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Get ready to expand your knowledge of the auditing and accounting issues significant to the health care industry. Whether you’re preparing your health care entity’s financial statements or preparing for an auditing engagement of a health care entity, this Audit and Accounting Guide provides you with the latest information on accounting and auditing issues and related financial statement considerations.
Have you used the FASB Accounting Standards Codification™ (ASC) to maneuver through the new structure of GAAP? You’ll find the helpful guidance you’re accustomed to now fully conformed to the ASC, along with a clear explanation of the ASC’s significance to the profession, numerical referencing system, and Internet-based research system.
Updated with conforming changes as of August 1, 2009, the guide includes relevant guidance contained in official pronouncements issued through that date, supplemented with specific “how-to” recommendations. The following new pronouncements are particularly significant to this guide and have been reflected in this edition:
You’ll also want to check out the new developments related to the heavily debated fair value issue addressed in FASB Statement No. 157, Fair Value Measurements (FASB ASC 820). With all these must-have features, this guide is an essential reference for firms, small practitioners, and professionals in business and industry.
For a topical listing of subject matter by chapter, click on the Table of Contents tab.
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Preface
Purpose
This guide has been prepared to assist providers of health care services in preparing financial statements in conformity with generally accepted accounting principles (GAAP) and to assist independent auditors1 in auditing and reporting on those financial statements.
Applicability
This guide applies to health care entities that are either (a) investor-owned businesses or (b) not-for-profit entities that have no ownership interest and are essentially self-sustaining from fees charged for goods and services, as defined in paragraph 8 of Financial Accounting Standards Board (FASB) Statement of Financial Accounting Concepts No. 4, Objectives of Financial Reporting by Nonbusiness Organizations,2 or (c) governmental. This guide applies to entities whose principal operations consist of providing or agreeing to provide health care services and that derive all or almost all of their revenues from the sale of goods or services; it also applies to entities whose primary activities are the planning, organization, and oversight of such entities, such as parent or holding companies of health care providers.
This guide applies to the following types of health care entities:
| • | Clinics, medical group practices, individual practice associations, individual practitioners, emergency care facilities, laboratories, surgery centers, and other ambulatory care organizations |
| • | Continuing care retirement communities |
| • | Health maintenance organizations and similar prepaid health care plans |
| • | Home health agencies |
| • | Hospitals |
| • | Nursing homes that provide skilled, intermediate, and less intensive levels of health care |
| • | Drug and alcohol rehabilitation centers and other rehabilitation facilities |
This guide also applies to integrated delivery systems that include one or more of the above types of entities.
This guide does not apply to voluntary health and welfare entities, as defined in the FASB Accounting Standards Codification (ASC) glossary. These entities should follow the AICPA Audit and Accounting Guide Not-for-Profit Entities. Related fund-raising foundations that meet the definition of a not-for-profit entities given in the FASB ASC glossary also should follow the AICPA Audit and Accounting Guide Not-for-Profit Entities.
When separate financial statements are issued for a state or local governmental health care entity that uses enterprise fund accounting and reporting, the accounting, reporting, and disclosure requirements set forth in this guide and by pronouncements of the Governmental Accounting Standards Board (GASB) apply. (See chapter 1 for a discussion of the application of GAAP.) GASB Statement No. 34, Basic Financial Statements—and Management's Discussion and Analysis—for State and Local Governments, replaces the previous definition with a new definition of enterprise funds. Based on paragraph 67 of GASB Statement No. 34, as amended, any activity that charges a fee to external users for goods or services may be reported as an enterprise fund. In addition, paragraph 67 requires governments to report activities in enterprise funds if any one of the following three criteria, as summarized in the following list, is met:
| (a) | The activity is financed with debt that is secured solely by a pledge of the net revenues from fees and charges of the activity. |
| (b) | Laws or regulations require the activity's costs of providing services, including capital costs, to be recovered with fees and charges rather than with taxes or similar revenues. |
| (c) | The pricing policies of the activity establish fees and charges that are designed to recover the activity's costs of providing services, including capital costs. |
The primary focus of these criteria is on fees charged to external users. Also, paragraph 67 of GASB Statement No. 34 requires that these criteria should be applied in the context of the activity's principal revenue sources.
This guide is not the only industry-specific AICPA Audit and Accounting Guide that auditors should consider when performing an audit of a governmental health care entity. The Audit and Accounting Guide State and Local Governments, includes governmental health care entities in its scope and was cleared by the GASB. Therefore, certain accounting and financial reporting guidance in that guide constitutes category (b) guidance for governmental health care entities, and the auditing guidance in that guide should also be considered during an audit of a governmental health care entity that is included in the scope of this guide. In practice, auditors of governmental health care entities that issue separate financial statements using enterprise fund accounting and reporting may use this guide as the primary source of guidance because this guide addresses transactions that are unique to or prevalent in the health care industry. The Audit and Accounting Guide State and Local Governments, however, contains information about governmental accounting and financial reporting standards and other matters that are unique to or prevalent in government and not included in this guide.3
Many governmental health care entities are considered to be special-purpose governments as defined in paragraph 134 of GASB Statement No. 34.4 Special-purpose governments are legally separate entities, as that term is described in paragraph 15 of GASB Statement No. 14, The Financial Reporting Entity. They may be component units of another governmental entity or they may be other stand-alone governments. (Both terms component units and other stand-alone governments are also defined by GASB Statement No. 14.) Because GASB Statement No. 34 is written from the perspective of general-purpose governments, paragraph 138 of GASB Statement No. 34 discusses how those requirements apply to special-purpose governments engaged only in businesstype activities, such as certain governmental health care entities. Governmental health care entities that are special-purpose governments engaged only in business-type activities should present only the financial statements required for enterprise funds. These financial statements are discussed further in paragraph 1.14 of this guide.
Limitations
This guide does not discuss the application of all GAAP and all generally accepted auditing standards (GAAS) that are relevant to the preparation and audit of financial statements of health care entities. The guide is directed primarily to those aspects of the preparation and audit of health care entities' financial statements that may be unique to those entities or areas considered particularly significant to them.
1 A member performing an attest engagement must be independent pursuant to Rule 101, Independence (AICPA, Professional Standards, vol. 2, ET sec. 101 par. 01), of the AICPA Code of Professional Conduct. Other applicable independence rules and regulations may also apply to members and accountants while performing attest engagements (for example, Securities and Exchange Commission (SEC), Public Company Accounting Oversight Board (PCAOB), Government Accountability Office, and state licensing boards).
2 See paragraph 1.03 of this guide.
3 See paragraphs 1.21 and 12.11–.13 in the Audit and Accounting Guide State and Local Governments.
4 Governmental Accounting Standards Board (GASB) Statement No. 34, Basic Financial Statements—and Management's Discussion and Analysis—for State and Local Governments, does not provide guidance on separate reporting by individual enterprise funds of a government. Although this discussion of the guidance in GASB Statement No. 34 is written in terms of special-purpose business-type activities that are governmental health care entities, the accounting, financial reporting, and auditing considerations are usually equally applicable when the health care activity is conducted as a function or program of a general-purpose government and reported in an enterprise fund. See footnote 7 to the section heading "Specific Guidance for Special-Purpose Governments" in chapter 12 of the Audit and Accounting Guide State and Local Governments. Reporting guidance on separate reporting by individual enterprise funds of a government is provided in the Audit and Accounting Guide State and Local Governments.
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