Accounting Standard Updates - HFMA Spring Conference 2018 - PPT Presentation
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Accounting Standard Updates HFMA Spring Conference 2018 Presented by: Kimberly Sokoloff, Health Care Assurance Services Senior Manager Elizabeth Lasnier, Health Care Assurance Services Manager
Presenters
HFMA 2018 Spring Conference
Kimberly Sokoloff, CPA
Senior Manager – National Health Care Practice
Kimberly.Sokoloff@mossadams.com
1
Elizabeth Lasnier, CPA
Manager – National Health Care Practice
Elizabeth.Lasnier@mossadams.com
Agenda
• Revenue Recognition
HFMA 2018 Spring Conference
• FASB Grants and Contracts Project
• Leases
• NFP Financial Statements
• Financial Instruments
2
• Other Recent ASUs
• Q&ARecently Issued FASB Standards
Upcoming Effective Dates: The “Big Three” for NFP
Healthcare (Annual FS)
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Not-for-Profit
Financial Revenue Leases
Statements
4
CY 2018* (All) CY 2018* (Public) CY 2019* (Public)
CY 2019* (Non-public) CY 2020* (Non-public)
*or FYs beginning in those years
NOTE: “Public” for Revenue and Leases includes NFPs with public debt (conduit or direct)Revenue Recognition
Revenue Recognition – Scope
• Lease contracts
• Insurance contracts
HFMA 2018 Spring Conference
• Financial instruments
All contracts • Guarantees
with customers, • Nonmonetary exchanges in the same line of business to facilitate sales
except to customers
6
• Contributions
Contracts not • Collaborative arrangements
with customers
are excludedRevenue Recognition – Model
Core principle:
HFMA 2018 Spring Conference
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.
Steps to apply the core principle:
7
5.
1. Recognize
2. 3. 4. revenue
Identify Determine when (or as)
Identify Allocate
contract(s) transaction a
performance transaction
with the price performance
obligations price
customer obligation is
satisfiedRevenue Recognition – Disclosures
• Revenue recognized from contracts with
HFMA 2018 Spring Conference
customers vs. other revenue sources
Contracts with Customers
• Impairment losses recognized on
receivables or contract assets
• Performance obligation timing*
• Significant payment terms*
Performance Obligations • Nature of promised goods or services*
• Obligations for returns, refunds, warranty*
8
• CY revenue for PY obligation*
• Significant financing component*
• Cost of obtaining a contract*
• Portfolio approach
Practical expedients and accounting • Invoice method
policy elections • Immaterial promises
• Shipping and handling
• Sales taxes
• Loss contract unit of account
* Mostly optional for nonpublic entitiesRevenue Recognition – Disclosures
• Qualitative and quantitative*
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disaggregation of revenue into categories
Disaggregation of revenue
that depict how revenue and cash flows
are affected by economic factors
• Opening and closing balances
• Amount of revenue recognized from
contract liabilities*
Information about contract balances
9 • Timing of performance obligation vs. pay*
• Explanation of significant changes in
contract balances*
• Transaction price allocated to remaining
performance obligations*
Remaining performance obligations • Quantitative or qualitative explanation of
when amounts will be recognized as
revenue*
* Mostly optional for nonpublic entitiesRevenue Recognition – Disclosures
• Short-term contract exemption
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• As-invoiced exemption
Remaining performance obligations:
• Sales- or usage-based royalty exemption
Optional exemptions
• Directly allocable variable consideration to
wholly unsatisfied obligation exemption
• Optional disclosures elected, nature of
Optional exemption disclosures obligation, remaining contract direction,
10 additional consideration details
• Timing of satisfaction of performance
obligations*
Significant judgments
• Transaction price and amounts allocated
to performance obligations*
Contract costs • Contract cost assets and changes*
Interim requirements • Quantitative disclosures*
* Mostly optional for nonpublic entitiesConsiderations for Disaggregation of Revenue
Timing of transfer of
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Payor category goods or service
(Medicare, Medicaid,
Commercial, Self-
Pay, etc.)
Example Service type
11
categories (inpatient, outpatient,
home health, etc.)
Contract type (fee for
service, capitation,
etc.)
