Update on Revenue Recognition Changes

By: Tyler Bernier

The issuance of Financial Accounting Standards Board (FASB) Accounting Standards Update (ASU) No. 2014-09, Revenue from Contracts with Customers (Topic 606) (Standard), created a comprehensive revenue recognition accounting standard and replaced numerous general and industry-related guidance. It also helped converge with international accounting standards. As with most significant changes, the hardest part comes with the actual implementation. Industry differences and real life situations created multiple challenges and questions across the accounting profession. In response, the American Institute of CPAs (AICPA) has formed sixteen industry task forces charged with developing a new "Accounting Guide on Revenue Recognition" that will provide helpful guidance and illustrative examples for how to apply the Standard. Included within these industry task forces is a health care industry group.

As can be expected with the complexities in the health care industry and ever-changing reimbursement structures, a number of potential issues were identified by this task force and will be reviewed further to determine the appropriate implementation guidance. These issues include:

While all of these issues impact the industry, Issues 1, 4 and 6 will generally be relevant to all health care entities. Issue 1 will be extremely important due to the inherent complexities of self pay revenue recognition (including specific types of self pay balances, such as uninsured, co-insurance, pending insurance, etc.) and the challenges in tracking past activity and estimating future expectations on collections. In addition, the recognition, financial statement presentation, and disclosure of net patient (or resident) service revenue and provision for bad debts may again be impacted. Issue 4 will also be important following most entities' implementation of ASU No. 2011-07, Health Care Entities (Topic 954) Presentation and Disclosure of Patient Service Revenue, Provision for Bad Debts, and the Allowance for Doubtful Accounts for Certain Health Care Entities, which included expanded revenue recognition disclosures. ASU No. 2011-07 is superseded by the Standard.

The Standard is scheduled to take effect for interim reporting periods beginning after December 15, 2016, for public companies or annual reporting periods beginning after December 15, 2017, for all other entities. Due to the number of implementation complications being identified, FASB is considering delaying the effective date, but no decisions have been made regarding this. Updates from the AICPA Health Care task force can be tracked on a dedicated website using this link. In addition, Eide Bailly will continue to keep you updated on significant changes as they are identified.