Health Care Entities, September 2017 E-Book

• Herausgeber: John Wiley & Sons
• Kategorie: Fachliteratur
• Serie: AICPA Audit and Accounting Guide
• Sprache: Englisch

Seitenzahl: 1133

Veröffentlichungsjahr: 2017

Beschreibung

It is critical that auditors understand the complexities of the specialized accounting and regulatory requirements of the health care industry. This guide is considered the industry standard resource and the 2017 update contains practical, "how-to" guidance for accounting and auditing of health care entities. Prepared and reviewed by industry experts to provide hands on, practical guidance for those who work in and with health care entities, this 2017 edition includes relevant GASB and FASB updates (including those related to private companies), and auditor involvement with municipal securities findings. Further, SAS No. 133, Auditor Involvement With Exempt Offering Documents will be important in this industry. The clarification made by this standard will be very helpful to auditors in understanding their requirements related to public offering documents that include audited financial statements.

Leseprobe

Preface

Prepared by the Health Care Committee and the Health Care Audit Guide Task Force

(Updated as of September 1, 2017)

About AICPA Guides

This AICPA Guide has been developed by the AICPA Health Care Expert Panel and the AICPA Health Care Audit and Accounting Guide Overhaul Task Force to assist management in the preparation of their financial statements in conformity with U.S. generally accepted accounting principles (GAAP) and to assist auditors in performing and reporting on their audit engagements.

AICPA Guides may include certain content presented as “Supplement,” “Appendix,” or “Exhibit.” A supplement is a reproduction, in whole or in part, of authoritative guidance originally issued by a standard setting body (including regulatory bodies) and applicable to entities or engagements within the purview of that standard setter, independent of the authoritative status of the applicable AICPA Guide. Both appendixes and exhibits are included for informational purposes and have no authoritative status.

The Financial Reporting Executive Committee (FinREC) is the designated senior committee of the AICPA authorized to speak for the AICPA in the areas of financial accounting and reporting. Conforming changes made to the financial accounting and reporting guidance contained in this guide are approved by the FinREC Chair (or his or her designee). Updates made to the financial accounting and reporting guidance in this guide exceeding that of conforming changes are approved by the affirmative vote of at least two-thirds of the members of FinREC.

This guide does the following:

Identifies certain requirements set forth in FASB

Accounting Standards Codification

® (ASC) and GAAP for governmental entities.

Describes FinREC’s understanding of prevalent or sole industry practice concerning certain issues. In addition, this guide may indicate that FinREC expresses a preference for the prevalent or sole industry practice, or it may indicate that FinREC expresses a preference for another practice that is not the prevalent or sole industry practice; alternatively, FinREC may express no view on the matter.

Identifies certain other, but not necessarily all, industry practices concerning certain accounting issues without expressing FinREC’s views on them.

Provides guidance that has been supported by FinREC on the accounting, reporting, or disclosure treatment of transactions or events that are not set forth in FASB ASC or GAAP for governmental entities.

Accounting guidance for nongovernmental entities included in an AICPA Guide is a source of nonauthoritative accounting guidance. As discussed later in this preface, FASB ASC is the authoritative source of U.S. accounting and reporting standards for nongovernmental entities, in addition to guidance issued by the SEC.

Accounting guidance for governmental entities included in an AICPA Guide, and cleared by GASB, is a source of authoritative GAAP described in category B of the hierarchy of GAAP for state and local governmental entities as defined in GASB Statement No. 76, The Hierarchy of Generally Accepted Accounting Principles for State and Local Governments. The accounting provisions of this guide that have been cleared by GASB are formatted in orange font for the reader within the text of the guide and are noted in appendix F, “Category B Guidance.” AICPA members should be prepared to justify departures from GAAP, as discussed in the “Accounting Principles Rule” (AICPA, Professional Standards, ET sec. 1.320.001 and 2.320.001).

Auditing guidance included in an AICPA Guide is recognized as an interpretive publication, as defined in AU-C section 200, Overall Objectives of the Independent Auditor and the Conduct of an Audit in Accordance With Generally Accepted Auditing Standards (AICPA, Professional Standards). Interpretive publications are recommendations on the application of generally accepted auditing standards (GAAS) in specific circumstances, including engagements for entities in specialized industries.

Interpretive publications are issued under the authority of the AICPA Auditing Standards Board (ASB) after all ASB members have been provided an opportunity to consider and comment on whether the proposed interpretive publication is consistent with GAAS. The members of the ASB have found the auditing guidance in this guide to be consistent with existing GAAS.

Although interpretive publications are not auditing standards, AU-C section 200 requires the auditor to consider applicable interpretive publications in planning and performing the audit because interpretive publications are relevant to the proper application of GAAS in specific circumstances. If the auditor does not apply the auditing guidance in an applicable interpretive publication, the auditor should document how the requirements of GAAS were complied with in the circumstances addressed by such auditing guidance.

The ASB is the designated senior committee of the AICPA authorized to speak for the AICPA on all matters related to auditing. Conforming changes made to the auditing guidance contained in this guide are approved by the ASB Chair (or his or her designee) and the Director of the AICPA Audit and Attest Standards Staff. Updates made to the auditing guidance in this guide exceeding that of conforming changes are issued after all ASB members have been provided an opportunity to consider and comment on whether the guide is consistent with the Statements on Auditing Standards (SASs).

Any auditing guidance in a guide appendix or chapter appendix in a guide, or in an exhibit, while not authoritative, is considered an “other auditing publication.” In applying such guidance, the auditor should, exercising professional judgment, assess the relevance and appropriateness of such guidance to the circumstances of the audit. Although the auditor determines the relevance of other auditing guidance, auditing guidance in a guide appendix or exhibit has been reviewed by the AICPA Audit and Attest Standards staff and the auditor may presume that it is appropriate.

An AICPA Guide containing attestation guidance is recognized as an interpretive publication as defined in AT-C section 105, Concepts Common to All Attestation Engagements (AICPA, Professional Standards). Interpretive publications are recommendations on the application of Statements on Standards for Attestation Engagements (SSAEs) in specific circumstances, including engagements for entities in specialized industries. Interpretive publications are issued under the authority of the ASB. The members of the ASB have found the attestation guidance in this guide to be consistent with existing SSAEs.

