Accounting Update March 2011 John Blakey, Business Assurance Partner
Disclosure Moss Adams LLP The content of this presentation is general in nature designed for a broader audience. It is not intended to be tailored to the circumstances of each individual attendee and their institution. Attendees should consult with the specific regulatory requirements, professional guidance, and their legal counsel specific to their situation before taking any action.
Agenda Current Developments Not for Profit Entities: Mergers and Acquisitions Improving Disclosures about Fair Value Measurements GASB Financial Instruments Omnibus Subsequent Event Disclosure Amendment Measuring Charity Care for Disclosure Presentation of Insurance Claims and Insurance Recoveries Future Developments Other Projects Joint FASB/IASB Activities
Current Developments
Standard Updates Effective for December 31, 2010...
Not for Profit Entities: Mergers & Acquisitions ASU 2010 07 Topic 958 formally FASB 164 Applies to: Transactions or other events that result in a not for profit entity initially recognizing another NFP entity, business, or nonprofit activity in its financial statements Does not apply to: Joint venture formation Acquisition of assets not constituting a business or nonprofit activity A combination between not for profit entities, businesses, or nonprofit activities under common control Situations where a NFP obtains control but does not consolidate the entity
Not for Profit Entities: Mergers & Acquisitions Changes NFP s have accounted for mergers and acquisitions following for profit guidance Key Provisions Mergers are accounted for using the Carryover Method Acquisitions are accounted for using the Acquisition Method The Carryover Method the combined entity carries forward the assets and liabilities of the individual combining entities at their prior book values The Acquisition Method applies guidance very similar to current FAS141R (recording asset and liabilities at fair values) with some key differences
Not for Profit Entities: Mergers & Acquisitions Effective Dates Prospectively for mergers and acquisitions in periods beginning on or after December 15, 2009 For June 30 year ends, effective for acquisitions/mergers in FY 2011 For calendar year ends, effective in FY 2010 Cannot be applied early Takeaways Most NFP combinations will be acquisitions Mergers as defined in this statement are not typical in practice
Improving Disclosures about Fair Value Measurements Non Financial Assets and Liabilities ASU 2010 06 Topic 820 formally FASB 157 Applies to: Both NFP s and for profits Quick History Fair Value Measurements, through amendments, has been made effective in 2 components: Measurements of financial assets and liabilities: Effective for years beginning after November 15, 2007 (December 31, 2008 calendar year ends) Measurements of nonfinancial assets and liabilities: Effective for years beginning after November 15, 2008 (December 31, 2009 calendar year ends)
Improving Disclosures about Fair Value Measurements Overview FAS 157 changed the definition of fair value, and thus, the manner in which fair value is measured Requires fair value to be measured using one or a combination of 3 approaches: Market, Income, or Cost approaches Established a fair value hierarchy and related disclosures. Level 1, 2 or 3. Changes Entities already adopted the provisions for financial assets and liabilities Effective for this year, now must apply same principles to nonfinancial assets and liabilities, including fair value measurements such as business combinations, impairment testing (goodwill, intangible assets and longlived assets), asset retirement and environmental obligations, exit or disposal activities
Improving Disclosures about Fair Value Measurements Takeaways When assessing impairments of goodwill Impacts both Step 1 (measuring fair value of reporting unit) and Step 2 (measuring the fair value of all assets and liabilities) of the impairment test Must consider all 3 valuation techniques When assessing impairment of long lived assets Step 1 (determining whether undiscounted cash flows are less than carrying amount of asset) No impact Step 2 (measuring fair value of the asset) Does impact For any fair value measurements, your disclosures are likely to be more significant than prior disclosures Level 3 disclosures
Improving Disclosures about Fair Value Measurements Recent Disclosure Requirement Updates Transfers in and out of Levels 1 and 2 Separate disclosure of significant transfers in and out and the reasons for the transfer In Level 3 reconciliation separately present purchases, sales, issuance, and settlements (netting not allowed) Clarifies that fair value disclosures at class of asset and liability not at financial statement caption level Clarifies valuation techniques and input disclosures required whether Level 2 or 3
GASB Financial Instruments Omnibus Statement No. 59 Issued June 2010 and effective for periods beginning after June 15, 2010 Objective to update and improve existing standards regarding reporting and disclosure requirements of certain financial instruments and external investment pools
Subsequent Events Disclosure Amendments ASU No. 2010 09, Subsequent Events (Topic 855): Amendments to Certain Recognition and Disclosure Requirements If you have conduit debt obligations and meet the definition of a public entity Evaluate subsequent events through the date the financial statements are issued NOT when they are available to be issued and adapt related disclosure Effective for fiscal years, and interim or annual periods ending after June 15, 2010
Standard Updates Effective after December 31, 2010...