GeographyDisclosure Requirements – Disaggregated Revenue
Revenue Disaggregation by Payor
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The composition of patient care service revenue by primary payor for the years ended December 31 is as
follows:
20x2 20x1
Medicare $16,000 $15,000
Medicaid 6,000 5,000
12 Managed care 11,000 10,500
Commercial insurers 4,000 3,500
Uninsured 1,800 1,900
Other 1,000 1,000
$39,800 $36,900
Source: AICPA Health Care Entities Revenue Recognition Implementation Issue Paper #8-6 – Presentation and Disclosure.
As of January 2018, this paper has not been finalized in the AICPA Audit & Accounting Revenue Recognition Guide.Disclosure Requirements – Disaggregated Revenue
Revenue Disaggregation by Region, Service Line, Reimbursement, Timing
20x2
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Northeast Central Southeast Total
Services lines:
Hospital-inpatient $ 3,500 $ 1,000 $ 3,000 $ 7,500
Hospital-outpatient 4,500 2,000 2,000 8,500
Physician services 3,000 3,000 5,000 11,000
Home health and hospice 1,000 800 2,000 3,800
Retail sales 2,000 2,000 4,000 8,000
Other 400 200 400 1,000
13
$ 14,400 $ 9,000 $16,400 $39,800
Method of reimbursement:
Fee for service $ 8,900 $ 5,300 $ 6,000 $ 20,200
Capitation and risk sharing 3,100 1,500 6,000 10,600
Other 2,400 2,200 4,400 9,000
$ 14,400 $ 9,000 $ 16,400 $39,800
Timing of revenue and recognition:
Health care services transferred over time $12,400 $ 7,000 $12,400 $31,800
Retail pharmacy and equipment sales at point in time 2,000 2,000 4,000 8,000
$ 14,400 $ 9,000 $ 16,400 $39,800
Source: AICPA Health Care Entities Revenue Recognition Implementation Issue Paper #8-6 – Presentation and Disclosure.
As of January 2018, this paper has not been finalized in the AICPA Audit & Accounting Revenue Recognition Guide.List of AICPA Papers on the Issues
• Final (included in Revenue Recognition Guide): AICPA Revenue Recognition homepage
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for Health Care:
- Self-pay patient balances (Issue 1)
https://www.aicpa.org/interestareas/frc/ac
- Applying a portfolio approach (Issue 2)
countingfinancialreporting/revenuerecogn
- Presentation and disclosures (Issue 6) ition/rrtf-healthcare.html
• Exposure period ended, to be finalized soon:
- Third-party settlements (Issue 8)
- Risk sharing arrangements (bundled payments) (Issue 9)
14
- Performance obligations (Issue 10)
• Currently or soon to be out for exposure:
- Various issues fully or largely related to CCRCs (Issues 3,4,5)
- Accounting for contract costs (Issue 7)Identify the Contract(s) with a Customer
A contract is an agreement between two or more parties that creates enforceable rights and obligations.
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ASC 606 says: “Enforceability of the rights and obligations in a contract is a matter of law. Contracts can
be written, oral, or implied by an entity’s customary business practices.”
Additionally:
…collection of substantially …rights of parties and
all consideration is payment
15
probable terms can be
identified
A contract
exists if…
…it has approval and
…it has commercial commitment of the parties as
substance to their obligationsPrice Concessions
• Explicit Price Concessions • Implicit Price Concessions
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- Contract discounts - EMTALA – Role of Medical Screening Exam (MSE)
- Cash pay schedules • Implicit Price Concession Based on Portfolio
- Letter of agreement Approach
- Risk-based contract - Emergency vs Direct Admits
- Contract denials
16
- Charity care
- Uninsured
- Pending Medicaid eligibility
- Dual eligible patientsBad Debt Expense – Not Going Away, But Reduced
• Bad Debt Expense: When a health care entity performs a credit assessment prior to providing services
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to a patient and expects to collect substantially all of the discounted charges.
• For example, an elective procedure in which historical experience supports collection of substantially
all of the discounted charges.
17
Many health care providers believe their provision for bad debts for services provided
to uninsured and insured patients with co-payments and deductibles will be
significantly reduced, in comparison to current U.S. GAAP.Portfolio Approach
The standard is generally applied on a contract-by-contract basis with a customer.
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Portfolio Approach
18
Health care entities may use a portfolio approach as a practical
expedient, whereby the revenue guidance is applied to a portfolio
of contracts with similar characteristics.
