Health Care Entities, September 2017

Table of Contents xix Chapter Paragraph 1 Overview and Unique Considerations of Health Care Entities .01-.14 Purpose .01 Applicability .02-.06 Classification of Health Care Entities .07-.08 Regulatory Environment .09-.14 Health Care Reform  .12-.14 2 General Auditing Considerations .01-.116 Overview .01-.02 An Audit of Financial Statements .03-.09 Audit Risk .05-.09 Terms of Engagement .10-.14 Business Associate Agreements .14 Audit Planning  .15-.18 Group Audits   .19-.24 Multi-Location Audits Versus Group Audits    .23 Complex Transactions .24 Materiality .25-.30 Performance Materiality  .29-.30 Qualitative Aspects of Materiality  .31-.32 Use of Assertions in Assessment of Risks of Material Misstatement .33-.34 Risk Assessment Procedures .35-.57 Risk Assessment Procedures and Related Activities  .37-.43 The Entity and Its Environment  .44-.57 Additional Audit Considerations .58-.96 Analytical Procedures .58-.59 Accounting Estimates .60-.62 Transactions Processed by Service Organizations   .63-.66 Compliance With Laws and Regulations .67-.77 Going-Concern Considerations .78-.89 Written Representations   .90-.96 Independent Auditor's Reports    .97-.99 Single Audit Act and Related Audit Considerations .100-.106 Statutory Reporting Considerations for Health Plans .107-.116 Risk-Based Capital Requirements .111-.112 Deficiencies in Internal Control  .113 Communicating Internal Control Matters in an Audit     .114 Communications With Regulators .115-.116 Chapter Paragraph 3 Unique Financial Statement Considerations for Not-for-Profit Business-Oriented Health Care Entities .01-.43 Complete Set of Financial Statements .02-.05 Balance Sheet  .06-.08 Statement of Operations .09-.28 Performance Indicator .12-.17 Other Intermediate Subtotals  . .18-.20 Discontinued Operations and Accounting Changes  .21-.22 Revenues .23-.25 Expenses .26-.28 Statement of Changes in Net Assets (or Equity)  . .29-.32 Statement of Cash Flows .33-.37 Notes to the Financial Statements  .38 Subsequent Events  . .39-.41 Example Financial Statements    .42-.43 4 Cash, Cash Equivalents, and Investments .01-.75 Cash and Cash Equivalents     .01-.11 Centralized Cash Management Arrangements  .03-.06 Cash From Restricted Donations  .07 Other Restricted or Designated Cash Amounts  .08-.11 Investments .12-.73 Fair Value Option  .17-.22 Investments in Debt Securities and Certain Equity Securities With a Readily Determinable Fair Value That Are Not Recorded Under the Fair Value Option  . .23-.35 Investments in Certain Other Financial Instruments Without a Readily Determinable Fair Value That Are Not Recorded Under the Fair Value Option  .36-.38 Investment Pools  . .39-.47 Fair Value Measurements     .48 Impairment of Investments     .49-.59 Securities Lending Activities    .60 Transfers of Assets to an NFP or Charitable Trust for Investment     .61-.63 Regulation .64 Other Financial Statement Presentation Matters .65-.73 Auditing .74-.75 5 Derivatives .01-.44 Introduction .01-.05 General Guidance  . .06-.07 Accounting for Changes in Fair Value of Derivative Instruments   .08-.12 Fair Value Hedges  .09 Cash Flow Hedges  .10-.11 Derivatives Not Designated as a Hedging Instrument    .12 Hedge Accounting Requirements  .13-.28 Shortcut Method .20-.28 Hybrid Instruments, Host Contracts, and Embedded Derivatives   .29-.37 Calls and Puts in Debt .33-.34 Derivatives Embedded in Split-Interest Agreements   .35-.37 Other Matters   .38-.43 Changes in Fair Value of Hedged Item  .38 Termination of Cash Flow Hedge by Debt Extinguishment  .39 Additional Presentation and Disclosure Requirements for NFP Business-Oriented Health Care Entities .40-.43 Auditing .44 6 Property and Equipment and Other Assets .01-.53 Overview .01-.05 Capitalized Interest  . .06-.11 Supplies, Rebates, and Discounts  .12-.13 Lessee Involvement in Fixed Asset Construction .14-.17 Asset Retirement and Environmental Remediation Obligations  .18-.20 Impairment or Disposal .21-.31 Discontinued Operations  .28-.31 Nonreciprocal Transfers .32-.34 Other Long-Lived Assets .35-.43 Financial Statement Presentation  . .44-.47 Auditing .48-.53 7 Municipal Bond Financing .01-.107 Introduction .01-.13 Conduit Bonds That Trade in Public Markets  . .06-.08 Credit Enhancement .09-.11 Issuance of Municipal