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This Audit and Accounting Guide provides the latest information on accounting and auditing issues affecting the health care industry. Updated with conforming changes as of May 1, 2008, it includes guidance in planning and performing audits under the risk assessment standards (SAS Nos. 104-111). This edition of the guide has also been conformed to reflect the Defining Professional Requirements standard (SAS No. 102). Furthermore, it provides additional guidance on the auditor's responsibilities as set forth in SAS Nos. 112-114, including identifying and reporting internal control deficiencies, understanding the link between the auditor's consideration of fraud and the auditor's assessment of risk, dating of the management representation letter, and the auditor's communications with those charged with governance.
The guide summarizes applicable requirements and practices, and delivers "how-to" advice for handling audit and accounting issues common to the health care industry. It includes accounting requirements for fair value measurements, cash and investments, commitments and contingencies, net assets, providers of prepaid health care services, continuing care retirement communities and a discussion of the relevant financial statement considerations for the health care industry. Included in the appendices are illustrative financial statements and entire re-prints of SOP 98-2, Accounting for Costs of Activities of Not-for-Profit Organizations and State and Local Governmental Entities that Include Fund Raising; SOP 99-1, Guidance to Practitioners in Conducting and Reporting on an Agreed-Upon Procedures Engagement to Assist Management in Evaluating the Effectiveness of Its Corporate Compliance Program; SOP 00-1, Auditing Health Care Third-Party Revenues and Related Receivables; and SOP 02-2, Accounting for Derivative Instruments and Hedging Activities by Not-for-Profit Health Care Organizations, and Clarification of the Performance Indicator. The guide covers the following new accounting pronouncements:
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 organizations that are either (a) investorowned
businesses or (b) not-for-profit enterprises that have no ownership interest
and are essentially self-sustaining from fees charged for goods and services,
as defined in Financial Accounting Standards Board (FASB) Statement of
Financial Accounting Concepts No. 4, Objectives of Financial Reporting by Nonbusiness
Organizations, paragraph 8,2 or (c) governmental. This guide applies
to organizations 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 organizations whose primary
activities are the planning, organization, and oversight of such organizations,
such as parent or holding companies of health
care providers.
This guide applies to the following types of health
care organizations:
This guide also applies to integrated delivery systems that include one or more of the above types of organizations.
This guide does not apply to voluntary health and welfare organizations, as defined in FASB Statement No. 117, Financial Statements of Not-for-Profit Organizations. These organizations should follow the AICPA Audit and Accounting Guide Not-for-Profit Organizations. Related fund-raising foundations that meet the definition of a not-for-profit organization given in FASB Statement No. 117 also should follow the AICPA Audit and Accounting Guide Not-for-Profit Organizations.
When separate financial statements are issued for a state or local governmental health care organization 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 below, is met:
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 GASB Statement No. 34, paragraph 134.4
Specialpurpose 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 business-type 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 1.13 of this guide.
1 A member performing an attest engagement must be independent pursuant to Rule 101, Independence (AICPA, Professional Standards, vol. 2, ET sec. 101), 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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