The healthcare sector relied heavily on the AICPA’s guides to implement the FASB’s revenue recognition standard, because many, especially early adopters, were looking for help with how to apply the rules to their specific operations, according to FASB’s recent discussions with its not-for-profit advisers.
Ultimately the standard was easy to adopt once they dug into it.
“Healthcare providers such as hospitals are very different than continuing care retirement communities,” Kimberly McKay, managing partner at BKD, LLP, said on Sept. 14, 2021. “For the hospital systems and other healthcare providers, once they dug into it, they realized it was not a significant change – maybe just geography on the statement of operations and what truly is a bad debt expense versus a price concession, and really understanding that,” she said.
Once accountants got “their arms around it, it was not that difficult to implement,” McKay said.
“I think the continuing care retirement communities are the ones who saw the most impact,” she said. “And probably from the acquisition cost standpoint as well as just making sure they understood the performance obligations – how that actually played with the lease standard because there were a lot of different components for them to think about.”
The discussions, held by the board’s Not-for-Profit Advisory Committee (NAC), were in context of the board’s ongoing post-implementation review (PIR) of Topic 606, Revenue from Contracts with Customers, its process to determine whether a standard provided investors with information that is useful at low cost to companies.
Topic 606 was issued in 2014 to replace hundreds of pieces of industry specific rules for reporting revenue with a principles-based overarching five-step model.
The standard took effect in 2018 for public companies; and in 2019 for private companies and not-for-profits but could be adopted earlier. In 2020, the board deferred the guidance for another year for those who had not yet adopted it.
In general, accounting resources that the FASB, the AICPA, and others eventually developed were exceptional, but for early adopters there was not a lot of information and that caused difficulty, NAC members said.
“But that was a long time ago and it’s changed dramatically, so I think the resources were [eventually] helpful,” John Griffin, senior vice president & controller at AARP, said.
Surprisingly, some higher education organizations, likely small-to-mid-size not-for-profits, still have not yet adopted Topic 606 and are still asking for educational sessions, the discussions indicated.
Asked by FASB member Christine Botosan where the lag was coming from, Griffin said he assumed it might stem from resource constraints.
“That’s a great question, at the last two presentations at the AICPA on revenue recognition there was still a decent percentage of the audience that were still in the middle of it which was surprising to me,” said Griffin. “The only thing I can think of they’re probably very small organizations [and] focused for the last year and a half on surviving as an organization.”
And some firms are still seeking continuing education on Topic 606, according to the discussions.
“This year didn’t offer 606 thinking people were already done with it – did a little training, but not a lot and I had multiple firms reach out and ask for 606 training this year,” Melisa Galasso, owner of Galasso Learning Solutions, said.
“And I said ‘okay we can pull that together but have you taken anything in the past?’ and they’re like ‘no we have been waiting’ and I was like ‘waiting for what?’”
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