Charity Care Provided by Health Care Entities ASU No. 2010 23, The Basis for Measuring the Amount of Charity Care Provided by Health Care Entities Requires all health care entities to measure the amount of charity care provided based on direct and indirect costs and disclose that information as well as the method used to identify/estimate the amount of charity care Effective fiscal years beginning after December 15, 2010 on a retrospective basis, earlier application allowed
Offsetting by Health Care Entities ASU No. 2010 24, Health Care entities (Topic 954): Presentation of Insurance Claims and Related Insurance Recoveries Clarification that insurance recoveries may not be netted against related claim liabilities Health Care organizations have operated on transfer of risk premise
Offsetting by Health Care Entities Other industries account for similar claims liabilities on a gross basis No additional recurring disclosure requirements Effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2010
Future Developments
EITF Current Issues Select EITF Issues Health Care Entities Approved issuance of proposed accounting standards updates Issue No. 10 F, Accounting for Legal Costs Associated with Medical Malpratice Claims Issue No. 09 H, Health Care Entities: Revenue Recognition
Accounting for Legal Costs Associated with Medical Malpratice Claims Health Care Entities Topic 954 Would allow health care entities to make a policy election to expense legal fees as incurred or accrue estimated legal fees when the associated claim is incurred Effective date will be determined after the feedback is considered Amendments would be applied retrospectively to all periods presented
Health Care Entities: Revenue Recognition Revenue recognition for self pay patients Prevalent industry practice is to record revenue at established rates for self pay patients where little or no collectability is expected Revenue recognition guidance in other industries prevents revenue recognition without reasonable expectation of collectability Issue is whether collectability must be reasonable assured prior to a health care entity recognizing revenue
Health Care Entities: Revenue Recognition Per consensus entity should disclose Its policy for considering collectability in the timing and amount of revenue/bad debt expense recognized Net revenue by major payor sources of revenue Tabular reconciliation describing the activity in the allowance for doubtful accounts by payor sources of revenue Status At its December 8, 2010 meeting, the Board decided to reexpose the consensus reached by the EITF at its November 19, 2010 Disclosures would be required to be provided retrospectively for all periods presented
Disclosure of Certain Contingencies Proposed ASU will not be effective for December 31, 2010 year end; effective date to be determined Would require disclosure of qualitative and quantitative information about loss contingencies Nature of loss contingency Potential magnitude Potential timing Retains current disclosure requirements and requires additional disclosures Considering comment letters received the Board will redeliberate and make changes as appropriate
Other Projects Joint FASB/IASB Activities
Leases Original Exposure draft effectively eliminates operating lease treatment Right of use asset and contract liability FASB has reconsidered its original position "finance leases" and "other than finance leases." (appear to look much like the existing definitions of operating and capital leases.) Renewal options included in lease obligation Original position more likely than not Reconsidered position significant economic incentive for the entity to extend the lease
Leases (continued) Timing exposure draft issued August 2010, comments due December 15, 2010, final standard expected June 2011 with an unknown effective date
First stage of conceptual framework completed Fair Value Measurement Project
Resources
www.fasb.org Projects/Technical Plan and Project Updates Summaries include project objectives, background information, current estimates of publication dates, roundtable discussions planned, and projected completion dates Projects/Effective Dates of Recent FASB Pronouncements
Questions? John Blakey, CPA Business Assurance Partner 949.221.4005 john.blakey@mossadams.com