The portfolio approach is allowed if the entity reasonably expects
that the financial statement effects of applying the standard to the
portfolio would not be materially different from applying the
standard to individual contracts within that portfolio.Application of the Portfolio Approach to Contracts with
Patients
• Considerations for a health care entity to determine in grouping contracts with similar characteristics
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for inclusion in a portfolio
- Type of service – inpatient, outpatient, skilled nursing, home health, emergency room, elective procedure, etc.
- Type of payors – insurance contract, insurance contract with patient responsibility, governmental programs, uninsured
self-pay, etc.
- Dates when contracts are entered into are close to each other
19
Using a portfolio of similar transactions to make certain estimates and judgments is not the
same as applying the portfolio approach practical expedient.Third-Party Settlements
• Medicare/Medicaid –Variable consideration
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• Complex rules
• Timing
• Patient is the Customer
- Payor contract affects variable consideration
20Third-Party Settlements
• Variable consideration should be estimated using on of the approaches below
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• Reminder: The selected method should be applied consistently throughout the contract
Expected value Most likely amount
• Sum of probability-weighted amounts in a • The single most likely amount in a range
21
range of possible consideration amounts of possible consideration amounts
• Most utilized when there are a large • Most utilized when there are two possible
number of possible outcomes outcomesThird-Party Settlements
• When determining variable consideration amounts, think about:
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• Historical and current reimbursement information, including third-party settlements
• Historical and current experience with the fiscal intermediary
• Current charges, allowable costs, and relevant patient statistics
• Consider all information (historical, current and forecasted) that is reasonably available
• Update estimates each reporting period
22
• Apply one method consistently throughout the contractThird-Party Settlements
• Evaluate the “constraint” of variable consideration revenue
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• When assessing whether it is probable that a significant revenue reversal will not occur when the cash
collections or payments are made based on final settlement, consider the following:
• Whether settlement is outside of entity’s control (third-party payor controls settlement process)
• Entity’s experience in estimating third-party settlements with government payors
• Length of time before final settlement is known
23
• Whether payment terms may be changed
• The number of possible consideration amounts – consider range of outcomes and whether there have been
significant differences from reporting period to reporting periodRisk Sharing Arrangements
• Arrangements with third-party payors should be considered in determining the transaction price for
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services provided to a patient
• Customer is the patient
• Different types of risk sharing arrangements
• Bundled payment arrangements
• Pay for performance contracts
24
• Contracts with shared savings or shared losses
• Risk pool contracts
• Capitation arrangementsRevenue Considerations for CCRCs
• The following key issues related to CCRCs are still under review by the AICPA Healthcare
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Revenue Recognition Task Force:
• Recognizing monthly/periodic fees and nonrefundable entrance fees under different contract types
• Calculating the obligation to provide future services and use of facilities
• Assessing whether a significant financing component exists for refundable and nonrefundable
entrance fees
25
• Accounting for contract acquisition costsGrants and Contracts Project: Clarifying the Scope and Accounting Guidance for Contributions Received and Contributions Made
Scope
• Applies to all entities (NFPs and business entities) that receive or make contributions
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unless otherwise indicated.
• Excludes transfers of assets from the government to business entities.
• Applies to both contributions received by a recipient and contributions made by a
resource provider.
27 • The term used in the presentation of financial statements to label revenue (for example,
contribution, grant, donation) that is accounted for within the Scope of Subtopic 958-605
is not a factor for determining whether an agreement is within the scope of that
guidance.Grants and Contracts – Background
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Project added to FASB’s Technical Agenda to improve and clarify
existing guidance
ASU 2014-09, Revenue from Contracts with Customers, including related
disclosures, heightened the issue
28 Raised question as to whether grants and contracts are in scope of that guidance
(reciprocal or nonreciprocal)
Long-standing diversity in practice in classifying grants and contracts,
particularly from governmental entities
Issue 1: Reciprocal Versus Issue 2: Conditional Versus
Nonreciprocal UnconditionalIssue 1: Reciprocal (Exchange) vs. Nonreciprocal
(Nonexchange/Contribution) Transactions
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29Issue 1: Reciprocal vs. Nonreciprocal Transactions:
Key Clarifications to the Scope of Subtopic 958-605
The proposed ASU would clarify and refine existing guidance in Subtopic 958-605 by adding
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paragraphs that would clarify the scope of the Subtopic as well as illustrative examples.
• The resource provider is not synonymous with the general public, even a governmental
entity. If a resource provider receives value indirectly by providing a societal benefit, this
would be considered a nonreciprocal transaction.