A practitioner should be aware of and consider the guidance in this AICPA Guide applicable to his or her attestation engagement. If the practitioner does not apply the attestation guidance included in an applicable AICPA Guide, the practitioner should be prepared to explain how he or she complied with the SSAE provisions addressed by such attestation guidance.

Any attestation guidance in a guide appendix or chapter appendix in a guide, or in an exhibit, while not authoritative, is considered an “other attestation publication.” In applying such guidance, the practitioner should, exercising professional judgment, assess the relevance and appropriateness of such guidance to the circumstances of the engagement. Although the practitioner determines the relevance of other attestation guidance, such guidance in a guide appendix or exhibit has been reviewed by the AICPA Audit and Attest Standards staff and the practitioner may presume that it is appropriate.

The ASB is the designated senior committee of the AICPA authorized to speak for the AICPA on all matters related to attestation. Conforming changes made to the attestation guidance contained in this guide are approved by the ASB Chair (or his or her designee) and the Director of the AICPA Audit and Attest Standards Staff. Updates made to the attestation guidance in this guide exceeding that of conforming changes are issued after all ASB members have been provided an opportunity to consider and comment on whether the guide is consistent with the SSAEs.

Recognition

2017 Guide Edition

AICPA Senior Committees

Auditing Standards Board

Daniel Hevia, ASB Member Michael J. Santay, Chair

Financial Reporting Executive Committee

Cathy Clarke, FinREC Member Jim Dolinar, Chair

The AICPA gratefully acknowledges those members of the AICPA Health Care Expert Panel who reviewed or otherwise contributed to the development of this edition of the guide: Nicole Blythe, Brian Conner, Martha Garner, John Gaspich, Renee Gravalin, Farlen Halikman, John Hawryluk, Chuck Heimerdinger, Laura Hyland, Norman Mosrie, Andy Mrakovcic, and Mark Ross.

AICPA Staff

Christopher Cole Senior Technical ManagerMember Learning and Competency and Staff Liaisonto the Health Care Expert Panel

Guidance Considered in This Edition

This edition of the guide has been modified by the AICPA staff to include certain changes necessary due to the issuance of authoritative guidance since the guide was originally issued, and other revisions as deemed appropriate. Relevant guidance issued through September 1, 2017, has been considered in the development of this edition of the guide. However, this guide does not include all audit, accounting, reporting, regulatory, and other requirements applicable to an entity or a particular engagement. This guide is intended to be used in conjunction with all applicable sources of relevant guidance.

Relevant guidance that is issued and effective on or before September 1, 2017, is incorporated directly in the text of this guide. Relevant guidance issued but not yet effective as of September 1, 2017, but becoming effective on or before June 30, 2018, is also presented directly in the text of the guide, but shaded gray and accompanied by a footnote indicating the effective date of the new guidance. The distinct presentation of this content is intended to aid the reader in differentiating content that may not be effective for the reader’s purposes (as part of the guide’s “dual guidance” treatment of applicable new guidance).

Relevant guidance issued but not yet effective as of the date of the guide and not becoming effective until after June 30, 2018, is referenced in a “guidance update” box that contains summary information on the guidance issued but not yet effective.

In updating this guide, all guidance issued up to and including the following was considered, but not necessarily incorporated, as determined based on applicability:

FASB Accounting Standards Update (ASU) No. 2017-11,

Earnings Per Share (Topic 260); Distinguishing Liabilities from Equity (Topic 480); Derivatives and Hedging (Topic 815): (Part I) Accounting for Certain Financial Instruments with Down Round Features, (Part II) Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interests with a Scope Exception (a consensus of the Emerging Issues Task Force)

GASB statements, interpretations, and technical bulletins issued through September 1, 2017

GASB Implementation Guidance Update No. 2017-2,

Financial Reporting for Postemployment Benefit Plans Other Than Pension Plans

, issued April 2017

SAS No. 133,

Auditor Involvement With Exempt Offering Documents

, (AICPA,

Professional Standards

, AU-C sec. 945)

Interpretation No. 3, “Reporting on Audits Conducted in Accordance With Auditing Standards Generally Accepted in the United States of America and International Standards on Auditing” (AICPA,

Professional Standards

, AU-C sec. 9700 par. .08–.13), of AU-C section 700,

Forming an Opinion and Reporting on Financial Statements

SSAE No. 18,

Attestation Standards: Clarification and Recodification

(AICPA,

Professional Standards

)

Interpretation No. 1, “Third-Party Due Diligence Services Related to Asset-Backed Securitizations: SEC Release No. 34-72936” (AICPA,

Professional Standards

, AT-C sec. 9215 par. .01–.18), of AT-C section 215,

Agreed-Upon Procedures Engagements

PCAOB Staff Guidance,

Staff Guidance—Form AP, Auditor Reporting of Certain Audit Participants and Related Voluntary Audit Report Disclosure Under AS 3101, Reports on Audited Financial Statements (January 26, 2017)

Users of this guide should consider guidance issued subsequent to those items listed previously to determine their effect on entities covered by this guide. In determining the applicability of recently issued guidance, its effective date should also be considered.

The changes made to this edition of the guide are identified in appendix I, "Schedule of Changes Made to the Text From the Previous Edition." The changes do not include all those that might be considered necessary if the guide were subjected to a comprehensive review and revision.

PCAOB quoted content is from PCAOB Auditing Standards and PCAOB Staff Audit Practice Alerts, ©2017, Public Company Accounting Oversight Board. All rights reserved. Used by permission.

FASB standards quoted are from FASB Accounting Standards Codification ©2017, Financial Accounting Foundation. All rights reserved. Used by permission.

GASB standards quoted are from GASB Statements, Concepts Statements, Interpretations, Implementation Guides, and Technical Bulletins, ©2017, Governmental Accounting Standards Board. All rights reserved. Used by permission.

Auditors who perform audits under Government Auditing Standards; the Single Audit Act Amendments of 1996; and Title 2 U.S. Code of Federal Regulations Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance, effective for audits of fiscal years ending on or after December 25, 2015), should also refer to the AICPA Audit Guide Government Auditing Standards and Single Audits.

