Accounting & Auditing Blog

Accounting Insights (Part 1 of 2) – Accounting Rule Changes: Effective for 2012

There are several new accounting pronouncements as well as significant proposed changes for 2013 and beyond.  There are also some “hot topics” in the areas of auditing and reporting that you should consider.

Fair Value Disclosures

Financial Accounting Standards, issued by the FASB, now require nonpublic companies to make some additional disclosures for calendar 2012, principally in the form of a discussion of the valuation process and certain quantitative details involving Level 3 investments.  These changes are intended to further conform US GAAP to IFRS (international reporting standards).  For each class (e.g., corporate bonds, available-for sale equities, asset backed debt) of fair value asset or liability, a table for each year showing Level 3 activity with the following columns will be required:

Beginning balance of Level 3 items

Net realized/unrealized gains in earnings

Net realized/unrealized gains in OCI




Transfers into Level 3

Transfers out of Level 3

Ending balance of Level 3 items

As a planning point for 2012 ERISA reports, due to be filed in 2013, plans will need insight into the pricing policies of investment custodians, requiring some dialog regarding the new level of information to be supplied by those custodians.

Health Care Entities

The presentation and disclosure requirements for patient service revenues, provisions and the allowance for bad debts for health care entities are also changing for 2012.  Effective 2012 for private companies, health care entities must now provide enhanced disclosure about how they consider collectability in determining revenues and bad debt expense, which will now be presented as a contra-revenue caption rather than as an operating expense.  In this industry, there are significant contract adjustments from standard rates when patients are covered by an insurance plan.  Net revenues do not include these contract adjustments.  There are also significant amounts of bad debts, especially for the portion that is the responsibility of the patient.  New disclosures will also require tables of activity of the allowance for doubtful accounts between third-party payers and self-pay amounts.

Testing Indefinite-Lived Intangibles

A new pronouncement allows companies to perform a qualitative assessment to determine if further impairment testing of indefinite-lived intangible assets is necessary, similar to the 2011 approach authorized for goodwill. 

Multiemployer Benefit Plans

New presentation and disclosure requirements for companies who participate in multiemployer benefit plans will also be effective for nonpublic companies for calendar 2012 reporting.  It significantly increases the quantitative and qualitative disclosures required by an employer whose employees participate in multiemployer benefit plans for pension or OPEB coverage, such as through a labor union.  Although the number of companies participating in such plans is believed to be small, the following example of just one of the required tabular disclosure elements gives you some idea of the complexity of this new standard:

We hope that you find these updates helpful. If you have any questions, please feel free to contact Pete Metzloff or Jim Suttie in our accounting and auditing department at 440-449-6800.

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