On October 5th, The Public Company Accounting Oversight Board (PCAOB) issued a Staff Practice Audit Alert regarding auditing revenue from contracts with customers. According to PCAOB, Staff Audit Practice Alerts are published when there is a need to highlight “new, emerging, or otherwise noteworthy circumstances that may affect how auditors conduct audits under the existing requirements of the standards and rules of the PCAOB and relevant laws.”
This is important because it signals that the Public Company Accounting Oversight Board auditors will be looking for compliance violations with regard to the Financial Accounting Standards Board (FASB) updated accounting standard related to revenue recognition. This new standard -- Revenue from Contracts with Customers (Accounting Standards Codification (ASC) Topic 606) replaces most industry-specific revenue recognition requirements in U.S. with a five-step revenue recognition model, illustrated below.
This Staff Practice Audit Alert provides further evidence that FASB 606 is going to have a real impact on companies, including laboratories and other diagnostic providers. As such, XIFIN is paying attention to the impact this new accounting standard will have, and we expect that there’s likely to be more to information to come for our clients on this topic.
FASB 606 is arguably the biggest change in accounting standards since the Sarbanes-Oxley Act of 2002, will change how companies book revenue, and will affect everything from earnings and taxes to bonuses, commissions and buyout decisions. The new revenue recognition standard requires that companies recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.
For healthcare diagnostics providers, it is Step Three, determining the transaction price, that requires the most consideration and thought, particularly given the transition to value-based care and the diverse nature of constituents such as hospitals, accountable care networks and post-acute care providers. Laboratories should thus expect to review every contract they have with health insurers and Medicare Advantage plans, and to develop a reporting formula for each class and type of contract.
The good news for XIFN clients is that only XIFIN's revenue cycle management system has the financial integrity and reporting tools laboratories and diagnostic providers need to effectively comply with FASB 606. The solid financial underpinnings of XIFIN RPM, are specifically designed to assist in compliance with FASB-like requirements. Built to provide full referential integrity, the solution balances every client to the penny, every month. With the ability to track billed (i.e. gross pricing) compared to the amount expected to be paid, and the actual amount paid, laboratories have the financial information they need for analysis, auditing, and reporting. The XIFIN end-of-month accounting package delivers GAAP and Sarbanes-Oxley compliant financial data for the general ledger.
Using XIFIN Business Intelligence model, laboratory personnel can efficiently slice and dice financial data to address questions that may come up, for example during an audit. Labs can be more precise with accrual accounting by measuring what revenue will actually be collected instead of projecting based on a percentage of billed/gross pricing. XIFIN BI enables lab personnel to drill down on expected payment rates and collection history over time, receivables aging and trends, and segments on the classes and types required by FASB 606.
Check out the FASB ASC 606 impact guide for full details, http://go.xifin.com/FASB606ImpactGuide.html