By Ratcliffe, Thomas A.
The CPA Journal , Vol. 67, No. 7
Getting Up to Date
The new accounting and audit guide, Health Care Organizations, was issued to respond to the many changes in the health-care industry as well as recent pronouncements of the FASB affecting not-for-profit organizations. It is applicable to investor owned, governmental, and not-for-profit organizations whose principal operations consist of providing or agreeing to provide health-care services that earn substantially all of their revenues from the sale of goods and services or organizations whose primary activities are planning, organizing, and overseeing such organizations.
Some of the unique aspects of the guide include
the requirement for not-forprofit health care organizations to include a "performance indicator" in the statement of operations.
a restriction on how such organizations provide information about liquidity.
the use of APB Opinion No. 16 as a framework for providing general guidance on accounting for business combinations in the healthcare industry.
the inclusion of health-care organizations under the provisions of SOP 943 relating to consolidations.
the elimination of one of the options of SFAS No. 116 relating to donor-imposed restrictions on long-lived assets.
In June 1996, the American Institute of Certified Public Accountants (AICPA) issued a new audit and accounting guide, Health Care Organizations (the guide), which supersedes the previous audit and accounting guide, Audits of Providers of Health Care Services. The new guide also supersedes AICPA Statement of Position (SOP) 89-5, Financial Accounting and Reporting by Providers of Health Care Services, and SOP 9a8, Financial Accounting and Reporting by Continuing Care Retirement Communities.
Subsequent to the last revision of the previous guide, the health-care industry has undergone several changes that have raised accounting and reporting issues not addressed in existing pronouncements (including the previous guide); these changes have resulted in inconsistent accounting and reporting practices within the industry. Further, the Financial Accounting Standards Board (FASB) has issued several pronouncements that affect not-for-profit organizations, most notably Statement of Financial Accounting Standards (SFAS) No. 116, Accounting for Contributions Received and Contributions Made; SFAS No. 117, Financial Statements of Not-for-Profit Organizations; and SFAS No. 124, Accounting for Certain Investments Held by Not-for-Profit Organizations.
The new guide is applicable to investorowned, governmental, and not-for-profit organizations whose principal operations consist of providing or agreeing to provide health-care services and that substantially earn their revenues from the sale of goods and services. Also, the guide is applicable to organizations whose primary activities are planning, organizing, and overseeing such organizations, e.g., parent or holding companies of health-care providers. The following types of organizations are within the scope of the new guide:
Health maintenance organizations (HMOs) and similar organizations
Continuing care retirement communities (CCRCs)
Home health agencies
Drug and alcohol rehabilitation centers
Clinics, medical group practices, individual practice associations, individual practitioners, emergency care facilities, laboratories, surgery centers, and other ambulatory care organizations.
The new guide does not result in major changes for investor-owned and governmental health-care entities (except for those that meet the guide's new definition of governmental health-care organizations). The significant changes that will impact not-for-profit health-care organizations are discussed below.
Financial Statement Display
The new guide incorporates and provides guidance on the application of SFAS No. 117 to financial statements of not-forprofit organizations. …