FASB ASC Pending Content

Presentation of Pending Content in FASB ASC

Amendments to FASB ASC (issued in the form of ASUs) are initially incorporated into FASB ASC in “pending content” boxes, below the paragraphs being amended with links to the transition information. The pending content boxes are meant to provide users with information about how the guidance in a paragraph will change as a result of the new guidance.

Pending content applies to different entities at different times due to varying fiscal year-ends, and because certain guidance may be effective on different dates for public and nonpublic entities. As such, FASB maintains amended guidance in pending content boxes within FASB ASC until the “roll-off” date. Generally, the roll-off date is six months following the latest fiscal year end for which the original guidance being amended could still be applied.

Presentation of FASB ASC Pending Content in AICPA Guides

Amended FASB ASC guidance that is included in pending content boxes in FASB ASC on September 1, 2017, is referenced as “Pending Content” in this guide. Readers should be aware that “Pending Content” referenced in this guide will eventually be subjected to FASB’s “roll-off” process and no longer be labeled as “Pending Content” in FASB ASC (as discussed in the previous paragraph).

Terms Used to Define Professional Requirements in This AICPA Guide

Any requirements described in this guide are normally referenced to the applicable standards or regulations from which they are derived. Generally the terms used in this guide describing the professional requirements of the referenced standard setter (for example, the ASB and GASB) are the same as those used in the applicable standards or regulations (for example, must or should). However, where the accounting requirements are derived from FASB ASC, this guide uses should, whereas FASB uses shall. In its resource document “About the Codification” that accompanies FASB ASC, FASB states that it considers the terms should and shall to be comparable terms and to represent the same concept—the requirement to apply a standard.

Readers should refer to the applicable standards and regulations for more information on the requirements imposed by the use of the various terms used to define professional requirements in the context of the standards and regulations in which they appear.

Certain exceptions apply to these general rules, particularly in those circumstances where the guide describes prevailing and/or preferred industry practices for the application of a standard or regulation. In these circumstances, the applicable senior committee responsible for reviewing the guide’s content believes the guidance contained herein is appropriate for the circumstances.

Applicability of Generally Accepted Auditing Standards and PCAOB Standards

Appendix A, “Council Resolution Designating Bodies to Promulgate Technical Standards,” of the AICPA Code of Professional Conduct recognizes both the ASB and the PCAOB as standard setting bodies designated to promulgate auditing, attestation, and quality control standards. Paragraph .01 of the “Compliance With Standards Rule” (AICPA, Professional Standards, ET sec. 1.310.001 and 2.310.001) requires an AICPA member who performs an audit to comply with the applicable standards.

Audits of the financial statements of those entities subject to the oversight authority of the PCAOB (that is, those audit reports within the PCAOB’s jurisdiction as defined by the Sarbanes-Oxley Act of 2002, as amended) are to be conducted in accordance with standards established by the PCAOB, a private sector, nonprofit corporation created by the Sarbanes-Oxley Act of 2002. The SEC has oversight authority over the PCAOB, including the approval of its rules, standards, and budget. In citing the auditing standards of the PCAOB, references generally use section numbers within the reorganized PCAOB auditing standards and not the original standard number, as appropriate.

Audits of the financial statements of those entities not subject to the oversight authority of the PCAOB (that is, those audit reports not within the PCAOB’s jurisdiction as defined by the Sarbanes-Oxley Act of 2002, as amended)—hereinafter referred to as nonissuers1—are to be conducted in accordance with GAAS as issued by the ASB, a senior committee of the AICPA. The ASB develops and issues standards in the form of SASs through a due process that includes deliberation in meetings open to the public, public exposure of proposed SASs, and a formal vote. The SASs and their related interpretations are codified in AICPA Professional Standards. In citing GAAS and their related interpretations, references generally use section numbers within the codification of currently effective SASs and not the original statement number, as appropriate.

The auditing content in this guide primarily discusses GAAS issued by the ASB and is applicable to audits of nonissuers. Users of this guide may find the tool developed by the PCAOB’s Office of the Chief Auditor helpful in identifying comparable PCAOB Standards. The tool is available at http://pcaobus.org/standards/auditing/pages/findanalogousstandards.aspx.

Considerations for audits of entities in accordance with PCAOB standards may also be discussed within this guide’s chapter text. When such discussion is provided, the related paragraphs are designated with the following title: Considerations for Audits Performed in Accordance With PCAOB Standards. PCAOB guidance included in an AICPA Guide has not been reviewed, approved, disapproved, or otherwise acted upon by the PCAOB and has no official or authoritative status.

Applicability of Quality Control Standards

QC section 10, A Firm’s System of Quality Control (AICPA, Professional Standards), addresses a CPA firm’s responsibilities for its system of quality control for its accounting and auditing practice. A system of quality control consists of policies that a firm establishes and maintains to provide it with reasonable assurance that the firm and its personnel comply with professional standards, as well as applicable legal and regulatory requirements. The policies also ensure reports issued by the firm are appropriate in the circumstances.

QC section 10 applies to all CPA firms with respect to engagements in their accounting and auditing practice. In paragraph .13 of QC section 10, an accounting and auditing practice is defined as “a practice that performs engagements covered by this section, which are audit, attestation, compilation, review, and any other services for which standards have been promulgated by the ASB or the AICPA Accounting and Review Services Committee under the “General Standards Rule” (AICPA, Professional Standards, ET sec.1.300.001) or the “Compliance With Standards Rule” of the AICPA Code of Professional Conduct. Although standards for other engagements may be promulgated by other AICPA technical committees, engagements performed in accordance with those standards are not encompassed in the definition of an accounting and auditing practice.

In addition to the provisions of QC section 10, readers should be aware of other sections within AICPA Professional Standards that address quality control considerations, including the following provisions that address engagement level quality control matters for various types of engagements that an accounting and auditing practice might perform:

AU-C section 220,

Quality Control for an Engagement Conducted in Accordance With Generally Accepted Auditing Standards

(AICPA,

Professional Standards

)

AT-C section 105

AR-C section 60,

General Principles for Engagements Performed in Accordance With Statements on Standards for Accounting and Review Services

(AICPA,

Professional Standards

)

Because of the importance of engagement quality, this guide includes appendix A, “Overview of Statements on Quality Control Standards.” This appendix summarizes key aspects of the quality control standard. This summarization should be read in conjunction with QC section 10, AU-C section 220, AT-C section 105, AR-C section 60, and the quality control standards issued by the PCAOB, as applicable.