Bonds  . .12-.13 Extinguishment and Modification Transactions  . .14-.17 Calls and Mode Conversions    .18-.39 Defeasance  .20-.26 Modifications     .27-.31 Gain or Loss on Debt Extinguishment .32-.33 Debt Issuance Costs Incurred in Connection With an Exchange or Modification of Debt Instruments .34-.36 Puts or Tender Options .37-.39 IRS Considerations  . .40-.44 Chapter Paragraph Financial Statement Presentation and Disclosure  .45-.72 Balance Sheet    .45-.63 Statement of Operations  .64-.65 Disclosures   .66-.72 Obligated Group Reporting     .73-.74 Interim Financial Reporting  .75-.76 Auditing .77-.106 General .77-.85 Auditor Involvement With Municipal Securities Filings    .86-.96 Letters for Underwriters   .97-.103 Attestation Engagements Related to Securities Issuance  . .104-.106 Appendix-Municipal Securities Regulation    .107 8 Contingencies and Other Liabilities .01-.128 Contingencies and Commitments  .02-.61 The Essentials of Recognition, Measurement, and Disclosure for Contingencies  .03-.09 Managing Risk of Loss .10-.12 Medical Malpractice .13-.47 Disclosures for Medical Malpractice .48-.53 Physician Guarantees and Other Agreements With Physicians     .54-.61 Other Liabilities     .62-.85 Asset Retirement Obligations  . .62-.64 Compensation and Related Benefits .65-.76 Joint and Several Liability Arrangements     .77-.81 Agency Funds    .82-.83 Fees Paid to the Federal Government by Health Insurers  . .84-.85 Tax Considerations for NFP Health Care Entities  .86-.100 Private Inurement and Intermediate Sanctions  .93-.94 Unrelated Business Income    .95 State and Local Taxes .96 Tax Positions     .97-.98 Medicaid Voluntary Contribution or Taxation Programs  . .99-.100 Risks and Uncertainties .101-.107 Auditing Contingencies and Other Liabilities    .108-.126 Auditing Medical Malpractice Loss Contingencies   .109-.112 Auditing Accounting Estimates  .113-.118 Use of Actuaries and Actuarial Methods     .119-.122 Evaluating Lawyers' Responses  .123-.126 Income Taxes   .127 Auditing Considerations .128 Chapter Paragraph 9 Net Assets (Equity) .01-.38 Investor-Owned Health Care Entities .01 Not-for-Profit Entities  . .02-.25 Net Asset Classes  .05-.18 Reclassifications  . .19-.25 Classification of Donor-Restricted Endowment Funds .26-.32 Disclosure .33-.37 Auditing .38 10 Health Care Service Revenue and Related Receivables .01-.60 Overview of the Health Care Environment     .01-.15 Rate Setting With Third-Party Payors .05-.10 The Government Payer Environment .11-.14 Charity Care     .15 Types of Health Care Revenue    .16 Types of Payment Methodologies  .17 Patient (or Resident) Service Revenue .18-.36 Revenue Recognition .18-.29 Accounting and Financial Reporting Requirements   .30-.36 Premium and Capitation Revenues  .37-.40 Patient Receivables  . .41-.45 Estimated Final Settlements  .46-.54 Auditing .55-.60 Accounts Receivable Confirmations .58-.60 11 Contributions Received and Made .01-.66 Distinguishing Contributions From Other Transactions  .03-.08 Contributions Received .09-.32 Expiration of Donor-Imposed Restrictions    .12-.14 Promises to Give in Future Periods (Pledges)  . .15-.24 Contributions of Long-Lived Assets, the Use of Long-Lived Assets, or Resources to Acquire Them    .25-.27 Contributed Services .28-.32 Reporting the Cost of Special Events and Other Fund-Raising Activities .33-.40 Naming Opportunities .36-.39 Investments Gain or Loss Related to Donor-Restricted Contributions  . .40 Transfers of Assets to an NFP or Charitable Trust That Raises or Holds Contributions for Others    .41-.48 Contributions Made  . .49 Other Considerations  .50-.58 Auditing .59-.65 Appendix-Q&A Section 6400, Health Care Entities  .66 12 The Reporting Entity and Related Entities .01-.118 Overview .01-.02 Reporting by NFP Health Care Entities .03-.58 Relationships With Another NFP .06-.25 Relationships With a For-Profit Entity .26-.48 Special Entities    .49-.58 Reporting by Investor-Owned Health Care Entities .59-.62 Presentation of Consolidated and Combined Financial Statements   .63-.73 Accounting for Transfers Between Related Entities .74-.87 Equity Transfers    .75-.78 Equity Transactions  .79-.82 Other Transfers    .83-.87 Disclosure .88-.89 Mergers and Acquisitions   .90-.116 Merger of NFPs  . .96-.97 Acquisition by an NFP .98-.110 Acquisition