30 • If the primary beneficiary of a grant or contract is a third party, an NFP must use
judgment to determine if the transaction is reciprocal or nonreciprocal.
• Furthering a resource provider’s mission or “feel good” sentiment does not constitute
commensurate value received.
• The type of resource provider should not override the substance of the transaction.Issue 2: Conditional vs. Unconditional Contributions
20th HFMA Western Region Symposium
For a Donor-Imposed Condition to Exist:
Proposed Alternative
ASU Rejected
A right to A right to
return/release must return/release must
31
exist; and exist.
The engagement Would have required
must include a barrier a probability
• Indicators and examples assessment about
to help in determination
whether it is likely a
recipient NFP will
fulfill the stipulationsIndicators to Determine a Barrier
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To determine what is a barrier, an NFP would consider indicators,
which would include, but are not limited to, the following:
The inclusion of a measurable performance-related barrier or
other measurable barrier.
32 Whether a stipulation is related to the purpose of the
agreement.
The extent to which a stipulation limits discretion by the
recipient.
The extent to which a stipulation requires an additional action
or actions.NFP Revenue Recognition Decision Process HFMA 2018 Spring Conference 33
Transition Approach
• Modified prospective
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- Apply to all agreements
o Existing at the effective date (only apply to the portion
of existing agreements not previously recognized)
o Entered into after the effective date
• No restatement of prior amounts recognized
34
• Retrospective application permittedEffective Date
The effective date is the same as the new Revenue Recognition standard (Topic 606), but
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allows for early implementation.
Annual periods beginning after December 15, Annual periods beginning after December 15,
2017, including interim periods: 2018, and interim periods beginning after
• Public Business Entities December 15, 2019:
• All other entities
• NFP that has issued, or is a conduit bond
35
obligor for, securities that are traded, listed,
or quoted on exchange or an over-the-
counter marketTimeline of the Project
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Issued
Proposed Comment
Update Period Deadline Final ASU
36
August 3, 2017 November 1, 2017 Q2 2018Leases
ASU 2016-02: Leases (Topic 842)
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A lease contract conveys the right to use an asset (the underlying asset) for a period of time in
exchange for consideration.
38Identifying a Lease
(The new primary determinant for on/off balance sheet treatment)
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That is explicitly or
implicitly specified
An identified asset
Supplier has no practical
ability to substitute and
would not economically
benefit from substituting
39 Lease contracts in the the asset
scope of Topic 842
involve
Decision-making authority
over the use of the asset
The right to control the
use during the lease term
The ability to obtain
substantially all economic
benefits from the use of
the assetLessee Accounting Overview
Balance Income Cash Flow
Sheet Statement Statement
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Right-of-use Cash paid for
Amortization
(ROU) asset principal and
expense
Lease interest
Finance Interest expense
liability payments
Right-of-use Single lease Cash paid for
40
Operating (ROU) asset expense on a lease
Lease liability straight-line basis payments
Classification is similar to that in Topic 840, Leases
Recognition and measurement exemption for short-term leases
Other than public business entities may use risk-free rates for measurement of all lease
liabilitiesLessor Accounting Overview
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Balance Sheet Income Statement Cash Flow Statement
Cash
Net Interest income and
received for
Finance investment in any profit on the
lease
the lease lease
payments
41 Continue to Lease income, Cash
recognize typically on a received for
Operating underlying lease
straight-line basis
asset paymentsLeases – Getting Ready
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Inventory of leases – What’s out there? Know your leases.
42
Materiality – How modern is your capitalization policy?
Debt covenants – To what extent will capitalizing your
operating leases affect covenants based on leverage
ratios?Leases – Getting Ready
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Review FASB updates – Proposed ASU issued in January
2018 would provide transition relief
43 IT systems – Does your current system capture all required
information?
Consider required assumptions and inputs – Have you
started considering your discount rates, likelihood of
exercising options, etc?Not-for-Profit Financial Statements
NFP Financial Statements ASU – Key Objectives
(recommended by FASB’s NFP Advisory Committee (NAC))
HFMA
Spring
HFMA 201820th Western Region Symposium
Conference
Improve information
in financial
Update, not Improve net asset statements and Better enable
overhaul, the classification notes about: NFPs to “tell their
current model scheme financial financial story”
performance, cash
flows, and liquidity
45
Issued August 18, 2016, ASU No. 2016-14Net Asset Classification
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Current Temp. Perm.
