Sixteen industry-specific task forces are digging into the details of the new revenue recognition standard to resolve some of the issues surrounding its implementation. The Health Care Entities Revenue Recognition Task Force (Health Care Task Force) is among them, and it’s already making inroads, identifying eight main issues in the new standard pertaining to accounting specifically for healthcare services.
Background
The AICPA created the task forces in response to the groundbreaking Accounting Standards Update (ASU) 2014-09, issued by the Financial Accounting Standards Board (FASB) four years ago. At its core, the update stipulated that revenue should be recorded only when services are provided, or when goods are transferred, to customers at the agreed price. This noteworthy change in a central accounting procedure has far-reaching impact, particularly with respect to how businesses interact with contracts and customers. Because of the significance of this change, companies in virtually every industry must understand how to properly implement the new revenue recognition standard, as well as anticipate the consequential changes in their day-to-day accounting procedures and financial statements.
The AICPA’s Financial Reporting Executive Committee has issued several working drafts surrounding the efforts of the task forces thus far. Any adoptions from the work of these task forces are finalized, then compiled in a new Audit and Accounting Guide on Revenue Recognition (Revenue Recognition Guide), which provides both straightforward and descriptive guidelines for appropriately applying the new standard.
Health Care Task Force Progress
Due to the healthcare industry’s complexity, varied types of sub-industries, and general dependence on contracts and patients, the Health Care Task Force has been particularly attentive to matters regarding contracts with patients and patient payments. As of September 2018, it has simplified, finalized, and incorporated six of the eight identified issues in the AICPA’s Revenue Recognition Guide. These include:
- Determining what constitutes a contract and deciding the transaction price—addressing uninsured patient balances and self-pay patient balances arising from co-payments and deductibles—for self-pay patients’ healthcare services.
- Applying the portfolio approach to patient contracts (for both self-pay patients and third-party payers).
- Describing proper disclosure requirements of ASU No. 2014-09 under ASC 606 for healthcare entities.
- Accounting for third-party settlement estimates under FASB ASC 606.
- Applying FASB ASC 606 to bundled payments received by healthcare providers.
- Determining how healthcare organizations must identify within a patient contract the promised goods or services, discerning which of them represent separate performance obligations.
Two additional outstanding issues undergoing analysis by the Health Care Task Force include:
- Applying FASB ASC 606 to Continuing Care Retirement Community Contracts (CCRC); specifically, examining performance obligations under a typical Type A (life care) CCRC resident agreement, estimating the transaction price, properly recognizing nonrefundable entrance fees and monthly/periodic fees received from residents, and correctly calculating the obligation to provide future services and use of facilities.
- Explaining how healthcare organizations must account for certain costs of acquiring and fulfilling contracts under the new standard.
As the Health Care Task Force continues to delve into the new revenue recognition standard and, subsequently, contribute more to the AICPA’s Revenue Recognition Guide, healthcare organizations will be able to glean practical guidance for implementing the new revenue recognition standard. As a longstanding firm specialized in healthcare consulting and certified public accounting, PYA can offer unparalleled insight and expertise to help navigate your organization’s transition to the new revenue recognition standard.
For more information regarding the AICPA’s Revenue Recognition Guide or for guidance on implementing the new revenue recognition standard, contact a PYA executive below at (800) 270-9629.
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