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By Jim DeLuccia, manager – communications

In advance of PICPA’s 2018 Health Care Conference, I spoke briefly with Debra K. Bowes and Mark J. Ross, both CPAs and partners with Baker Tilly Virchow Krause LLP, about new reporting models, the revenue recognition standard, and lease standards. These are three critical topics for CPAs working in the health care industry, and much has transpired in these areas over the past year.

What is one critical tip accounting professionals working in health care need to know about the new not-for-profit financial accounting and reporting model?

Bowes: Adoption of FASB ASU 2016-14 will result in significant changes to financial reporting and disclosures for not-for-profit health care organizations. The common theme from those who adopted the standard early is start preparing early. It took significantly more time than expected for the client to build general ledger reports to map accounts for the new presentation of functional expenses. Also, there is a new disclosure about liquidity and the availability of resources that requires both qualitative and quantitative information.

Regarding implementation of the revenue recognition standard, what is one issue or pain point CPAs should be aware of when working in the industry?

Ross: There could be several pain points to deal with! I think anyone working in or with health care providers needs to get familiar with the portfolio approach practical expedient, and how it is somewhat different than the valuation model in use by most providers. The portfolio approach could require you to “slice and dice” your data in different formats, so you need to be proactive in evaluating what portfolios you have and what reports you will be using from your billing system to get that information. And the additional disclosures are quite extensive, especially for public companies and those with conduit debt. Again, this may require additional reporting capabilities from your billing system.

We hear a lot about lease standards. What is one new issue people working in health care need to be aware of regarding this topic?

Bowes: Adoption of the lease standard could be a significant undertaking for many health care organizations, depending on the volume of leasing that is done. The key for successful implementation will be getting your hands around the inventory of leases that your organization has, and understanding the components of each agreement. Some leases may be for rental only, and some may have a service component attached to it.

I understand there is another change to financial instruments guidance. What is one critical component in this area of which CPAs should be aware?

Ross: ASU 2016-01, Financial Instruments – Overall, was issued in January 2016. Entities who have not previously designated their portfolios as trading securities will probably see the biggest change from this standard, as it requires equity investments to be measured at fair value with changes in fair value recognized in net income (i.e., the performance indicator for health care organizations). Changes in fair value for these investments were previously recorded as a change in net assets, rather than as a component of the performance indicator. Entities who previously elected trading securities are currently recording this within the performance indicator. This does not apply to equity investments accounted for under the equity method of accounting or those that result in consolidation of the investee.

For more information on these changes, be sure to check out the Bowes and Ross presentation at the June 13-14 PICPA Health Care Conference at the Hershey Lodge.