Alternatives Within U.S. GAAP

The Private Company Council (PCC), established by the Financial Accounting Foundation’s Board of Trustees in 2012, and FASB, working jointly, mutually agree on a set of criteria to decide whether and when alternatives within U.S. GAAP are warranted for private companies. Based on those criteria, the PCC reviews and proposes alternatives within U.S. GAAP to address the needs of users of private company financial statements. These U.S. GAAP alternatives may be applied to those entities that are not public business entities, not-for-profits, or employee benefit plans.

The FASB ASC Master Glossary defines a public business entity as follows:

A public business entity is a business entity meeting any one of the criteria below. Neither a not-for-profit entity nor an employee benefit plan is a business entity.

a. It is required by the U.S. Securities and Exchange Commission (SEC) to file or furnish financial statements, or does file or furnish financial statements (including voluntary filers), with the SEC (including other entities whose financial statements or financial information are required to be or are included in a filing).

b. It is required by the Securities Exchange Act of 1934 (the Act), as amended, or rules or regulations promulgated under the Act, to file or furnish financial statements with a regulatory agency other than the SEC.

c. It is required to file or furnish financial statements with a foreign or domestic regulatory agency in preparation for the sale of or for purposes of issuing securities that are not subject to contractual restrictions on transfer.

d. It has issued, or is a conduit bond obligor for, securities that are traded, listed, or quoted on an exchange or an over-the-counter market.

e. It has one or more securities that are not subject to contractual restrictions on transfer, and it is required by law, contract, or regulation to prepare U.S. GAAP financial statements (including footnotes) and make them publicly available on a periodic basis (for example, interim or annual periods). An entity must meet both of these conditions to meet this criterion.

An entity may meet the definition of a public business entity solely because its financial statements or financial information is included in another entity’s filing with the SEC. In that case, the entity is only a public business entity for purposes of financial statements that are filed or furnished with the SEC.

Considerations related to alternatives for private companies may be discussed within this guide’s chapter text. When such discussion is provided, the related paragraphs are designated with the following title: Considerations for Private Companies That Elect to Use Standards Issued by the FASB as a Consensus of the Private Company Council.

Limitations and Relationships to Other Authoritative Literature

This guide does not discuss the application of all GAAP and GAAS that are relevant to the preparation and audit of financial statements of health care entities. The guide is directed primarily to those aspects of the preparation and audit of health care entities’ financial statements that may be unique to those entities or that are considered particularly significant to them.

This guide incorporates certain provisions of FASB ASC 954, Health Care Entities; FASB ASC 958, Not-for-Profit Entities; GASB Statement No. 33, Accounting and Financial Reporting for Nonexchange Transactions, as amended; and GASB Statement No. 34, Basic Financial Statements—and Management’s Discussion and Analysis—for State and Local Governments, as amended, as well as other authoritative accounting and auditing literature. Not all guidance included in that literature, however, is incorporated, repeated, or summarized in this guide. Accordingly, FASB ASC, GASB statements and interpretations, AICPA Professional Standards, and all authoritative guidance should be read in conjunction with this guide.

This guide is not the only industry-specific AICPA Guide that auditors should consider when performing an audit of a governmental health care entity. The AICPA Audit and Accounting Guide State and Local Governments includes governmental health care entities in its scope and specific provisions of that guide (as noted in that guide’s appendix B) were cleared by GASB. Therefore, certain accounting and financial reporting guidance in that guide constitutes Category B of the hierarchy of GAAP for governmental health care entities. The auditing guidance in that guide should also be considered during an audit of a governmental health care entity that is included in the scope of this guide. In practice, auditors of governmental health care entities that issue separate financial statements as special-purpose governments engaged only in business-type activities2 may use this guide as the primary source of guidance because this guide addresses transactions that are unique to, or prevalent in, the health care industry. However, the AICPA Audit and Accounting Guide State and Local Governments contains information about governmental accounting and financial reporting standards and other matters that are unique to, or prevalent in, government and not included in this guide.3

Special-purpose governments are legally separate entities, as that term is described in paragraph 15 of GASB Statement No. 14, The Financial Reporting Entity. They may be component units of another governmental entity, or they may be other stand-alone governments (component units and other stand-alone governments are also defined in GASB Statement No. 14, as amended). Because GASB Statement No. 34 is written from the perspective of general-purpose governments, paragraph 138 of GASB Statement No. 34 discusses how those requirements apply to special-purpose governments engaged only in business-type activities, such as certain governmental health care entities. Governmental health care entities that are special-purpose governments engaged only in business-type activities should present only the financial statements required for enterprise funds. These financial statements are discussed further in chapter 15, "Unique Considerations of State and Local Government Health Care Entities," of this guide.

The Uniform Guidance sets forth audit requirements for health care entities expending federal awards that are nonfederal entities. Institutions covered by the Uniform Guidance include not-for-profit hospitals, public hospitals, institutions of higher education and their affiliated hospitals, voluntary health and welfare entities, and other community-based organizations.4 Auditors of health care entities who perform audits under Government Auditing Standards, the Single Audit Act Amendments of 1996, and the Uniform Guidance should also refer to the Audit Guide Government Auditing Standards and Single Audits. Note that federal agency implementation regulations for the Uniform Guidance are codified in Title 2 of the Code of Federal Regulations (CFR) except for Department of Health and Human Services, which are codified at Title 45 CFR Part 75.

AICPA.org Website

The AICPA encourages you to visit the website at aicpa.org and the Financial Reporting Center at www.aicpa.org/frc. The Financial Reporting Center supports members in the execution of high-quality financial reporting. Whether you are a financial statement preparer or a member in public practice, this center provides exclusive member-only resources for the entire financial reporting process, and provides timely and relevant news, guidance and examples supporting the financial reporting process. Another important focus of the Financial Reporting Center is keeping those in public practice up to date on issues pertaining to preparation, compilation, review, audit, attestation, assurance, and advisory engagements. Certain content on the AICPA’s websites referenced in this guide may be restricted to AICPA members only.