Unrestricted
GAAP Restricted Restricted
GAAP Without Donor
46 Restrictions With Donor Restrictions
+ Amount,
Disclosures
purpose, and Nature and amount
type of board of donor restrictions
designations *
* New disclosure requirementExamples
Net assets:
Net assets without donor restriction:
Minimum
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Community Health Care $ 2,449
Noncontrolling interests 20 presentation
2,469 required
Net assets with donor restriction: 585
Total net assets $ 3,054
Net assets:
Net assets without donor restriction:
47 Community Health Care:
Undesignated $ 2,000
Designated by Board for capital prospects 449
2,449
Noncontrolling interests 20
Alternative 2,469
disaggregation Net assets with donor restriction:
allowed Time restrictions 50
Purpose restrictions 235
Endowment funds 300
585
Total net assets $ 3,054Net Assets and Related Disclosures
• Presentation of changes is similar to current guidance except that there are now two
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classes of net assets as opposed to three.
• Consistent with current guidance, an NFP will provide information about the nature and
amounts of donor restrictions either on the face of the financial statement or the notes.
• An NFP will now be required to disclose the amounts and purposes of board-designated
net assets either on the face of the financial statement or the notes.
48
• Underwater endowment funds will be classified within net assets with donor restrictions,
as opposed to current guidance, which requires them to be classified within unrestricted
net assets.
• Expanded from current guidance for underwater endowments, an NFP will be required
to disclose the aggregate of the original gift amounts (or level required by law or donor),
fair value, the aggregate amount of the deficiencies and any governing board policy
decision to reduce or not spend from such funds.Expenses
• Requires all NFPs to present information about their expenses by nature and function
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either:
- In the statement of activities,
- As a separate statement, or
- In the notes to the financial statements.
49 • NFPs required to provide qualitative disclosures about methods used to allocate costs
among program and support functions.Expenses Disclosure Example 1 – Draft
Health Care Services Support Services
Acute Ambulatory Physician Post Acute Health Plan Research MG&A Fundraising Total
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Salaries and benefits $ 1,742 $ 321 $ 688 $ 459 $ 229 $ 229 $ 688 $ 229 $ 4,585
Purchased services 885 163 349 233 116 116 349 116 2,329
Supplies 428 79 169 113 56 56 169 56 1,125
Depreciation and amortization 214 39 85 56 28 28 85 28 564
Capitated purchased services - - - - 246 - - - 246
Rentals and leases 57 11 23 15 8 8 23 8 151
Interest 35 7 14 9 5 5 14 5 93
Insurance 5 1 2 1 1 1 2 1 14
Other 241 44 95 64 32 32 95 32 635
50
$ 3,608 $ 665 $ 1,424 $ 950 $ 721 $ 475 $ 1,424 $ 475 $ 9,742
The financial statements report certain expense categories that are attributable to more than one health care service or
support function. Therefore, these expenses require an allocation on a reasonable basis that is consistently applied.
Costs not directly attributable to a function, including depreciation, amortization, interest and other occupancy costs, are
allocated to a function based on a square footage or units of service basis. Allocated health care services cost not
allocated on a units of service basis are otherwise allocated based on revenue.Expenses Disclosure Example 2 – Draft
Health Care Services Support Services
North Region Central Region South Region MG&A Fundraising Total
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Salaries and benefits $ 1,376 $ 917 $ 1,376 $ 688 $ 229 $ 4,585
Purchased services 699 466 699 349 116 2,329
Supplies 338 225 338 169 56 1,125
Depreciation and amortization 169 113 169 85 28 564
Capitated purchased services 74 49 74 37 12 246
Rentals and leases 45 30 45 23 8 151
Interest 28 19 28 14 5 93
Insurance 4 3 4 2 1 14
51
Other 191 127 191 95 32 635
$ 2,923 $ 1,948 $ 2,923 $ 1,461 $ 487 $ 9,742
The financial statements report certain expense categories that are attributable to more than one health care service or
support function. Therefore, these expenses require an allocation on a reasonable basis that is consistently applied.
Costs not directly attributable to a function, including depreciation, amortization, interest and other occupancy costs, are
allocated to a function based on a square footage or units of service basis. Allocated health care services cost not
allocated on a units of service basis are otherwise allocated based on revenue.Investment Return
• The ASU requires investment return to be reported net of external and direct internal
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investment expense.
