Answers to two recent health care-related accounting questions
FINANCIAL REPORTING INSIGHTS |
The American Institute of Certified Public Accountants recently issued answers to two technical questions for health care entities, which are briefly summarized as follows:
- Accounting for costs incurred in connection with the implementation of electronic health record systems – Q&A Section 6400.53 states that when an electronic health record system project involves both process engineering and software development or modification, the guidance in Subtopic 720-45 of the Financial Accounting Standards Board Accounting Standards Codification (ASC), “Other Expenses – Business and Technology Reengineering,” should be considered. ASC 720-45 indicates:
- Costs associated with process reengineering are expensed as incurred.
- Costs associated with developing or modifying internal-use software are capitalized or expensed based on ASC 350-40, “Intangibles – Goodwill and Other – Internal-Use Software.”
- Costs associated with acquisition of fixed assets are accounted for in accordance with an entity's policy for capitalizing long-lived productive assets.
If an outside consultant is engaged to conduct the project, the total consulting contract price should be allocated among these activities based on the relative fair values of each component (which are not necessarily the separate prices stated within the contract for each element). Costs associated with training coders, clinicians and other end users should be expensed as incurred, according to ASC 350-40-25.
Modifications that result in additional functionality are considered upgrades or enhancements to the existing system and are expensed or capitalized in accordance with ASC 350-40-25. Software modifications that do not result in additional functionality are expensed as maintenance costs.
- Financial presentation considerations related to transactions involving provider taxation programs and similar arrangements – Q&A Section 6400.54 states that gross presentation of supplemental revenues and associated provider tax expenses would be appropriate. Accrual of Medicaid supplemental revenue and related receivables should be reported in accordance with ASC 606, “Revenue from Contracts with Customers.” The provider tax assessment should be separately accrued as a liability (until paid) and recognized as an expense.