment XX

Spending rate on endowment (XXX)

Change in net assets XXX

Operating:

contributions that are available for current spending

Transfers: used to reflect

impact of governing board

designations

Other Transfers

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

Cash Flow Statement

Cash Flows from Operating ActivitiesCash received from service recipientsCash received from donorsCash paid to employeesCash paid to vendorsPurchase of property and equipmentProceeds on sale of property and equipmentContributions restricted for property and equipment

Net cash from operating activities

Cash Flows from Investing ActivitiesCash received from interest and dividendsPurchase of investment assetsProceeds from sale of investments

Net cash from investing activities

Cash Flows from Financing ActivitiesPayments of principal on long-term debtInterest paid on long-term debtContributions restricted for endowment

Net cash from financing activitiesNet increase in cashCash at the beginning of year

Cash at end of year

38

F U N C T I O N *

Reporting of Expenses

Program Activities Supporting ActivitiesTotal

Operating Expenses

Non-Operating

TotalExpensesProgram A Program B M&G Fundraising

Salaries & Benefits

Grants to OthersEquipment Rental & MaintenanceOccupancy Cost

DepreciationInformation Technology

Professional Service Fees

Supplies

TravelPrinting & Publication

InterestOther

Total

NATURE

*

*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

Liquidity

1. Quantitative information about: a) The total amount of financial assetsb) 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 boardc) 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 reservesc) 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

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

Business Associates

HIPAA / HITECH

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

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

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. 111-5

• 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

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

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

Rp-2014

New Mortality Tables Released

48

New RP-2014 Mortality Tables Released

• The Society of Actuaries released new RP-2014 mortality tables in October 2014.

• 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

Common Practice Issues

49

RAC Audits

50

Common Practice Issues: RAC Audits

• Question: 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?

• HCOs 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 – ASC 954-605-25-6 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


• 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


• 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


• View 1: – This view is based on ASC 450-30,

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


• 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


– 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

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


For more information on this topic, please refer to the HFMA

white paper at:

http://www.hfma.org/RACAccounting/

58

ICD-10

Accounting for ICD-10 Costs

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

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

ASC 720-45-55 IllustrationInternal-Use Software Implementation Costs

Legend:

a - Expense as incurred per ASC 720-45

b - Expense as incurred per ASC 350-40

c - Capitalize per ASC 350-40

62

ASU 2012-01

Continuing Care Retirement Communities – Refundable Advance Fees

63

ASU 2012-01: 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

ASU 2012-01: 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, 2013.

– Retrospective application to all prior periods presented upon the date of adoption is permitted.

64

65

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

ASU 2012-05

66

ASU 2012-05: 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


• 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


• 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

ASU 2013-04

Obligations Resulting from Joint and Several Liability Arrangements

70

ASU 2013-04: 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 disclosures70

71

ASU 2013-04: 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

ASU 2013-06

Services Received from Personnel of an Affiliate

73

ASU 2013-06: 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

ASU 2013-06: 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

ASU 2014-17

Business Combinations - Pushdown Accounting

76

ASU 2014-17: 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


• 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


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


• 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


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

Q & A

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

Documents

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