New accounting pronouncements to ‘significantly’ affect health care

Written on Sep 19, 2019

By Abigail Draper, OSCPA communication & engagement manager

New accounting pronouncements are here, and experts are suggesting health care organizations work closely with accounting firms to “tackle these issues at the front end” and avoid confusion once the standards are implemented.

Tony LaNasa, CPA, CFE, managing principal of Columbus office at HW&Co., said the firm has worked with clients already to prepare them for the changes to come and implement processes to help ease the transition.

One of these processes is including more detailed footnotes in company financial statements. This involves “understanding the different payers, how they're billing and being reimbursed, and getting that all on paper, then creating a footnote disclosure.” LaNasa said this can add several pages to the financial statement.

While this could be postponed by the FASB, LaNasa said the new leases standard will impact nonprofit and for-profit companies alike. Once the standard is implemented, “all leases will be recorded on the company’s balance sheet as a right of use asset and a lease liability. Previously, leases determined to be operating leases were not recorded on the company’s balance sheets and were just expensed as paid each month. It will significantly increase liabilities for some companies that lease office space, equipment, etc.”

He said this is both good and bad news as it relates to the Tax Cuts and Jobs Act. There is a new cap on interest expense deductions beginning in 2018. However, there is also a new Qualified Business Income Deduction for pass-through entities that was implemented for 2018. This is a 20% deduction of qualified income for pass-through entities — partnerships, S corps, sole proprietors, “all those entities that are passing income to the individual.”

For tax exempt organizations, a new tax is being placed on parking fringe benefits. What this means is “if you have more than 50% of your employees parking in one lot, you actually may have to pay an unrelated business income tax on the expenses of your parking lot.” LaNasa said the IRS created this tax to cover some of the additional deductions and tax benefits provided with the TCJA.

LaNasa said he does not expect there will be more accounting changes for health care entities beyond what has already been announced.

“I think overall, there is just a struggle with what we call a ‘standard overload.’ There are all these standards coming through, and organizations, CPA firms and others are trying to understand the impact of them. And at times, it's significant to organizations — the impact on the reporting, on the accounting, on the disclosures — there’s just a lot of information that needs to be researched and implemented.”

To learn more from LaNasa about the accounting changes that will affect health care organizations, register for OSCPA’s Oct. 24 Health Care Conference.

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