• NFP’s are no longer required to disclose investment expenses that have been netted.
• An NFP will be precluded from including these investment expenses in the nature-by-
function expense analysis.
52Year 1 Presentation of Net Investment Return
Format 1: Format 2:
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Revenue $ X,XXX Revenue $ X,XXX
Expenses XXX Expenses XXX
Operating income XXX
Operating income XXX
Investment return, net excluding
Investment return, net XXX unrealized gains (losses) on other than
Less: trading securities excluded from
Unrealized gains (losses) on other performance indicator XXX
than trading securities excluded from
Performance indicator XXX
53 performance indicator (200)
Unrealized gains (losses) on other
Performance indicator XXX than trading securities excluded from
Add: performance indicator 200
Unrealized gains (losses) on other Change in net assets without donor
than trading securities excluded from restrictions $ XXX
performance indicator 200
Change in net assets without donor
restrictions $ XXXCash Flows and Liquidity and Availability Disclosures
• Cash Flow Statement
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- Allow free choice between the Direct Method and the Indirect Method
o Indirect reconciliation no longer required for Direct Method
• Liquidity and Availability Disclosures
- Qualitative information about how a NFP manages its liquid resources and liquidity risk
54
- Quantitative information about the availability of a NFP’s financial assets to meet those cash needs for
general expenditures within one year of the balance sheet dateLiquidity Example Disclosure – Draft
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55
The System has certain board-designated and donor-restricted assets limited to use which are available for general expenditure within one year
in the normal course of operations. Accordingly, these assets have been included in the qualitative information above. The System has other
assets limited to use for donor-restricted purposes, debt service and for the professional and general liability captive insurance program.
Additionally, certain other board-designated assets are designated for future capital expenditures and an operating reserve. These assets limited
to use, which are more fully described in Notes ___ and ___ are not available for general expenditure within the next year and are not reflected in
the amounts above. However, the board-designated amounts could be made available, if necessary.
As part of the System’s liquidity management plan, cash in excess of daily requirements are invested in in short-term investments and money
market funds. Occasionally, the Board designates a portion of any operating surplus to an operating reserve, which was $1,200,000 as of
December 31, 2016. This fund established by the board of directors may be drawn upon, if necessary, to meet unexpected liquidity needs.
Additionally, the System maintains a $5 million line of credit, as discussed in more detail in Note ___. As of December 31, 2016, $5 million
remained available on the System’s line of credit.Financial Instruments
ASU No. 2016-01 (Topic 825), Financial Instruments –
Classification and Measurement Amendments to Current GAAP
Targeted improvements, effective for CY 2019 (FY 2019-20); one year earlier for PBEs
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Financial Assets
• Equity investments (other than those under the equity method) measured at each
reporting period at fair value through net income, with key exception: those without
readily determinable fair value only marked to observable price changes
• No more other-than-trading equity securities
57 Financial Liabilities
• Fair value change resulting from own credit for financial liabilities measured under fair
value option will be recognized through other comprehensive income (OCI)*
Disclosures
• Entities other than public business entities (includes all NFPs) no longer required
to disclose fair value of financial instruments not recognized at fair value on
balance sheet*
*Entities can early adopt these provisionsASU No. 2016-13, Financial Instruments—Credit Losses (Topic
326): Measurement of Credit Losses on Financial Instruments
Effective for CY 2021 (FY 2021-22); one year earlier for PBEs
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Trade receivables and student
Contributions (pledges)
loans (and other programmatic
receivable are excluded
loans) receivable are included
58
CECL model not expected to result in significant impact on most entities
that aren’t financial institutions
• Likely already taking CECL considerations into account for their trade and loan receivables
More noteworthy is the change for Available-for-Sale Debt Securities: now
an allowance approachASU No. 2017-12, Hedge Accounting – Key Simplifications
Effective for CY 2020 (FY 2020-21); one year earlier for PBEs; early adoption allowed
HFMA 2018 Spring Conference
The concept of separately recording “ineffectiveness” will be eliminated
SIFMA rate will now be among the indexes eligible to be designated in
59
a hedge of interest rate risk
Hedge Documentation – Initial quantitative effectiveness test can now
be performed anytime before issuance of next financial statements
(instead of immediately after entering the hedge).*
*Public Healthcare NFPs (those that have issued, or are a conduit bond obligor for, securities that are traded, listed or
quoted on an exchange or an over-the-counter market) have 3 months to document hedging relationships.ASU No. 2017-12, Hedge Accounting – Key Simplifications
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Shortcut Method – Long-haul method may be used if use of the shortcut
method was not or no longer is appropriate.
