As financial reporting standards continue to evolve, it is important to continually monitor developments in accounting standards and assess the implications for your entities. Below is a summary of some standards that recently became or will soon become effective that may impact healthcare entities.

FASB

ASU No. 2016-02, Leases (Topic 842)

Overview

• Effective for private companies and nonprofit entities starting with fiscal years beginning after December 15, 2021.
  • If you’re a calendar year entity, this will be effective for your upcoming 2022 year-end audit.
• Requires organizations that lease assets (“lessees”) to recognize assets and liabilities on the balance sheet for the rights and obligations created by those leases.
• Previously, operating leases were disclosed but not recorded on the balance sheet. Leasing activities were considered one of the largest forms of off-balance sheet accounting.

Implementation

• Review activity in general ledger expense accounts currently used to record operating lease expense to identify the list of leases potentially in scope.
• Adopt lease capitalization threshold. Leases with total payments under the set threshold can be expensed as paid (like historical practice for operating leases).
• Adopt a policy regarding short-term leases. Short-term (12 months or less) leases can be excluded from balance sheet recognition and expensed as paid (like historical practice for operating leases).
• Obtain copies of all operating lease agreements for leases that are not below the capitalization threshold and do not meet the short-term exclusion.
• Update chart of accounts for new operating lease assets and liabilities.
• Calculate and record assets and liabilities for leases in scope.

GASB

GASB Statement No. 87 – Leases

Overview

• Effective for governmental entities for fiscal years beginning after June 15, 2021.
• Requires organizations to recognize an intangible right-to-use lease asset and a lease liability for leases that previously were classified as operating leases.

Implementation

• This implementation should have been covered by your most recent fiscal year-end audit. Will need to continue to record new and existing leases properly.

GASB Statement No. 89 – Accounting for Interest Cost Incurred Before the End of a Construction Period

Overview

• Effective for governmental entities for fiscal years beginning after December 15, 2020.
• Requires interest cost incurred before the end of a construction period to be recognized as an expense in the period in which the cost is incurred.
• Interest cost incurred before the end of a construction period will not be included in the historical cost of capital assets.

Implementation

• This implementation should have been covered by your most recent fiscal year-end audit. Will need to continue to record interest costs properly for construction projects.

GASB Statement No. 96 – Subscription-Based Information Technology Arrangements

Overview

• Effective for governmental entities for fiscal years beginning after June 15, 2022.
• Defines and provides guidance on subscription-based information technology arrangements (SBITAs) for government end users.
• Requires organizations to recognize an intangible right-to-use subscription asset and corresponding subscription liability.
• Standard is based on GASB Statement No. 87 – Leases

Implementation

• Review activity in general ledger expense accounts currently used to record subscription expenses to identify a list of SBITAs potentially in scope.
• Adopt SBITA capitalization threshold. SBITAs with total payments under the set threshold can be expensed as paid (like historical practice).
• Identify and exclude short-term SBITAs. Short-term (12 months or less, including any options to extend, regardless of their probability of being exercised) SBITAs can be excluded from balance sheet recognition and expensed as paid (like historical practice).
• Obtain copies of all SBITA contracts that are not below the capitalization threshold and do not meet the short-term exclusion.
• Update chart of accounts for new subscription assets and liabilities.
• Calculate and record assets and liabilities for SBITAs in scope.

We recommend taking action as early as possible on these standards to allow time to implement and get feedback from your auditor. Please contact us for more information or assistance with implementation.