Select Recent Developments Significant to This Guide

AICPA’s Ethics Codification Project

The AICPA’s Professional Ethics Executive Committee (PEEC) restructured and codified the AICPA Code of Professional Conduct (code) so that members and other users of the code can apply the rules and reach appropriate conclusions more easily and intuitively. This is referred to as the AICPA Ethics Codification Project.

Although PEEC believes it was able to maintain the substance of the existing AICPA ethics standards through this process and limited substantive changes to certain specific areas that were in need of revision, the numeric citations and titles of interpretations have all changed. In addition, the ethics rulings are no longer in a question and answer format but rather, have been drafted as interpretations, incorporated into interpretations as examples, or deleted where deemed appropriate. For example,

Rule 101,

Independence

[ET sec. 101 par. .01] is referred to as the "Independence Rule" [ET sec. 1.200.001] in the revised code.

The content from the ethics ruling entitled "Financial Services Company Client has Custody of a Member’s Assets" [ET sec. 191 par. .081–.082] is incorporated into the "Brokerage and Other Accounts" interpretation [ET sec. 1.255.020] found under the subtopic "Depository, Brokerage, and Other Accounts" [ET sec. 1.255] of the "Independence" topic [ET sec. 1.200].

The revised code was effective December 15, 2014 and is available at http://pub.aicpa.org/codeofconduct/ethics.aspx. References to the code have been updated in this guide.

To assist users in locating in the revised code content from the prior code, PEEC created a mapping document. The mapping document is available in Excel format in appendix D in the revised code.

FASB’s Revenue Recognition

FASB ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606), as amended, was issued by FASB to improve the financial reporting of revenue from contracts with customers and related costs and to align the reporting with International Financial Reporting Standards. FASB ASU No. 2014-09 provides a framework for revenue recognition and supersedes or amends several of the revenue recognition requirements in FASB ASC 605, Revenue Recognition, as well as guidance within the industry-specific topics, including FASB ASC 954, Health Care Entities, and FASB ASC 958, Not-for-Profit Entities. The standard applies to any entity that either enters into contracts with customers to transfer goods or services or enters into contracts for the transfer of nonfinancial assets unless those contracts are within the scope of other standards (for example, insurance or lease contracts).

The AICPA has formed 16 industry task forces to assist in developing a new guide on revenue recognition that will provide insights and illustrative examples on how to apply the new standards. Revenue recognition implementation issues identified by the Health Care Entities Revenue Recognition Task Force will be available at aicpa.org for informal comment, after review by FinREC. Readers are encouraged to submit comments to [email protected].

Appendix C, "The New Revenue Recognition Standard: FASB ASC 606," of this guide provides additional discussion of the new standards. The appendix is prepared for informational and reference purposes only. It has not been reviewed, approved, disapproved, or otherwise acted on by any senior committee of the AICPA and does not represent official positions or pronouncements of the AICPA.

FASB’s Recognition and Measurement of Financial Assets and Financial Liabilities

FASB ASU No. 2016-01, Financial Instruments—Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities, was issued by FASB in January 2016 to improve the financial reporting of financial assets and liabilities. For health care entities, FASB ASU No. 2016-01 makes the following changes:

Expands the scope of the standards for equity investments to all equity securities and other ownership interests in an entity, including investments in partnerships, unincorporated joint ventures, and limited liability companies.

For not-for-profit (NFP) health care entities, retains the requirement to report equity securities that have readily determinable fair values at fair value, except for those accounted for under the equity method of accounting or those that result in consolidation of the investee. The standards for those investments, however, will move from FASB ASC 958-320 to FASB ASC 958-321.

For health care entities that are investor-owned entities, expands the use of fair value measures to all equity investments (except those accounted for under the equity method of accounting or those that result in consolidation of the investee) with changes in fair value recognized in net income.

Allows a health care entity to choose, on an investment-by-investment basis, to report an equity investment at its cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issue, provided that the equity investment (a) does not have a readily determinable fair value and (b) does not qualify for the practical expedient to estimate fair value using net asset value per share or its equivalent (in accordance with FASB ASC 820-10-35-59). The ASU requires additional disclosures about those investments.

Requires the impairment of equity investments without readily determinable fair values to be assessed qualitatively at each reporting period. That impairment assessment will be similar to the qualitative assessment for long-lived assets, goodwill, and indefinite-lived intangible assets. Upon determining that impairment exists, an entity should calculate the fair value of that investment and recognize the impairment in change in net assets. The impairment is measured as the amount by which the carrying value exceeds the fair value of the investment.

Eliminates the requirement for health care entities to disclose the fair value of financial instruments measured at amortized cost, unless the health care entity is a public business entity. Currently, that information is required of all public entities as well as nonpublic entities that have assets of $100 million or more on the date of the financial statements, or that have derivative instruments.

Eliminates the requirement for health care entities that are public business entities to disclose the method(s) and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet. · Requires health care entities that are public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes.

Requires an investor-owned health care entity to present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option for financial instruments.

For NFP health care entities, modifies the requirements for the performance indicator so that that measure includes the changes in the fair values of equity securities and liabilities in the same manner as those changes are reflected in net income (included in the performance indicator) and other comprehensive income (excluded from the performance indicator) of investor-owned health care entities.

Requires disclosure of financial assets and financial liabilities by measurement category and form of financial asset (that is, securities or loans and receivables) either on the face of the statement of financial position or in the accompanying notes.

Clarifies that a health care entity should evaluate the need for a valuation allowance on a deferred tax asset related to available-for-sale securities in combination with the entity’s other deferred tax assets.

The amendments are effective for public business entities for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. Early adoption is not permitted by public business entities; however, this FASB ASU provides for early application of certain specified amendments as of the beginning of the fiscal year of adoption.

For all other entities, including not-for-profit entities, the amendments in this update are effective for fiscal years beginning after December 15, 2018, and interim periods within fiscal years beginning after December 15, 2019. Early adoption is permitted by entities other than public business entities as of the fiscal years beginning after December 15, 2017, and interim periods within those fiscal years.