Critical Terms Match – When hedging a group of forecasted transactions,
the timing of the derivative and transactions can be considered to “match,”
60 if the transactions occur and derivative matures within a 31-day period.
Qualitative Testing – Allowed after an initial quantitative test at hedge
inception if certain conditions are met.AFI – Hedge Documentation – Private Company Alternative
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Statement of intent to hedge at inception
• Hedging instrument
• Hedge item or transaction
• Nature of risk being hedged
61
Following will need to be finalized once FS are
made available for issuance
• Method of hedge effectiveness
• Qualitative or quantitative hedge effectiveness testingOther Recent ASUs 1. Restricted Cash (ASU 2016-18) 2. Net Periodic Benefit Cost Presentation (ASU 2017-07) 3. Definition of a Business and Goodwill Impairment (ASU 2017-01 and ASU 2017-04)
ASU No. 2016-18, Restricted Cash
Effective for CY 2019 (FY 2019-2020); early adoption permitted
HFMA 2018 Spring Conference
Requires the statement of cash flows to
explain the change during the period in
Does not provide a definition of restricted
the total of cash, cash equivalents,
cash or restricted cash equivalents
restricted cash, and restricted cash
equivalents
63
Requires entities to disclose the line items
and amounts of cash, cash equivalents,
Includes restricted cash and restricted
and amounts generally described as
cash equivalents in the beginning and
restricted cash or restricted cash
ending totals of the cash flow statement
equivalents reported within the statement
of financial positionASU No. 2017-07, Improving the Presentation of Net Periodic
Pension Cost and Net Periodic Postretirement Benefit Cost
Effective for CY 2019 (FY 2019-2020); early adoption permitted
HFMA 2018 Spring Conference
• Net benefit cost contains several components with different nature
• No GAAP guidance on presentation
Background • Reduced predictive value and usefulness of information to users
• Board added project
64
Presentation of net
benefit cost in the • Service cost in the same line item or items as other current
employee compensation costs
income statement • Remaining components in a separate line item or items outside
(retrospective operating items, if applicable
application)
Capitalization of only service cost in assets (prospective application)Other Recent ASUs
HFMA Spring Conference 2018
ASU No. • Provides a more robust framework to
2017-01, determine when a set of assets and Effective for CY 2019
activities is a business and more
Clarifying the consistency in applying the guidance,
(FY 2019-2020); early
adoption permitted, with
Definition of reducing application costs, and limitations
increasing operability in practice
a Business
65
ASU No. • Changes the test for goodwill
2017-04, impairment to a one-step quantitative Effective for CY 2022
impairment test whereby a goodwill (FY 2022-2023); early
Accounting impairment loss is measured as the adoption permitted
for Goodwill excess of a reporting unit’s carrying
amount over its fair value
ImpairmentRecently Issued Standards (ASU)/FASB
- ASU 2015-14 | Revenue
HFMA 2018 Spring Conference
- ASU 2015‐07 | Fair Value Hierarchy Levels for Certain Investments Measured at Net Asset Value
(Topic 820)
- ASU 2015-16 | Simplifying the Accounting for Measurement – Period Adjustments
- ASU 2015‐17 | Income Taxes (Topic 740)
66
- ASU 2016‐01 | Financial Instruments (Subtopic 825-10)
- ASU 2016-13 | Measurement of Credit Losses on Financial Instruments
- ASU 2016‐02 | Financial Leases
- ASU 2016‐14 | Not-for-Profit Entities (Topic 958)Recently Issued Standards (ASU)/FASB (Continued)
- ASU 2016-07 |Equity Method of Accounting
HFMA 2018 Spring Conference
- ASU 2016‐15 & 18 | Statement of Cash Flows (Topic 320) Classification of Certain Cash Receipts and
Cash Payments
- ASU 2017-02 |Not-for-Profit Entities Consolidation
67
- ASU 2017-04 |Goodwill Impairment
- ASU 2017-07 |Net Periodic Benefit Costs
- ASU 2017-12| Targeted Improvements to Accounting for Hedging Activities
- Proposed Grant vs. Contribution Guidance68
HFMA 2018 Spring Conference
Questions?HFMA 2018 Spring Conference
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