Below, the AICPA will post recent questions and answers issued since June 2020. The questions and answers in this section are not sources of established authoritative principles. This material is based on selected practice matters identified by the staff of the AICPA's Technical Hotline and various other bodies within the AICPA and has not been approved, disapproved, or otherwise acted upon by any senior committee of the AICPA. Consult AICPA Technical Questions and Answers for all technical staff questions and answers issued by the AICPA.
If you have specific questions about information contained here, contact the AICPA's Technical Hotline.
Accounting Questions and Answers
Section 2130 Loan Restructurings Resulting in Periods With Reduced Payments
.41 Determination of the effective interest rate (Issue Date: June 2020)
Inquiry—If a creditor restructures a loan due to COVID-19 to include a period of reduced payments, and the restructuring is neither a troubled debt restructuring (TDR), nor required to be accounted for as a new loan, how should a creditor recognize interest income on the restructured loan1?
.42 Classification of Advances Under the Paycheck Protection Program (Issue Date: June 2020)
Inquiry—Should the lending institution account for an advance under this program as a loan or as a facilitation of a government grant?
.43 Consideration of the SBA Guarantee Under the Paycheck Protection Program (Issue Date: June 2020)
Inquiry—Is the guarantee from the SBA considered “embedded” as opposed to a “freestanding contract” and, thus, can it be considered in estimating credit losses on the loan?
.44 Accounting for the Loan Origination Fee Received From the SBA (Issue Date: June 2020)
Inquiry— What is the accounting for the fee received or receivable from the SBA for originating the loan and the potential clawback of the fee?
.45 Accounting for Loan Repayment or Forgiveness by the SBA (Issue Date: August 2020)
Inquiry— How should a lender account for the portion of the loan that is eligible for forgiveness during the settlement process, including the time period subsequent to the lender’s determination that the borrower is eligible for forgiveness and through the receipt of payment from the SBA?
Section 3200 Long-Term Debt
.18 Borrower Accounting for a Forgivable Loan Received Under the Small Business Administration Paycheck Protection Program (Issue Date: June 2020)
Inquiry —How should a nongovernmental entity account for a forgivable loan received under the Small Business Administration Paycheck Protection Program (PPP)?
Section 6400 Health Care Entities
.53 Accounting for Costs Incurred in Connection With the Implementation of Electronic Health Record Systems (Issue Date: April 2020)
Inquiry—The widespread implementation and use of electronic health record (EHR) systems are primary agenda items for a number of health care entities. EHR technology has shown to be effective in transforming the quality, safety, and efficiency of care within health care entities that have implemented the technology successfully. However, successful implementation can be time-consuming and expensive as health care entities struggle to adopt these systems in a manner that meets regulatory mandates and clinicians’ expectations. Integration of EHR technology into clinical workflow, the adoption strategies used when implementing EHR technology, and technological upgrades and continuous quality improvement are all issues that health care entities confront when seeking to implement and use EHR systems to store and manage clinical information.
How should health care entities account for costs incurred in connection with the implementation of EHR systems for internal use?
.54 Financial Presentation Considerations Related to Transactions Involving Provider Taxation Programs and Similar Arrangements (Issue Date: April 2020)
Inquiry—The Medicaid program is set up on a state-by-state basis to provide medical assistance to the indigent. Although state-administered, the program is a joint federal and state program for which the federal government finances a portion of the cost. Under this arrangement, the federal government "matches" a percentage of the total amount paid by the state to health care providers. This matching is referred to as federal financial participation.
States have attempted to increase the amount of federal matching funds for which they are eligible by increasing the amount of medical assistance they provide. In order to pay for the increased medical assistance, some states have imposed provider taxes on health care entities and used those funds to make additional provider payments. As a result, these states have been able to generate additional federal matching funds without expending additional state funds. How should a health care entity present provider taxes paid within their financial statements?
.55 Background to Sections 6400.56–.62 — Accounting for Lease Components in Type A Life Care Contracts by Continuing Care Retirement Communities (Issue Date: August 2020)
Continuing care retirement communities (CCRCs) provide residents with a diversity of residential, social, and health care services in accordance with a resident agreement specifying the obligations of the CCRC to the resident. Generally, a resident entering a CCRC initially lives in an independent living unit designed for seniors, such as a cottage, duplex, townhome, or apartment. If, or when, the health of a resident declines, he or she may be permanently transferred to an assisted living facility or a nursing facility, both of which are generally located on the same campus as the independent living units.
Type A life care contracts are all-inclusive continuing-care contracts that include initial occupancy in an independent living unit and other services and amenities while the resident occupies the independent living unit and access to health care services for the remainder of the resident’s life (that is, a stand-ready obligation). Health care services primarily consist of assisted living, skilled nursing care, or both, for little or no increase in periodic (or monthly) fees other than increases as stipulated in the resident agreement, generally based on increases in operating costs or inflationary increases.