Because the amendments in FASB ASU No. 2016-01 cannot be adopted earlier than for fiscal years beginning after December 15, 2017, this guide will be updated for FASB ASU No. 2016-01 in a future edition. However, because FASB ASU No. 2016-01 allows entities that are not public business entities to elect not to disclose information about fair value of financial instruments measured at amortized cost (paragraphs 10-19 of FASB ASC 825-10-50) in financial statements that have not yet been made available for issuance, this guide no longer includes those disclosures.

FASB’s Leases

FASB ASU No. 2016-02 issued February 2016, changes the accounting for leases, primarily by the recognition of lease assets and lease liabilities by lessees for leases classified as operating leases under current GAAP. A lessee should recognize in the statement of financial position a liability to make lease payments (the lease liability) and an asset representing its right to use the underlying asset for the lease term (the right-of-use asset). The right-of-use asset and the lease liability are initially measured at the present value of the lease payments.

Leases will continue to be classified as either operating or finance leases (currently referred to as capital leases). However, in contrast to existing lease standards, there are no percentage tests to apply, and there can be more judgment exercised in applying the criteria that determine whether a lease is a finance lease. As a practical matter, most existing capital leases are finance leases and most existing operating leases remain operating leases. For finance leases, a lessee is required to recognize interest on the lease liability separately from amortization of the right-of-use asset. For operating leases, a lessee is required to recognize a single lease cost, calculated so that the cost of the lease is allocated over the lease term on a generally straight-line basis.

For leases with a term of 12 months or less, a lessee is permitted to make an accounting policy election by class of underlying asset not to recognize lease assets and lease liabilities. If a lessee makes this election, it should recognize lease expense for such leases generally on a straight-line basis over the lease term.

The accounting applied by a lessor is largely unchanged from that applied under existing GAAP. Lessors will account for leases using an approach that is substantially equivalent to existing standards for sales-type leases, direct financing leases and operating leases. Leveraged lease accounting is eliminated, except for grandfathering existing leveraged leases during transition.

FASB ASU No. 2016-02 is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years, for NFPs that have issued, or are conduit bond obligors for, securities that are traded, listed, or quoted on an exchange or an over-the-counter market. For all other NFPs, the amendments in this ASU are effective for fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020. Early adoption is permitted.

FASB’s Project on Financial Statements of NFPs

On August 18, 2016, the FASB issued FASB ASU No. 2016-14, Presentation of Financial Statements for Not-for-Profit Entities (Topic 958). The new standards are effective for annual financial statements issued for fiscal years beginning after December 15, 2017 (for example, years ending December 31, 2018 and years ending June 30, 2019). Early application of the amendments in the ASU is permitted. The ASU, which is the first phase of a two-phase project, makes significant changes in seven areas:

Net asset classes

Liquidity and availability of resources

Classification and disclosure of underwater endowment funds

Expense reporting

Statement of cash flows

Investment return

Release of restrictions on capital assets

Appendix H, "The New Not-for-Profit Financial Reporting Model Standards: FASB ASU No. 2016-14," of this guide provides additional discussion of the new standards. The appendix is prepared for informational and reference purposes only. It has not been reviewed, approved, disapproved, or otherwise acted on by any senior committee of the AICPA and does not represent official positions or pronouncements of the AICPA.

The second phase of the project is expected to address the following issues:

Whether to require a measure of operations

Whether and how to define a measure of operations

Realignment of certain items in the statement of cash flows to better align operating cash flows with an operating measure on the statement of activities

An alternative of segment reporting for NFP health care entities in lieu of an analysis of expenses by both natural and functional classification

FASB’s Project on Revenue Recognition of Grants and Contracts by NFPs

In August 2017, FASB issued a proposed ASU, Clarifying the Scope and the Accounting Guidance for Contributions Received and Contributions Made, to improve the scope and the accounting guidance for contributions received and contributions made as it relates revenue recognition of grants and contracts by NFPs. For more information, see www.fasb.org.

SAS No. 133

In July 2017, the ASB issued SAS No. 133, which clarifies auditors’ responsibilities related to offerings of securities exempt from registration under the Securities Act of 1933 and franchise offerings (collectively, exempt offerings). SAS No. 133 will be effective for exempt offering documents with which the auditor is involved that are initially distributed, circulated, or submitted on or after June 15, 2018. This SAS is included in the auditing section of chapter 7 as gray shaded text, which is used to identify guidance issued but not yet effective as of the date of this guide, September 1, 2017, but becoming effective on or prior to June 30, 2018.

Notes

1

  See the definition of the term

nonissuer

in the AU-C Glossary (AICPA,

Professional Standards

).

2

  GASB Statement No. 34,

Basic Financial Statements—and Management’s Discussion and Analysis—for State and Local Governments

, as amended, does not provide guidance on separate reporting by individual enterprise funds of a government. Although this discussion of the guidance in GASB Statement No. 34 is written in terms of special-purpose business-type activities that are governmental health care entities, the accounting, financial reporting, and auditing considerations are usually equally applicable when the health care activity is conducted as a function or program of a general-purpose government and reported in an enterprise fund (see footnote 7 in chapter 12, "Special-Purpose and State Governments," of the AICPA Audit and Accounting Guide

State and Local Governments

). Reporting guidance on separate reporting by individual enterprise funds of a government is provided in the AICPA Audit and Accounting Guide

State and Local Governments

.

3

  See paragraphs 1.21 and 12.11–.13 of the AICPA Audit and Accounting Guide

State and Local Governments

.

4

  The audit requirements of Title 45 U.S.

Code of Federal Regulations

(CFR) Part 75,

Uniform Administrative Requirements, Cost Principles, and Audit Requirements for HHS Awards

, are applicable for commercial organizations, including for-profit hospitals, that receive federal awards under Department of Health & Human Services programs. Generally, the organization has two options regarding audits: a financial-related audit of a particular award, in accordance with

Government Auditing Standards

, or an audit that meets the requirements of Subpart F of Part 75. See Title 45,

Public Welfare

, U.S. CFR Part 75.501(i) for further information.

