AcSEC Meeting September 20-21, 2005

Transcription

1 AcSEC Meeting September 20-21, 2005 Coleman Center New York AcSEC MEETING HIGHLIGHTS All AcSEC members were in attendance. Also in attendance were the incoming AcSEC members Jay Hanson, McGladrey & Pullen LLP; David Morris, MORRIS Consulting; Roy Rendino. AcSEC and the AICPA staff thank departing members Andy Mintzer, Coleman Ross, and Brent Woodford for their valued contributions to improving financial reporting. Other participants in the meeting were: Healthcare Guide William R. Titera, Chair, Rick R. Corcoran, Paul J. Drogosch, Martha Garner Business Combinations Jan Hauser Airline Guide - Robert Fenimore, Chair, David Dickson, Robert Gordon, Holly Nelson Casino Guide - Karl Brunner, Chair, Rick Arpin (both by phone), Andy Mintzer Loan Losses Carol Larson, Chair, David Morris AICPA staff: Dan Noll, Fred Gill, Mike Glynn, Kim Kushmerick, Yelena Mishkevich, Irina Portnoy, Rene Rampulla (by phone), Joel Tanenbaum FASB staff: Russ Golden, Alicia Posta, Rosemarie Sangiuolo, Ron Wilkins (by phone) Healthcare Guide AcSEC discussed various issue summaries prepared by the Health Care Guide Task Force in order to obtain AcSEC's guidance prior to drafting a revised Guide. Accounting for transfers between unrelated not-for-profit healthcare organizations AcSEC agreed that equity transactions or transfers between unrelated not-for-profit healthcare organizations should be recorded as contributions at fair value with the transferor recognizing the 1

2 contribution made as expense in the period made and as a decrease of assets or increase of liabilities, depending on the form of the benefits given, pursuant to paragraph 18 of FASB Statement No. 116, Accounting for Contributions Received and Contributions Made. The transferee would record the net assets at fair value at the transfer date. AcSEC has also discussed the financial statement presentation of the contributions made by the not-for-profit healthcare organizations. AcSEC concluded that contributions made should be presented within the performance indicator in the financial statements of the transferor. AcSEC concluded that Chapter 10 of the guide should also address the financial statement presentation of contributions received. Accounting for transfers involving goodwill between for-profit healthcare organizations and notfor-profit healthcare organizations where one healthcare organization controls the other or they are under common control AcSEC discussed transfers of goodwill between for-profit healthcare organizations and not-forprofit healthcare organizations where one healthcare organization controls the other or they are under common control. AcSEC requested that the task force expand the analysis to include other examples of transfers that may occur between for-profit healthcare organizations and not-forprofit healthcare organizations where one healthcare organization controls the other or they are under common control and relevant accounting literature that may provide guidance for other types of such transfers. The task force agreed to broaden the issue and present it to AcSEC at a future meeting. Accounting for intercompany receivables when collection is doubtful AcSEC discussed the accounting for intercompany receivables when collection is doubtful, as currently there is diversity in practice in the accounting and reporting for such receivables. Currently, paragraph of the AICPA Audit and Accounting Guide Health Care Organizations states, that if the receivable is not to be repaid, or if the receiving entity is perceived as unable to repay, it [write-off of intercompany receivable] may be accounted for as an equity transfer with the transferor reducing net assets and the transferee increasing net assets at the date such determination is made. AcSEC recommended clarifying the wording in paragraph of the Guide to state that accounting for write-offs of intercompany receivables as equity transfers is not optional. Similar to footnote 1 of APB Opinion No. 26, Early Extinguishment of Debt, paragraph intended to remind accountants to examine the facts and circumstances of each individual transaction to determine whether it is in substance a loss or an equity transfer. AcSEC further stated that the HC Guide should provide additional examples to assist practitioners in assessing the substance of these transactions. Accounting for joint operating agreements AcSEC discussed the accounting for joint operating agreements (JOAs). A JOA generally consists of two or more not-for-profit health care organizations (HCOs) entering into an 2