Refer to chapter 14, “Financial Accounting and Reporting by Continuing Care Retirement Communities,” of the AICPA Audit and Accounting Guide Health Care Entities for further background on CCRC contracts.
.56 Embedded Lease Component Within Type A Life Care Contracts (Issue Date: August 2020)
Inquiry — What are some of the considerations in determining whether Type A life care contracts offered by CCRCs contain a lease (or leases) under FASB Accounting Standards Codification (ASC) 842, Leases?
.57 Determination of the Lease Term When an Embedded Lease Component for an Independent Living Unit Is Present Within Type A Life Care Contracts (Issue Date: August 2020)
Inquiry — If a CCRC determines that a Type A life care contract contains a lease for an independent living unit, what are the considerations that should be made in determining the lease term?
.58 Classification of an Embedded Lease Component Within Type A Life Care Contracts (Issue Date: August 2020)
Inquiry — If the CCRC determines that there is an embedded lease for the independent living unit in its resident agreements, what are the considerations regarding how the lease should be classified?
.59 Non-Lease Components Within the Resident Agreement of Type A Life Care Contracts (Issue Date: August 2020)
Inquiry — Does the resident agreement contain non-lease components and, if so, what are the factors to consider in determining if the practical expedient in FASB ASC 842-10-15-42A can be applied?
.60 Measurement of Lease Payments if a Lease for an Independent Living Unit Exists in a Type A Life Care Contract (Issue Date: August 2020)
Inquiry — If the CCRC determines that an embedded lease for the independent living unit exists in its resident agreements, how should the CCRC consider advance fees and periodic fees when determining the measurement of the lease payments?
.61 Reassessment of Lease Term Within the Resident Agreement of Type A Life Care Contracts (Issue Date: August 2020)
Inquiry — Under what circumstances would the CCRC reassess the lease term related to an embedded lease for an independent living unit in its resident agreements?
.62 Impact on a Lease Component Within the Resident Agreement of Type A Life Care Contracts When a Resident Transitions to Assisted Living or Skilled Nursing (Issue Date: August 2020)
Inquiry — What is the accounting treatment when the lease for an independent living unit is terminated, for example, when a resident makes a permanent move to an assisted living or skilled nursing facility as specified in the terms of their resident agreement?
.63 Background to Sections 6400.64–.70 — CARES Act Provisions Specific to Health Care Entities (Issue Date: September 2020; Revised April 2021)
The Coronavirus Aid, Relief, and Economic Security Act (the CARES Act) attempted to alleviate some of the financial strain on hospitals, physicians, and other health care entities through a series of new policies that temporarily boosted Medicare and Medicaid payments, allowed for added flexibility in treatment modalities, and expanded the availability of advance or accelerated payments from Medicare.
In addition, the CARES Act established a Provider Relief Fund to be used for economic support of health care entities in connection with health care -related expenses or lost revenues attributable to COVID-19 and treatment of uninsured COVID-19 patients. Initially, $50 billion of the Provider Relief Fund was allocated for general distribution to a wide range of entities across the U.S. health system (hereinafter referred to as the Phase 1 general distribution allocation). Subsequently, amounts were allocated for additional general distributions and targeted distributions to health care entities with specific characteristics, and an unspecified amount was allocated to pay health care entities for treating uninsured COVID-19 patients.
Sections 6400.64–.66 pertain to accounting used by nongovernmental fn 13
health care entities that have received Provider Relief,Funds as of the revised date of these sections.
fn 13 References to nongovernmental entities include business entities and not-for-profit entities.
.64 Accounting for Provider Relief Fund Phase 1 General Distribution Payments (Issue Date: September 2020; Revised April 2021)
Inquiry — Beginning in April 2020, total of $175 billion in payments from the Provider Relief Fund has been (or will be) allocated for general and targeted distribution to entities across the U.S. health system.
According to the U.S. Department of Health and Human Services (HHS), the general and targeted distribution payments are subject to legal terms and conditions, fn 14 including the following, among others:
- The funds are to reimburse the recipient only for health care–related expenses or lost revenues that are attributable to COVID-19.
- The funds may be used only to prevent, prepare for, and respond to COVID-19.
- Noncompliance with the terms and conditions is grounds for the recoupment of some or all of the payments by HHS.
- The recipient will not use the funds to reimburse expenses or losses that have been reimbursed from other sources or that other sources are obligated to reimburse.
Recipients of payments from the Provider Relief Fund will be required to submit documentation to HHS demonstrating that these payments were used for health care–related expenses or lost revenue attributable to COVID-19, and HHS has stated that it will perform significant anti-fraud and auditing work. HHS has also stated that to avoid recoupment, recipients must be able to demonstrate that total payments from the Provider Relief Fund do not exceed their lost revenues and increased expenses attributable to COVID-19 that have not or will not be reimbursed from other sources.fn 15
How should nongovernmental fn 16 health care entities account for distribution payments from the Provider Relief Fund?
fn 15 HHS FAQ 5/6/20.
fn 16 See footnote 13.
