The New World of Revenue Recognition, ASC 606 ... ASC 606 is required to be applied retrospectively

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Transcript of The New World of Revenue Recognition, ASC 606 ... ASC 606 is required to be applied retrospectively

  • BDO USA, LLP, a Delaware limited liability partnership, is the U.S. member of BDO International Limited, a UK

    company limited by guarantee, and forms part of the international BDO network of independent member firms.

    The New World of Revenue

    Recognition, ASC 606 –

    COMPLEXITIES FOR

    LONG-TERM CARE

    June 27, 2018

  • 2

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  • 3

    With You Today

    JOANN DOYLE, CPA Senior Manager, Assurance

    BDO USA, LLP

    215-940-7822

    jddoyle@bdo.com

    JEAN LLOYD, CPA Senior Manager, Assurance

    BDO USA, LLP

    302-468-3772

    jlloyd@bdo.com

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    COMPLEXITIES FOR LONG-TERM CARE

    Agenda

    • ASC 606 refresher

    • Accounting for Revenue Under the 5-Step Model

    • Inpatient

    • Other Revenue Streams • Rehabilitation Services

    • Other

    • Presentation and Disclosure

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    ASC 606 Refresher

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    OVERVIEW OF THE 5 STEP MODEL

    Core principle:

    Recognize revenue to depict the transfer of 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

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    OVERVIEW OF ASC 606

    The new revenue standard aims to improve accounting for contracts with

    customers by:

    • Providing a more robust framework for addressing revenue issues as they

    arise

    • Increasing comparability across industries and markets

    • Requiring better disclosure

    Applies to:

    • Contracts with customers

    • Gain/loss recognition of some nonfinancial assets (intangibles and PP&E)

    • All industries, with certain specific transactions excluded: leases, insurance

    contracts, financial instruments, guarantees, certain nonmonetary exchanges

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    OVERVIEW OF ASC 606

    Effective Dates:

    • Public entities - First interim period within annual reporting periods

    beginning after December 15, 2017 (January 1, 2018 for December 31 year-

    end)

    • Nonpublic entities - Annual reporting periods beginning after December 15,

    2018 and interim periods within annual periods beginning after December 15,

    2019 (Year ended December 31, 2019 for December 31 year-end)

    ASC 606 is required to be applied retrospectively by one of the following

    methods:

    • Retrospective application to each reporting period presented in accordance

    with ASC 250-10-45-5 through 45-10 (i.e., full restatement of comparative

    figures)

    • Modified retrospective with one or more practical expedients (i.e.,

    completed contracts, use of hindsight for variable consideration, etc.)

    • Cumulative effect of change at adoption date (disclose effect of applying

    new standard)

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    Accounting for Revenue

    Under the 5-Step Model –

    Long Term Care Facilities

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    Long-Term Care Facilities – Inpatient Services –

    Step 1 – Identify the Contract

    WHO IS THE CUSTOMER?

    Patient vs. Payor

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    Long-Term Care Facilities – Inpatient Services –

    Step 1 – Identify the Contract

    Patient enters into contract with Facility to obtain a bundle of services

    • Admission agreement approved by both parties

    • Rights of both parties identified

    • Payment terms identified

    • Commercial substance

    • Probable that consideration will be collected

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    Long-Term Care Facilities – Inpatient Services –

    Step 1 – Identify the Contract Application of the Portfolio Approach

    • ASC 606 allows for a portfolio approach as a practical expedient to account for

    patient contracts as a collective group rather than individually ― Similar characteristics among contracts (or performance obligations)

    ― Expectation should be that the effect would not be materially different than an individual contract

    approach

    • Considerations for portfolios ― Type of service: inpatient, outpatient, ER, elective, non-elective, etc.

    ― Type of payor: insurance contract, co-pay, deductible, governmental, uninsured, charity, etc.

    ― May be multiple payors (insurance and co-payment)

    ― May also consider size of co-pay or deductible (high deductible vs low deductible plans)

    ― Timing of contracts

    ― A combination of the above may be considered

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    Long-Term Care Facilities – Inpatient Services –

    Step 1 – Identify the Contract Application of the Portfolio Approach

    • Other factors to consider ― Sufficiency and homogeneity of data

    ― System-wide or facility specific basis

    ― May also apply the portfolio approach to similar performance obligations

    • Adding or removing individual contracts to or from a portfolio ― Contracts can be added or removed as more up to date information becomes available

    ― Pending insurance/Medicaid

    ― Reclassifying co-pays and deductibles after insurance has paid

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    Long-Term Care Facilities – Inpatient Services –

    Step 1 – Identify the Contract

    Self Pay Balances - Determination if Patient is Committed to Pay

    • Entity may not be able to determine if an uninsured patient is willing and/or

    able to pay

    ― Until that determination is made, a contract with the customer cannot be presumed to exist in

    the revenue model

    • Determination of ability to pay

    ― Past history with patient

    ― Qualification under charity care policy

    ― Medicaid pending status

    ― Historical experience

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    Can the patient benefit from the good or service, either on its own, or

    with other readily available resources?

    (‘readily available resources’ are those that the customer possess or is

    able to obtain from the entity or another third party) The good or

    service is not

    ‘distinct’

    (these are then

    grouped into

    ‘bundles’ of goods

    and services that

    are themselves

    ‘distinct’)

    No

    Yes

    Is the promise to transfer a good or service separate from the other

    promised goods or services in the contract? Indictors may include:

    The good or service is distinct

    Yes

    The entity does not

    provide a significant

    service of integrating the

    goods and services

    A good or service does

    not significantly modify

    or customize the other

    goods and services

    A good or service is not

    highly dependent or

    interrelated with the

    other goods and services

    No

    Long-Term Care Facilities – Inpatient Services –

    Step 2 – Identify the Performance Obligation

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    At contract inception, an entity shall assess the goods or services promised in a

    contract with a customer and shall identify as a performance obligation each

    promise to transfer to the customer either:

    • A good or service (or a bundled of goods or services) that is distinct

    • A series of distinct goods or services that are substantially the same and that

    have the same pattern of transfer to the customer

    Long-Term Care Facilities – Inpatient Services –

    Step 2 – Identify the Performance Obligation

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    Bundled Services – Single Combined Performance Obligation:

    • Room and Board

    • Nursing Care

    • Medication

    • Ancillary Care

    Other Services – Separate and Distinct Performance Obligations:

    • Physician Services

    • Non-medical ancillary services (barber, beauty, etc.)

    Long-Term Care Facilities – Inpatient Services –

    Step 2 – Identify the Performance Obligation

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    AICPA Revenue Recognition Task Force Implementation Issue #8-10 – Performance Obligations

    Example 3—Performance Obligations – Skilled Nursing Facility Services

    Traditional Ski