_______________________________

Contents

Chapter

1

Overview and Unique Considerations of Health Care Entities

Purpose

Applicability

Classification of Health Care Entities

Regulatory Environment

Health Care Reform

2

General Auditing Considerations

Overview

An Audit of Financial Statements

Audit Risk

Terms of Engagement

Business Associate Agreements

Audit Planning

Group Audits

Multi-Location Audits Versus Group Audits

Complex Transactions

Materiality

Performance Materiality

Qualitative Aspects of Materiality

Use of Assertions in Assessment of Risks of Material Misstatement

Risk Assessment Procedures

Risk Assessment Procedures and Related Activities

The Entity and Its Environment

Additional Audit Considerations

Analytical Procedures

Accounting Estimates

Transactions Processed by Service Organizations

Compliance With Laws and Regulations

Going-Concern Considerations

Written Representations

Independent Auditor’s Reports

Single Audit Act and Related Audit Considerations

Statutory Reporting Considerations for Health Plans

Risk-Based Capital Requirements

Deficiencies in Internal Control

Communicating Internal Control Matters in an Audit

Communications With Regulators

3

Unique Financial Statement Considerations for Not-for-Profit Business-Oriented Health Care Entities

Complete Set of Financial Statements

Balance Sheet

Statement of Operations

Performance Indicator

Other Intermediate Subtotals

Discontinued Operations and Accounting Changes

Revenues

Expenses

Statement of Changes in Net Assets (or Equity)

Statement of Cash Flows

Notes to the Financial Statements

Subsequent Events

Example Financial Statements

4

Cash, Cash Equivalents, and Investments

Cash and Cash Equivalents

Centralized Cash Management Arrangements

Cash From Restricted Donations

Other Restricted or Designated Cash Amounts

Investments

Fair Value Option

Investments in Debt Securities and Certain Equity Securities With a Readily Determinable Fair Value That Are Not Recorded Under the Fair Value Option

Investments in Certain Other Financial Instruments Without a Readily Determinable Fair Value That Are Not Recorded Under the Fair Value Option

Investment Pools

Fair Value Measurements

Impairment of Investments

Securities Lending Activities

Transfers of Assets to an NFP or Charitable Trust for Investment

Regulation

Other Financial Statement Presentation Matters

Auditing

5

Derivatives

Introduction

General Guidance

Accounting for Changes in Fair Value of Derivative Instruments

Fair Value Hedges

Cash Flow Hedges

Derivatives Not Designated as a Hedging Instrument

Hedge Accounting Requirements

Shortcut Method

Hybrid Instruments, Host Contracts, and Embedded Derivatives

Calls and Puts in Debt

Derivatives Embedded in Split-Interest Agreements

Other Matters

Changes in Fair Value of Hedged Item

Termination of Cash Flow Hedge by Debt Extinguishment

Additional Presentation and Disclosure Requirements for NFP Business-Oriented Health Care Entities

Auditing

6

Property and Equipment and Other Assets

Overview

Capitalized Interest

Supplies, Rebates, and Discounts

Lessee Involvement in Fixed Asset Construction

Asset Retirement and Environmental Remediation Obligations

Impairment or Disposal

Discontinued Operations

Nonreciprocal Transfers

Other Long-Lived Assets

Financial Statement Presentation

Auditing

7

Municipal Bond Financing

Introduction

Conduit Bonds That Trade in Public Markets

Credit Enhancement

Issuance of Municipal Bonds

Extinguishment and Modification Transactions

Calls and Mode Conversions

Defeasance

Modifications

Gain or Loss on Debt Extinguishment

Debt Issuance Costs Incurred in Connection With an Exchange or Modification of Debt Instruments

Puts or Tender Options

IRS Considerations

Financial Statement Presentation and Disclosure

Balance Sheet

Statement of Operations

Disclosures

Obligated Group Reporting

Interim Financial Reporting

Auditing

General

Auditor Involvement With Municipal Securities Filings

Letters for Underwriters

Attestation Engagements Related to Securities Issuance

Appendix — Municipal Securities Regulation

8

Contingencies and Other Liabilities

Contingencies and Commitments

The Essentials of Recognition, Measurement, and Disclosure for Contingencies

Managing Risk of Loss

Medical Malpractice

Disclosures for Medical Malpractice

Physician Guarantees and Other Agreements With Physicians

Other Liabilities

Asset Retirement Obligations

Compensation and Related Benefits

Joint and Several Liability Arrangements

Agency Funds

Fees Paid to the Federal Government by Health Insurers

Tax Considerations for NFP Health Care Entities

Private Inurement and Intermediate Sanctions

Unrelated Business Income

State and Local Taxes

Tax Positions

Medicaid Voluntary Contribution or Taxation Programs

Risks and Uncertainties

Auditing Contingencies and Other Liabilities

Auditing Medical Malpractice Loss Contingencies

Auditing Accounting Estimates

Use of Actuaries and Actuarial Methods

Evaluating Lawyers’ Responses

Income Taxes

Auditing Considerations

9

Net Assets (Equity)

Investor-Owned Health Care Entities

Not-for-Profit Entities

Net Asset Classes

Reclassifications

Classification of Donor-Restricted Endowment Funds

Disclosure

Auditing

10

Health Care Service Revenue and Related Receivables

Overview of the Health Care Environment

Rate Setting With Third-Party Payors

The Government Payor Environment

Charity Care

Types of Health Care Revenue

Types of Payment Methodologies

Patient (or Resident) Service Revenue

Revenue Recognition

Accounting and Financial Reporting Requirements

Premium and Capitation Revenues

Patient Receivables

Estimated Final Settlements

Auditing

Accounts Receivable Confirmations

11

Contributions Received and Made

Distinguishing Contributions From Other Transactions

Contributions Received

Expiration of Donor-Imposed Restrictions

Promises to Give in Future Periods (Pledges)

Contributions of Long-Lived Assets, the Use of Long-Lived Assets, or Resources to Acquire Them

Contributed Services

Reporting the Cost of Special Events and Other Fund-Raising Activities

Naming Opportunities

Investments Gain or Loss Related to Donor-Restricted Contributions

Transfers of Assets to an NFP or Charitable Trust That Raises or Holds Contributions for Others

