1/10/2018 New Year, New Plan, New Future for Your Life Plan Community J A N U A RY 11 , 2 0 1 8 TO RECEIVE CPE CREDIT • Participate in entire webinar • Answer polls when they are provided • If you are viewing this webinar in a group Complete group attendance form with • Title & date of live webinar • Your company name • Your printed name, signature & email address All group attendance sheets must be submitted to training@bkd.com within 24 hours of live webinar Answer polls when they are provided • If all eligibility requirements are met, each participant will be emailed their CPE certificates within 15 business days of live webinar 1
1/10/2018 INTRODUCTIONS Kimberly McKay, CPA Brian Todd, CPA Managing Partner Partner kmckay@bkd.com btodd@bkd.com John Harned, CPA Bradley Paulis, ASA, FCA, MAAA Director Partner, Continuing Care Actuaries jharned@bkd.com bpaulis@continuingcareactuaries.com ASU 2014-09 REVENUE FROM CONTRACTS WITH CUSTOMERS Effective for Public Business Entities (& certain NFPs) years beginning after December 15, 2017 All other entities years beginning after December 15, 2018 Principles based approach instead of a rules based approach 2
1/10/2018 REVENUE RECOGNITION PROCESS Identify Contract with a Customer Identify Performance Obligations Determine the Transaction Price Allocate the Transaction Price Recognize Revenue When/As a Performance Obligation is Satisfied Date of Transition Cumulative 2017 2018 Approach Effect Adjustment TRANSITION APPROACHES Restate for all Apply to all Full retrospective January 1, 2017 contracts contracts Restate for all Retrospective contracts except using one or more Apply to all contracts covered January 1, 2017 practical contracts by practical expedients expedients No contracts Cumulative effect restated; reported Apply to all January 1, 2018 at date of adoption based on legacy contracts guidance 3
1/10/2018 EXCEPTIONS • Lease contracts SCOPE • Insurance contracts • Financial instruments All entities that • Guarantees enter into contracts • Non-monetary exchanges in the same line with customers of business to facilitate sales to customers • Public, private, not-for-profit EXCLUSIONS • Regardless of • Contributions industry • Collaborative agreements AICPA REVENUE RECOGNITION TASK FORCES (RRTF) • Develop a new Accounting Guide on Revenue Recognition • Guide to provide helpful hints & illustrative examples on how to apply the standard • Guidance will not be prescriptive but instead intended to be a resource • Full implementation issues will be posted for comment after review from the overall Revenue Recognition Working Group & FinREC • List of issues by industry is posted on the AICPA website • www.aicpa.org 4
1/10/2018 HEALTH CARE ISSUES IDENTIFIED BY THE AICPA RRTF • Revenue recognition for self-pay patients – Finalized Application of Steps 1 & 3 • Application of the portfolio approach – Finalized • Identifying the performance obligation & recognition of refundable & nonrefundable entrance fees for CCRCs – To be exposed in January 2018 • Future service obligations for CCRCs – To be exposed in January 2018 • Significant financing components – To be exposed in January 2018 • Disclosure requirements – Finalized for hospitals & will be included in the next AICPA Revenue Recognition Guide HEALTH CARE ISSUES IDENTIFIED BY THE AICPA RRTF • Contract acquisition costs – To be exposed in January 2018 • Determination of the transaction price as it relates to third-party estimates – Exposure period ended September 1, 2017 • Bundled payments & risk sharing arrangements – Exposure period ended December 1, 2017 • Performance obligations (other than CCRCs) – Exposure period until February 1, 2018 5
1/10/2018 A legally enforceable contract can be 1 written, oral or implied by an entity’s customary business practices & needs to meet all of the following requirements STEP 1 – IDENTIFYING The parties The entity CONTRACT(S) have can identify WITH A It has approved the each party’s CUSTOMER commercial contract & are rights substance committed to regarding their goods or obligations services It is probable The entity the entity will can identify collect the the payment amount of terms for the consideration goods or to which it will services be entitled Q: SO WHEN WOULD THERE BE BAD DEBT EXPENSE? A: When a health care entity performs a credit assessment prior to providing services to a patient & expects to collect substantially all of the discounted charges An organization will need to evaluate when it is performing credit assessments prior to providing services 12 6
1/10/2018 Transaction price is the amount of consideration an 3 entity expects to be entitled to STEP 3 – IDENTIFYING THE Significant Consideration Variable financing payable to a TRANSACTION consideration component customer PRICE Explicit & Constraint of implicit price revenue concessions Performance obligations DISCLOSURE Contract Significant balances judgments REQUIREMENTS Both qualitative & quantitative information Understand nature, Understand nature, Costs to obtain amount, timing & amount, timing & Disaggregation or fulfill a uncertainty of uncertainty of of revenue contract revenue & cash revenue & cash flows flows 7
1/10/2018 Timing of transfer of goods or service Type of customer, e.g., Medicare, DISAGGREGATION Medicaid, Self-Pay OF REVENUE FOR HEALTH CARE Type of service, e.g. , Example independent living, categories assisted living, nursing home Type of contract, e.g ., type A, B,C Geographical location Accounting for monthly/periodic fees & nonrefundable entrance fees under Accounting for monthly/periodic fees & nonrefundable entrance fees under the different contract types (focus has been primarily on Type A Contracts) the different contract types (focus has been primarily on Type A Contracts) CCRC SPECIFIC CONSIDERATIONS Significant financing component considerations for refundable & Significant financing component considerations for refundable & nonrefundable entrance fees nonrefundable entrance fees Obligation to provide future services & use of facilities Obligation to provide future services & use of facilities Contract acquisition costs Contract acquisition costs 8
1/10/2018 1 RRTF believes a resident agreement between the CCRC & the resident RRTF believes a resident agreement between the CCRC & the resident would generally meet the criteria to be considered a contract with a would generally meet the criteria to be considered a contract with a customer customer CCRC – STEP 1 Identifying a contract Collectibility – Still required to be assessed but given the screening process Collectibility – Still required to be assessed but given the screening process generally not an issue generally not an issue RRTF believes that because the CCRC resident has the ability to move out RRTF believes that because the CCRC resident has the ability to move out & discontinue paying monthly fees at any time the resident agreement may & discontinue paying monthly fees at any time the resident agreement may be viewed as a monthly contract with the option to renew be viewed as a monthly contract with the option to renew CCRCs should consider whether the contract contains a lease in the scope CCRCs should consider whether the contract contains a lease in the scope of FASB ASC 840 (or FASB ASC 842 after adoption of that topic) of FASB ASC 840 (or FASB ASC 842 after adoption of that topic) 2 Typical Type A contract provides that the resident can live in the CCRC & Typical Type A contract provides that the resident can live in the CCRC & CCRC – STEP 2 access health care as needed for little or no increase in fees (generally access health care as needed for little or no increase in fees (generally Identifying the based on increases in operating costs or inflationary increases) based on increases in operating costs or inflationary increases) performance obligation RRTF believes that the promised good or service is that the CCRC is RRTF believes that the promised good or service is that the CCRC is standing ready to provide a service such that the resident can live in the standing ready to provide a service such that the resident can live in the CCRC & access the appropriate level of care CCRC & access the appropriate level of care 9
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