3 agreement whereby both parties jointly operate and control certain of their hospitals or facilities while sharing the operating results and residual interest upon dissolution based upon an agreedupon ratio or ratios. Currently there is diversity in practice in the accounting and reporting for joint operating agreements, as HCOs account for JOAs either by consolidating, under the equity method, at cost (e.g., risk sharing with a management agreement), or by using proportional consolidation. AcSEC agreed with the task force that Chapter 11 of the Healthcare Guide should incorporate guidance from the Technical Practice Aid , Accounting for a Joint Operating Agreement, and should provide references to and discussion of the authoritative literature that provides guidance on when to apply consolidation, the equity method, or pro rata consolidation, to address the variance in practice that currently exists. AcSEC plans to continue the discussion of Guide issues at a future meeting. Business Combinations At the September 2005 meeting, AcSEC discussed a draft comment letter of the proposed Statements of Financial Accounting Standards, Business Combinations: a replacement of FASB Statement No. 141 and Consolidated Financial Statements, Including Accounting and Reporting of Noncontrolling Interests in Subsidiaries a replacement of ARB No. 51. AcSEC plans to finalize the letter in a conference call to be held in October Airline Guide AcSEC reviewed chapters 1, The Airline Industry, 5, Employee Related Costs, and 6, Other Accounting Considerations, of a proposed revised Audit and Accounting Guide Audits of Airlines. AcSEC had no substantive comments on chapter 1. AcSEC suggested a number of clarifications to chapter 5. In connection with chapter 6, AcSEC discussed whether an asset related to an international route authority should continue to be recognized if the route has become subject to an open-skies agreement. Although AcSEC generally agreed that related airport landing rights at restricted airports could continue to have significant value subsequent to an open-skies agreement, AcSEC was concerned whether the route authority itself would continue to meet the definition of an asset. AcSEC also was uncertain whether a route authority and airport landing rights should be viewed as two assets or as parts of a single asset. AcSEC asked the Airlines Task Force to revise Chapter 6 to clearly explain the relationship between route authorities, airport landing rights, and gates and resubmit it along with Issue Paper 2, concerning the indefinite-lived status of international route authorities, which was last discussed by AcSEC in January 2004, for discussion at the November 2005 AcSEC meeting. Casino Guide 3

4 AcSEC discussed a July 8, 2005 draft Loyalty and Incentive Programs, Casino Guide and Airlines Guide Task Forces Joint Recommendations to AcSEC. AcSEC agreed (10 Yes, 4 No, 1 abstain) the Airlines and Casino Guides should-- Discuss the history of the issue of accounting for loyalty programs, including the fact that standards setters such as the FASB, AcSEC, and the EITF previously reached no consensus on the issue Refer readers to the FASB s Revenue Recognition/Liability Extinguishment project for expected guidance Describe current practice, including a (1) deferred revenue model and (2) model in which an entity reports the full amount of the original revenue transaction and accrues liabilities under loyalty or incentive programs for costs associated with rewarding the customers undertaking those original revenue transactions (referred to hereafter in these highlights as an immediate revenue/cost accrual model with that term used as a placeholder), without expressing a preference for either model. Describe the basis for each model and provide that in practice the deferred revenue model is acceptable in virtually all circumstances, while the immediate revenue/cost accrual model is acceptable only in certain circumstances. For example, an immediate revenue/cost accrual model is not appropriate (and a deferred revenue model therefore appropriate) in circumstances in which (a) a significant number of paying customers are displaced by customers redeeming awards and (b) the value of an individual award is significant as compared with the purchase earning the award. Under the immediate revenue/cost accrual model, describe current practices for measuring cost as incremental cost versus fully allocated cost and the circumstances under which each measurement is used. Provide detailed guidance applying appropriate EITF and other relevant literature, such as EITF Issue No. 01-9, Accounting for Consideration Giving by a Vendor to a Customer (Including a Reseller of the Vendor's Products), to those models, including guidance applicable to cash and free play awards. Consider what disclosures, if any, should be considered in connection with loyalty programs. Loan Losses AcSEC approved (11-0) the issuance for public exposure of a draft Statement of Position, Disclosures Concerning Credit Losses Related to Loans, subject to a final review of a revised draft by AcSEC in November AcSEC decided that the SOP should apply to all entities that hold loans as assets and not just to financial institutions. The proposed SOP would be effective for years ending after December 15, 2006, and comparative disclosures would be required in the year of transition. AcSEC asked the task force to add additional examples and made a number of suggestions for clarifying the SOP. 4

5 Chair s Report The Chair reported the following: The AICPA staff released a new Q&A, TPA Accounting and Disclosures Guidance for Losses from Natural Disasters - Nongovernmental Entities which is located at The Chairman of the EITF reported that the last two sentences of paragraph 8 of FASB Statement No. 115, Accounting for Certain Investments in Debt and Equity Securities, addresses other unusual circumstances that cannot be reasonably anticipated where the sale of held to maturity securities would not necessarily call into question an entity's intent to hold other debt securities to maturity and the FASB staff's view that, for some entities, Hurricane Katrina would appear to meet that provision. AcSEC issued SOP 05-1, Accounting by Insurance Enterprises for Deferred Acquisition Costs in Connection with Modifications or Exchanges of Insurance Contracts. The PSC had a liaison meeting with members of the financial accounting standards committee of the New York State Society of CPAs to discuss matters of mutual interest. 5