.66 Period of Accounting for Provider Relief Fund General Distribution Payments (Issue Date: September 2020)
Inquiry — Should nongovernmental health care entities begin to account for income arising from the Phase 1 general distribution payments in the reporting period the CARES Act was signed into law (March 27, 2020) or when information regarding the recipients and payment amounts became available from HHS?
.67 Accounting for Uninsured Pool Portion of Provider Relief Funds (Issue Date: September 2020)
Inquiry — A portion of the Provider Relief Fund was used to establish a program that will pay health care entities for treatment of uninsured COVID-19 patients. This program is administered by the Health Resources and Services Administration (HRSA), a division of HHS. Health care entities that enroll in the HRSA COVID-19 Uninsured Program and agree to the conditions of participation are paid for the services at Medicare program rates. Participation rules are similar to the Medicare fee-for-service program, with health care entities agreeing to accept the program payment amount as payment in full (that is, they cannot bill patients for a remaining balance).
For nongovernmentalfn 22 health care entities, are payments for services provided to uninsured COVID-19 patients that are billed to the federal government under the HRSA COVID-19 Uninsured Program accounted for as patient service revenue, or are such payments accounted for as nonexchange transactions?
fn 21 See footnote 13. [Footnote renumbered, April 2021, to reflect conforming changes necessary due to updated CARES Act provisions.]
fn 22 See footnote 13. [Footnote renumbered, April 2021, to reflect conforming changes necessary due to updated CARES Act provisions.]
.68 Accounting for Payments Received Under the Medicare Accelerated and Advance Payment Program (Issue Date: September 2020; Revised: April 2021)
Inquiry — Under Medicare program rules, the federal agency that administers Medicare and Medicaid programs (the Centers for Medicare and Medicaid Services, or CMS) can make accelerated or advance payments to eligible health care entities during periods of claims payment disruption or unusual operating circumstances (for example, national emergencies or natural disasters). The CARES Act provided for a temporary expansion of this program fn 23 during the public health emergency.
Under this program, qualifying health care entities can request advances against payments for future claims that they are expected to submit to Medicare. Prior to the beginning of the recoupment period, the health care entity continues to bill for services provided to Medicare patients and is paid by CMS as usual. Once the recoupment period begins, amounts billed to CMS for services provided will be offset against the advance payment until the advance is fully recouped. If the advance has not been entirely offset by claims at the end of this period, the health care entity will be required to repay the remaining amount.
How should nongovernmentalfn 24 health care entities account for payments received under the Medicare Accelerated and Advance Payment Program?
.69 Accounting for Temporary Increases in Medicare and Medicaid Payments (Issue Date: September 2020)
Inquiry — The CARES Act attempts to alleviate some of the financial strain on hospitals, physicians, and other health care entities through a series of new policies that temporarily boost Medicare and Medicaid payments and allow for added flexibility. For example, it increases the Medicare in-patient payment rate by 20 percent for treating COVID-19 patients, delays the annual 2 percent cut (sequester) in Medicare payments to health care providers, and reduces or delays cuts in Medicaid Disproportionate Share Hospital (DSH) funding.
How will these changes to Medicare and Medicaid payment rules affect recognition of patient service revenue by nongovernmental fn 25 health care entities?
.70 FEMA Public Assistance Payments to NFP Health Care Entities for Emergency Protective Measures During the COVID-19 Pandemic (Issue Date: September 2020)
Inquiry — Through its public assistance (PA) program, FEMA provides assistance to governments and certain NFPs in responding to major disasters or emergencies. Certain NFP health care entities may be eligible for reimbursement of “extraordinary” costs associated with operating emergency rooms and providing temporary facilities for emergency medical care or expanding existing medical care capacity during the declared COVID-19 public health emergency under Category B (Emergency Protective Measures) of FEMA’s PA program. How should eligible NFP health care entities account for reimbursement received from FEMA for costs associated with eligible emergency medical care activities?
fn 24 See footnote 13. [Footnote renumbered, April 2021, to reflect conforming changes necessary due to updated CARES Act provisions.]
fn 25 See footnote 13. [Footnote renumbered, April 2021, to reflect conforming changes necessary due to updated CARES Act provisions.]
Auditing Questions and Answers
Section 9550 Performing a Third-Party Assessment Engagement Under a Third-Party Assessment Program
.01 Defining a Third-Party Assessment Program (Issue Date: January 2021)
Inquiry — What is a third-party assessment program?
.02 Performing a Third-Party Assessment Engagement in Accordance With Standards (Issue Date: January 2021)
Inquiry — In a third-party assessment engagement, an assessor typically performs procedures outlined in the third-party assessment program and communicates the procedures performed and the conclusions reached by following the requirements or instructions under the third-party assessment program. An entity may request a member to act as an assessor in connection with a third-party assessment program. In such circumstances, the member is required to apply which professional standards to the third-party assessment engagement?
All AU-C sections can be found in AICPA Professional Standards.
All AU-C sections can be found in AICPA Professional Standards.