Accounting and Financial Reporting

CARES Act accounting implications will vary by healthcare type

June 24, 2020 5:02 pm

Brian Conner, CPA, National Practice Leader, Hospitals, Moss Adams LLP

The highest-profile federal financial assistance the federal government offered to help providers respond to the COVID-19 pandemic carry different accounting consequences, based on the type of provider.

In the June 24 session of the HFMA 2020 Digital Annual Conference titled, “Cares Act Accounting Implications,” Brian Conner, CPA, national practice leader, hospitals for Moss Adams LLP, identified the many known consequences and some areas of uncertainty of provider relief funding through the CARES Act.

“There are nuances for the different entity types — for not-for-profit, private companies, government entities — they’re all going to have a little different accounting considerations,” Conner said.

For not-profit hospital, the payments likely will qualify for “some form or fashion” of single audit reporting. It is unclear how that would apply to for-profit entities.

“There’s probably more questions than answers at this point” about HHS policy on this point, Conner said.

So, Conner suggests “diligent monitoring” of HHS’s frequently asked questions on the HHS page devoted to the fund.

Similarly, key definitions for COVID-related “expenses” and “lost revenues” remain broadly defined by HHS. Conner expected more detail on those to come from HHS by September.

For the highest-profile federal assistance, the $50 billion offered to providers through the general distribution payments of the CARES Act, nuances apply for the different entity types.

For not-for-profit organizations, details on the CARES Act funds include:

  • Classification as a non-exchange transaction under ASC 958-605​, with no direct benefit to the resource provider​
  • Places them in a contribution model​ with donor-imposed conditions and restrictions

Accounting concerns include the amount and timing of recognition of the funds. The broad definitions likely will “scope in quite a few expenses and lots of revenue related to slowdown in volume, the elimination or prohibition of elective procedures, etc. should qualify under that,” he said.

However, accounting needs to subtract from COVID-19-related expenses and lost revenue they report to HHS any other funding received for them from other payer sources.

The timing of recognizing the funds should be on or around when you received them, Conner said.

“Assuming most providers have lost revenue well in excess of what they are receiving, there is a good chance that providers will be recognizing that as revenue around time that those funds were received—in April or May,” Conner said.

They likely would fall under the “simultaneous release” accounting policy.

Although there is some flexibility, Conner expects most organizations will treat the CARES funding as “other revenue,” instead of patient or premium revenues.

The only balance sheet implications (such as liabilities) would arise if the organization has not met the “terms and conditions” HHS laid out for retaining the funds.

In terms of reporting, the CARES Act was enacted before the March 30 end of the quarter, but little was known by that point about its payments and how they would be dispersed. That would leave the funding as “disclosed but not recognized” funding, at that point. Meanwhile, organizations with a June 30 year end, most likely would recognize the revenue for the fiscal year.

For private providers

Similarly, the CARES funding also would count as a non-exchange transaction for private companies. One difference is that there are no U.S. GAAP policies on how to account for “those of funds provide by the government to private enterprises,” Conner said.

The Financial Accounting Standards Board (FASB) has directed that in situations where there are no standards organizations should consider other possibly applicable standards or providers may look to other “non-authoritative guidance,” he said. Some organizations may follow the model for not-for-profit organizations, Conner said.

However, he has heard most SEC registrants are looking to report the revenue under the IAS20 model, as a separate line between revenue and expenses.

IAS20 also allows the option of either recording the CARES funding as either revenue or an offset to related operating expenses incurred.

Those for-profit entities have the same balance sheet and disclosure requirements as not-for-profit entities.

Government-run hospitals

One difference is that the Governmental Accounting Standards Board (GASB) has issued explicit proposed guidance through a technical bulletin to address several areas that remain vague for other types of hospitals. Details related to GASB include:

  • Explicitly identifying such funding as classifiable as “voluntary non-exchange transactions,” in which the provider receives value without providing anything of value in return
  • Providing a standard recognizes revenue when all applicable eligibility criteria are met, which is similar to the definitions of conditions for not-for-profit and for-profit providers
  • Providing no flexibility of recognizing them over time, such as are available through the IAS20 model
  • Requiring classifying the funding as “non-operating” revenues

Additionally, the CARES funding would not qualify for “extraordinary or special treatment” under the rules. 



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