by an Investor-Owned Entity, Including a For-Profit Subsidiary of an NFP Health Care Entity    .111-.114 Disclosures   .115 Acquired Entities  . .116 Auditing .117 Appendix-Flowcharts .118 13 Financial Accounting and Reporting for Managed Care Services .01-.30 Overview .01-.02 Recognition and Classification of Revenue     .03-.12 Capitation Arrangements     .07 Accounting for Health Care Costs .08-.12 Accounting for Loss Contracts    .13-.17 Consideration of Anticipated Investment Income .17 Accounting for Stop-Loss Insurance .18-.19 General and Administrative Expenses .20 Acquisition Costs    .21-.22 Financial Statement Display Considerations    .23-.29 Balance Sheet    .23-.24 Income and Cash Flow Statement .25-.29 Disclosures .30 14 Financial Accounting and Reporting by Continuing Care Retirement Communities .01-.49 Overview .01-.05 Types of Contracts  . .06-.10 Advance Fees    .08 Chapter Paragraph Periodic Fees     .09 Use Fees .10 Types of Living Accommodations  .11-.12 Fees and Payment Methods     .13-.15 Accounting for Refundable Advance Fees  .16-.20 Accounting for Fees Refundable to Residents Only From Reoccupancy Proceeds of a Contract Holder's Unit  .21-.23 Accounting for Nonrefundable Advance Fees  . .24-.25 Classification of Refundable Advance Fees     .26-.30 Accounting for the Obligation to Provide Future Services and the Use of Facilities to Current Residents  .31-.35 Accounting for the Costs of Acquiring Initial Continuing-Care Contracts    .36 Financial Statements  .37-.43 Auditing .44-.49 15 Unique Considerations of State and Local Government Health Care Entities .01-.206 Introduction .01-.02 Applicability of This Chapter    .03-.04 GAAP Hierarchy for Governmental Health Care Entities    .05-.11 Applicability of FASB and AICPA Pronouncements   .09-.11 Basic Financial Statements  .12-.33 Statement of Net Position     .13-.18 Statement of Revenues, Expenses, and Changes in Net Position  .19-.26 Statement of Cash Flows  .27 Segment Reporting  .28-.29 RSI, Including MD&A .30-.33 Measurement Attributes .34-.35 Cash, Cash Equivalents, and Investments  .36-.58 Cash and Cash Equivalents    .36-.38 Investments and Certain Equity Interests     .39-.58 Derivatives .59-.65 Property and Equipment and Other Assets     .66-.85 Capital Assets-General  .67-.70 Capital Asset Impairment     .71-.73 Intangible Assets  . .74-.76 Excess Consideration Provided in a Governmental Acquisition (Known as Goodwill in Nongovernmental Entities)   .77-.79 Leased Assets    .80 Service Concession Arrangements .81-.84 Chapter Paragraph Disclosures   .85 Municipal Bond Financing and Other Long-Term Debt  .86-.94 Debt Defeasance and Extinguishment   .89-.92 Debt Issuance Costs .93 Disclosures   .94 Contingencies and Other Liabilities .95-.122 Insurance-Related Contingencies .95-.101 Nonexchange Financial Guarantees .102-.104 Asset Retirement and Pollution Remediation Obligations .105-.106 Other Contingencies .107 Compensation and Related Benefits .108-.118 Tax Considerations  .119-.120 Disclosures   .121-.122 Net Position .123-.132 Financial Reporting of Net Position .131-.132 Health Care Service Revenue and Receivables  .133-.136 Contributions and Other Nonexchange Transactions   .137-.147 The Reporting Entity and Related Entities   .148-.190 Identifying Component Units  . .150-.154 Presentation of Component Units .155-.162 Equity Interests    .163-.169 Institutionally-Related Foundations .170-.175 Government Combinations    .176-.190 General Auditing Considerations for Governmental Health Care Entities     .191-.204 Independent Auditor's Reports  .197-.198 Supplementary Information and Supporting Information, Including RSI  . .199-.206 Supplement A-Statement of Position 00-1, Auditing Health Care Third-Party Revenues and Related Receivables Appendix A Overview of Statements on Quality Control Standards B References to AICPA Technical Questions and Answers C The New Revenue Recognition Standard: FASB ASC 606 D Accounting for Financial Instruments E Information Sources F Category B Guidance G The New Leases Standard: FASB ASU No. 2016-02 H The New Not-for-Profit Financial Reporting Model Standards: FASB ASU No. 2016-14 I Schedule of Changes Made to the Text From the Previous Edition Glossary Index of Pronouncements anOther Technical Guidance Subject Index