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Since its passing in March 2010, the Patient Protection and Affordable Care Act (ACA) has dominated every aspect of the health care industry. Most health care organizations have been forced to dedicate an enormous amount of time and resources to the on-going evaluation and implementation of ACA programs and provisions. That being said, the Financial Accounting Standards Board (FASB) has also been quite busy shaking up the accounting and financial reporting world. If your health care practice or facility issues financial statements, you will be impacted. Since 2014, the FASB has issued over 50 Accounting Standards Updates (ASUs). Two of these updates (ASU No. 2014-09, Revenue from Contracts with Customers (
and ASU No. 2016-02, Leases
(Topic 842)) will profoundly change the current accounting and financial reporting practices for most health care entities.
Both of these ASUs will undoubtedly require considerable up-front planning and analysis to be properly implemented. With the effective dates of these ASU’s looming large, the time has come to ensure that implementation strategies for these ASUs is on every health care organization’s agenda.
Revenue from Contracts with Customers
ASU No. 2014-09, Revenue from Contracts with Customers
(ASU 2014-09) was issued in May 2014. Therefore, financial executives should be aware that significant changes are coming to the way revenue is currently recognized. The new revenue standard is effective for public companies for annual periods beginning after December 15, 2017, and for private companies for periods beginning after December 15, 2018. Despite this fact, studies show that many companies are behind on implementation planning.
ASU 2014-09 replaces substantially all pre-existing revenue guidance (including industry-specific guidance), and moves away from rules-based guidance and towards principle-based guidance. Principle-based guidance generally involves a higher degree of estimation and the increased use of professional judgment. The core principle of ASU 2014-09 is that “an entity should 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.”
ASU 2014-09 lays out a Five-Step Approach to properly recognize revenue under the new standard.
Issues surrounding the implementation of this standard were expected, and have proven to be numerous and often complex. While the new revenue standard eliminates industry specific guidance, the American Institute of Certified Public Accountants (AICPA) formed 16 industry specific task forces (including a Health Care Task Force) to assist in identifying and addressing industry specific issues.
Accounting for patient service revenue has long been unique and complex. As such, it is not at all surprising that the Health Care Task Force has identified eight implementation issues to date with regard to the application of ASU 2014-09. Such issues include how to determine if there is a contract and the transaction price for health care services provided to self-pay patients. As the Health care Task Force continues to work through these implementation issues, Health care entities should be working on their implementation strategies.
In September 2016, the AICPA issued “New Revenue Recognition Accounting Standard – Learning and Implementation Plan” which provides guidance and a suggested timeline for public entities to implement the new revenue recognition standard (nonpublic entities have an additional year to adopt the new guidance). The action steps outlined in the AICPA’s Learning and Implementation Plan include the following: