11/14/2016 ASC 606 Webinar Disclaimer The information contained herein is general in nature and is not intended, and should not be construed, as legal, accounting, or tax advice or opinion provided by Continuing Care Actuaries and Hertzbach Understanding the & Co to the user. The user also is cautioned that this material may not be applicable to, or suitable for, the user’s specific circumstances or needs, Actuarial and Accounting Impacts and may require consideration of non-tax and other tax factors if any action is to be contemplated. The user should contact his or her tax of the New professional prior to taking any specific action based upon this information. Continuing Care Actuaries and Hertzbach & Co assumes no Revenue Recognition Standard obligation to inform the user of any changes in tax laws or other factors that could affect the information contained herein. November 15, 2016 1 2 1
11/14/2016 Webinar Housekeeping Housekeeping notes: � If you need any technical support, you can click on P r o v i d i n g a c c o u n t i n g a n d c o n s u l t i n g the help tab on the right side of your screen. Our firm is staffed by a highly skilled team of professionals and our s e r v i c e s t o t h e h e a l t h c a r e c o m m u n i t y extensive involvement in today’s healthcare field enables us to meet the f o r o v e r 3 5 y e a r s . needs of healthcare specialists. � To ask questions please send us a message in the h e r t z b a c h . c o m / h e a l t h c a r e chat box, also there to your right. Services We Provide: Audit/Review/Compilations � A copy of todays presentation slides, along with HUD Audits & Cost Certifications Tax Planning & Preparation Internal Control Assessment & Enhancement other useful links can be found on the Resources Tab Outsourced Accounting Services Cost Report Preparation Reimbursement Consulting � We will hold all questions until the end, but Who We Serve: Third Party Billing & Collections Skilled Nursing Facilities Due Diligence encourage you to start sending them in throughout Assisted Living Facilities Business Valuations Residential Treatment Facilities Litigation Support the presentation. Psychiatric Facilities Budgeting & Forecasting Continuing Care Retirement Communities IT Systems & Implementation DDA Home & Community-Based Programs Benchmarking Medical Practices Home Healthcare Services Outpatient Treatment Centers @HertzbachCPAs 3 4 2
11/14/2016 What is ASU 2014-09 Speaker Introduction Revenue Recognition from Contracts with Customers? Mark Steinberg, CPA, CVA � In May of 2014, the FASB and IASB issued their Mark is a Partner with Hertzbach & Company where he is the converged standard on revenue recognition Director of the Health Care Industry Group, Director of Assurance Services, and a member of the Management Committee. He has 25 � The new standard creates significant change to years of experience serving the senior living industry providing services in the areas of audit, tax, reimbursement consulting, how revenue from contracts with customers is budgets and projections, and business valuations,. His clients recognized include continuing care retirement communities, skilled nursing facilities, nonprofits, residential treatment centers, and service � All industries will be affected by the new standard providers for the developmentally disabled. Mark is a certified public accountant as well as a certified valuation analyst. He is a � The AICPA has created a task force for the health member of the American Institute of Certified Public Accounts, Maryland Association of Certified Public Accountants, National care industry to identify implementation issues and Association of Certified Valuation Analysts, and the Association of Certified Fraud Examiners. He has spoken on a variety topics provide guidance on practical implementation related to senior living for Leading Age, Health Facilities Association of Maryland, and Maryland Association of Certified Public Accounts. He has authored articles for publications on a variety of topics impacting senior living providers. 5 6 3
11/14/2016 ASU 2014-09 – The Basics ASU 2014-09 – The Basics Five Step Revenue Model � What is the standard trying to accomplish? 1. Identify the contract with a customer 2. Identify the performance obligations in the contract 3. Determine the transaction price Recognize revenue to depict the transfer of 4. Allocate the transaction price to the performance obligations promised goods or services to customers in 5. Recognize revenue when (or as) each performance obligation is an amount that reflects the consideration satisfied to which the entity expects to be entitled Effective Date in exchange for those goods or services � Public companies and those with conduit debt - Periods beginning after December 15, 2017 � Nonpublic entities - Periods beginning after December 15, 2018 � Debt that is issued through a municipality is considered public debt for purposes of the effective date requirements 7 8 4
11/14/2016 So How Does this Effect CCRC’s Identify the Contract � Customer • A party that has contracted to obtain goods or services that are an output of an entity’s ordinary activities “Given the complex, long-term nature of continuing � Contract care contracts, CCRC’s are expected to be among the • Agreement between two or more parties that creates health care organizations whose revenue recognition enforceable rights and obligations is most significantly affected by the new guidance” Elements that must be present 1. Approved contract 2. Identify each party’s rights 3. Identify payment terms 4. Commercial substance 5. Probability all consideration will be collected 9 10 5
11/14/2016 CCRC Contracts Performance Obligations � Contracts span several years � A performance obligation is a promise in a contract to transfer a distinct good or service (or a series of distinct � Include payment of a combination of goods or services) monthly fees plus a one-time upfront • You must account for goods or services separately if they are entrance fee distinct, which includes both of the following conditions: o The customer can benefit from the good or service on its own or � Entrance fees typically paid in advance together with other resources readily available to the customer � Offer multiple types of contracts o Distinct within the context of the contract, because the good or service is separately identifiable from other goods or services � Large number of services covered under • If a promised service is not distinct it should be combined the contract with other promised goods or services in a contract as a single performance obligation � Declining refunds 11 12 6
11/14/2016 Performance Obligations Determine the Transaction Price � This is the amount of consideration to which an entity Issues for CCRCs expects to be entitled to from a customer � CCRC contracts are a complex bundle of rights and Issues for CCRCs obligations that combine aspects of leasing, hospitality, and health care � Aggregation of fees – Likely will need to aggregate the � A single contract might be viewed as having thousands of entrance fee and monthly fees together when estimating the transaction price individual performance obligations over multiple years � Contracts where refundability of entrance fees diminish � Many of these performance obligations are interrelated over time � How should these obligations be grouped � Fees refundable only from proceeds of re-occupancy � Consider grouping the performance obligations as No longer allowed to be deferred and amortized into income over • independent care, assisted living, and skilled nursing care the contract’s term. � The task force is discussing the matter and should be Such amounts must now be reported as a liability • providing additional guidance � Time value of money – Is the entrance fee considered a loan 13 14 7
11/14/2016 Allocation of Price / Revenue Recognition Transition to the New Standard � Must allocate the transaction price to performance obligations within Full Retrospective Method the contract based on standalone selling prices � Cumulative effect adjustment is applied to the opening balance of net � Recognize revenue as performance obligations are satisfied by assets as of the earliest year presented in the financial statements transferring control to the customer � Applies to all existing contracts Issues for CCRCs Modified Retrospective Method � Can the allocation be applied to a portfolio of contracts? Yes � Cumulative effect adjustment is applied to the year of adoption and the � Can the revenue be recognized over a period of years? Yes prior year (if shown) is not restated � How to treat differences between the estimated transaction price and � Applies to all existing contracts the actual � Requires additional disclosures 15 16 8
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