Financial reporting


  The Healthcare Financial Management Association (HFMA) published an issue analysis to provide clarity for health care providers on accounting for incentive payments received under the Health Information Technology for Economic and Clinical Health (HITECH) Act (Title XIII of the American Recovery and Reinvestment Act of 2009, P.L. 111-5).

Medicare and Medicaid programs provide for $19 billion in incentive payments for hospitals and physicians that make meaningful use of certified electronic health record (EHR) technology. The incentives will be paid out over four years on a transitional schedule. The Centers for Medicare & Medicaid Services define meaningful use through three stages that become more stringent over time.

The HFMA is a membership organization of health care finance executives and leaders; the analysis of the HITECH Act comes through the HFMA’s Principles and Practices Board. The guidance is available at tinyurl.com/76hxolp.

The HFMA reports that hospitals have been accounting for the incentive payments using either a contingency model or an IAS 20 model, which is widely used by companies that receive incentive payments for meeting required conditions. An illustration of how to calculate the EHR incentive payment is on this page.


  The AICPA issued Technical Questions and Answers (TPAs) 6931.13–.17 to provide nonauthoritative guidance on health and welfare plan accounting and reporting for reimbursements received under the Early Retirement Reinsurance Program (ERRP) in the Patient Protection and Affordable Care Act, P.L. 111-148. The TPAs, available at tinyurl.com/3so64k8, describe the ERRP and cover matters such as how to report the ERRP reimbursement in the health and welfare plan’s financial statements, including when the reimbursement is not remitted to the trust; health and welfare plan accounting for ERRP reimbursements applied for prior to year-end but not approved until after year-end; accounting for the effects of the ERRP reimbursement on the health and welfare plan’s postretirement benefit obligation; and disclosures a health and welfare plan might consider including in its financial statements related to the ERRP.


  FASB issued Accounting Standards Update (ASU) no. 2011-10, Property, Plant, and Equipment (Topic 360): Derecognition of in Substance Real Estate—a Scope Clarification (a consensus of the FASB Emerging Issues Task Force).

The ASU clarifies that the guidance in FASB Accounting Standards Codification (ASC) Subtopic 360-20, Property, Plant, and Equipment—Real Estate Sales, applies to a parent that ceases to have a controlling financial interest, as described in ASC Subtopic 810-10, Consolidation, in a subsidiary that is in substance real estate as a result of default on the subsidiary’s nonrecourse debt.
 
As a result, the parent (reporting entity) would not satisfy the requirements to derecognize the in substance real estate before the legal transfer of the real estate to the lender and the extinguishment of the related nonrecourse debt. Even if the reporting entity ceases to have a controlling financial interest under Subtopic 810-10, the reporting entity would continue to include the real estate, debt and the results of the subsidiary’s operations in its consolidated financial statements until the legal title to the real estate is transferred to legally satisfy the debt.

The ASU’s amendments should be applied on a prospective basis to deconsolidation events occurring after the effective date. Prior periods are not to be adjusted even if the reporting entity has a continuing involvement with previously derecognized in substance real estate entities.

For public entities, the amendments are effective for fiscal years and interim periods within those years, beginning on or after June 15, 2012. The amendments take effect for nonpublic entities for fiscal years ending after Dec. 15, 2013, and interim and annual periods after that date. Early adoption is permitted.

The standard is available at tinyurl.com/7v8eqzc.


  FASB and the IASB issued investor-focused common disclosure requirements on the effect or potential effect of offsetting arrangements on a company’s financial position.

U.S. GAAP and IFRS differ on the criteria for offsetting, also known as netting. Offsetting presents net amounts of assets and liabilities in the balance sheet as a result of an entity’s rights of setoff.

Neither IFRS nor U.S. GAAP previously required disclosure of all amounts set off in the balance sheet, and that prevented investors from comparing the rights of setoff between entities applying IFRS and U.S. GAAP.

Companies and organizations use rights of setoff as a risk management tool to reduce counterparty credit risk and manage liquidity risk. Enforceability of rights of setoff varies by contract and jurisdiction, according to an IFRS project summary.

U.S. GAAP allows companies to set off their derivative assets and derivative liabilities in the balance sheet if there is an agreement to set off, even if that right of setoff is only available in the case of bankruptcy or default. IFRS does not give companies that option.

This meant that a balance sheet prepared in accordance with U.S. GAAP would generally present smaller amounts of these assets and liabilities than a balance sheet prepared in accordance with IFRS, the project summary states.

The new rules will require entities to disclose gross amounts subject to rights of setoff, amounts set off in accordance with the accounting standards followed, and the related net credit exposure, according to the IASB. The boards concluded that this will help investors understand the extent of setoff in a balance sheet and the effects of rights of setoff on the entity’s rights and obligations. The requirements are intended to improve transparency in the reporting of how companies mitigate credit risk, including disclosure of related collateral pledged or received.

The disclosure requirements take effect for annual periods beginning Jan. 1, 2013, and interim periods within those annual periods. Retrospective application will be required to maximize comparability between periods.

A project summary is available at tinyurl.com/csma88g.

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