Contributions Made

Other Considerations

Auditing

Appendix — Q&A Section 6400,

Health Care Entities

12

The Reporting Entity and Related Entities

Overview

Reporting by NFP Health Care Entities

Relationships With Another NFP

Relationships With a For-Profit Entity

Special Entities

Reporting by Investor-Owned Health Care Entities

Presentation of Consolidated and Combined Financial Statements

Accounting for Transfers Between Related Entities

Equity Transfers

Equity Transactions

Other Transfers

Disclosure

Mergers and Acquisitions

Merger of NFPs

Acquisition by an NFP

Acquisition by an Investor-Owned Entity, Including a For-Profit Subsidiary of an NFP Health Care Entity

Disclosures

Acquired Entities

Auditing

Appendix — Flowcharts

13

Financial Accounting and Reporting for Managed Care Services

Overview

Recognition and Classification of Revenue

Capitation Arrangements

Accounting for Health Care Costs

Accounting for Loss Contracts

Consideration of Anticipated Investment Income

Accounting for Stop-Loss Insurance

General and Administrative Expenses

Acquisition Costs

Financial Statement Display Considerations

Balance Sheet

Income and Cash Flow Statement

Disclosures

14

Financial Accounting and Reporting by Continuing Care Retirement Communities

Overview

Types of Contracts

Advance Fees

Periodic Fees

Use Fees

Types of Living Accommodations

Fees and Payment Methods

Accounting for Refundable Advance Fees

Accounting for Fees Refundable to Residents Only From Reoccupancy Proceeds of a Contract Holder’s Unit

Accounting for Nonrefundable Advance Fees

Classification of Refundable Advance Fees

Accounting for the Obligation to Provide Future Services and the Use of Facilities to Current Residents

Accounting for the Costs of Acquiring Initial Continuing-Care Contracts

Financial Statements

Auditing

15

Unique Considerations of State and Local Government Health Care Entities

Introduction

Applicability of This Chapter

GAAP Hierarchy for Governmental Health Care Entities

Applicability of FASB and AICPA Pronouncements

Basic Financial Statements

Statement of Net Position

Statement of Revenues, Expenses, and Changes in Net Position

Statement of Cash Flows

Segment Reporting

RSI, Including MD&A

Measurement Attributes

Cash, Cash Equivalents, and Investments

Cash and Cash Equivalents

Investments and Certain Equity Interests

Derivatives

Property and Equipment and Other Assets

Capital Assets—General

Capital Asset Impairment

Intangible Assets

Excess Consideration Provided in a Governmental Acquisition (Known as Goodwill in Nongovernmental Entities)

Leased Assets

Service Concession Arrangements

Disclosures

Municipal Bond Financing and Other Long-Term Debt

Debt Defeasance and Extinguishment

Debt Issuance Costs

Disclosures

Contingencies and Other Liabilities

Insurance-Related Contingencies

Nonexchange Financial Guarantees

Asset Retirement and Pollution Remediation Obligations

Other Contingencies

Compensation and Related Benefits

Tax Considerations

Disclosures

Net Position

Financial Reporting of Net Position

Health Care Service Revenue and Receivables

Contributions and Other Nonexchange Transactions

The Reporting Entity and Related Entities

Identifying Component Units

Presentation of Component Units

Equity Interests

Institutionally-Related Foundations

Government Combinations

General Auditing Considerations for Governmental Health Care Entities

Independent Auditor’s Reports

Supplementary Information and Supporting Information, Including RSI

Supplement A

Statement of Position 00-1, Auditing Health Care Third-Party Revenues and Related Receivables

Appendix

A

Overview of Statements on Quality Control Standards

B

References to AICPA Technical Questions and Answers

C

The New Revenue Recognition Standard: FASB ASC 606

D

Accounting for Financial Instruments

E

Information Sources

F

Category B Guidance

G

The New Leases Standard: FASB ASU No. 2016-02

H

The New Not-for-Profit Financial Reporting Model Standards: FASB ASU No. 2016-14

I

Schedule of Changes Made to the Text From the Previous Edition

Glossary

EULA

Guide

Cover

Table of Contents

Preface

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Chapter 1Overview and Unique Considerations of Health Care Entities

Purpose

1.01 This guide has been prepared to assist health care entities in preparing financial statements in accordance with generally accepted accounting principles in the United States of America and to assist independent auditors in auditing and reporting on those financial statements. This guide focuses on accounting and auditing issues that are pervasive in, or unique to, health care entities.

Applicability

1.02 This guide applies to the following types of health care entities:

Investor-owned businesses, both public business entities and private companies. Refer to the

preface

for further explanation of public business entities and private companies.

Not-for-profit (NFP) business-oriented entities that have no ownership interest and are essentially self-sustaining from fees charged for goods and services (the term

not-for-profit entity

is used as defined in the FASB

Accounting Standards Codification

[ASC] Master Glossary).

Governmental entities. See

paragraph 1.08

and

chapter 15

, "Unique Considerations of State and Local Government Health Care Entities," of this guide for further discussion regarding governmental health care entities.

This guide applies to entities whose principal operations consist of providing or agreeing to provide health care services and that derive all or almost all of their revenues from the sale of goods or services; it also applies to entities whose primary activities are the planning, organization, and oversight of such entities, such as parent or holding companies of health care entities.

1.03 This guide does not apply to voluntary health and welfare entities, as defined in the FASB ASC Master Glossary. It also does not apply to NFPs that are fund-raising foundations, even if those foundations are included in the consolidated financial statements of a health care entity. Voluntary health and welfare entities and fund-raising foundations follow the AICPA Audit and Accounting Guide Not-for-Profit Entities, rather than this guide.

1.04 Thus, this guide applies to the following entities, among others:

Clinics, medical group practices, individual practice associations, individual practitioners, emergency care providers, laboratories, surgery centers, imaging centers, and other ambulatory care organizations

Continuing care retirement communities

Drug and alcohol rehabilitation centers and other rehabilitation facilities

Health maintenance organizations, or HMOs, and similar prepaid health care plans

Home health agencies

Hospice care providers

Hospitals

Institutional facilities that provide skilled nursing, intermediate, or less-intensive levels of health care

Integrated health care delivery systems that include one or more of these entities

Providers of durable medical equipment and related medical services

1.05