Private companies likely to see delay in deadline for implementing new lease accounting rules.
The Financial Accounting Standards Board (FASB, the Board) has proposed a one-year delay in the effective date of ASU 842 Leases for non-public business entities, as defined in the standard. Affected businesses will be required to report lease transactions under the new rule for fiscal years beginning after December 15, 2020. Public business entities, as defined, are still required to adopt this standard for fiscal years beginning after December 15, 2018.
FASB’s rules require that their proposal be submitted for a 30 day public comment period before it is officially finalized, but no opposition is expected. A one-year delay is consistent with comments submitted previously by the American Institute of Public Accountants (AICPA).
FASB Notes Challenges and Costs of Transition
The Board discussed several challenges caused by rule changes that are magnified when a smaller business attempts to transition to a new standard, such as:
- Limited availability of resources needed to comply with a new rule,
- Limited options for training staff on how to apply the new standard,
- Short turnaround after implementation for large public companies results in limited public disclosure of problem areas and few SEC comment letters, and
- Insufficient lead time to assess software solutions and implement internal controls.
In the case of the lease accounting change, the new requirement that certain lease arrangement be recorded as an asset and corresponding liability has led to a scramble at many businesses to track down documentation of long-standing leases and related amendments.
Once all the documentation is located, the next hurdle is creating a system to manage the process going forward. Depending on the business, there seems to be a tipping point at about 30-40 leases where an in-house spreadsheet becomes unmanageable and a lease management solution from an outside vendor might be a more viable option.
No Time to Relax
The extra time may reduce the pressure on businesses that have been struggling to comply with the new rule, however we strongly advise that implementation is not set aside, but that businesses use this opportunity to continue momentum with reduced stress on your Company personnel.
Most businesses that start the transition process find that it is more complicated and time consuming than they expect. The delay offers a business time to gather the relevant documentation, ask questions about unusual circumstances that may arise, and evaluate software options if needed. A business that simply postpones work on implementation in response to the delay runs the risk of encountering the same problems in a year without any time to implement solutions.
Connect with a Freed Maxick Lease Accounting Specialist
For many private companies, compliance with the upcoming lease accounting standard will be a complex and onerous undertaking. It’s likely that some help will come in the form of a combination of software and advisory services offered by your CPA firm.
The time to start considering an action plan for compliance is now. For more information on how the new lease accounting standard could impact your business, contact Darren Jurewicz or Katy DeFilippo at 716.847.2651 for a complementary discussion of your situation and a road-map to compliance.
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After years of preparation and debate, On May 25th 2018, the European Union’s General Data Protection Regulation (“EU GDPR” or “GDPR”) will go into effect and be fully enforceable.
The law’s primary objective is to protect all EU citizens’ data and privacy, as well as promoting standardization of responsibilities of in scope data controllers and processors. The regulation does not seek to impede the free movement of information in an effort to not adversely affect the EU economy.
The EU GDPR replaces Data Protection Directive 95/46/EC. Prior to GDPR, each EU member state controlled implementation and enforcement of data protection laws. Key changes from the Directive include an increase to the territorial scope and the strengthening of the data subject’s rights.
The EU’s authoritative bodies designed and passed GDPR in an effort to harmonize enforcement across the union. Due to the GDPR’s status as a regulation, as opposed to a directive, member states no longer individually decide how to implement and enforce the law. Alternatively, the Regulation explicitly states how it must be implemented and enforced.
Major changes from the Directive to the GDPR, include an increase in the territorial scope of the law. In terms of material scope, the Regulation applies to:
‘the processing of personal data wholly or partly by automated means and to the processing other than by automated means of personal data which form part of a filing system or are intended to form part of a filing system.
This means the regulation applies to any processing of personal data of EU citizens, whether in an automated or manual fashion. By personal data, the law means any information relating to an identified or identifiable natural person. This data includes, but is not limited to:
- Identification numbers
- Location data
- Online identifiers, such as an IP address
- Physical, physiological, genetic, mental or any other health information
- Economic, cultural or the social identity of the natural person
The old Directive was only applicable to persons or entities located within the EU. However, one of the major changes of the GDPR is that the Regulation now applies to any person or entity that processes EU citizen data, regardless of the location of the person or entity.
The Regulation applies to entities outside of the Union if the processing of personal data is related to one of the following options:
- the offering of goods or services, irrespective of whether a payment of the data subject is required, to such data subjects in the Union; or
- the monitoring of their behaviour as far as their behaviour takes place within the Union.
If you, or your organization, are responsible for either the offering of goods and services or the monitoring of the behavior of EU citizens that involves the processing of their personal data, your organization will be subject to this Regulation.
Data Processing Principles
The Regulation requires that all processing of covered personal data follow established principles including:
- Lawfulness, fairness and transparency – the data is collected and processed only when the data subject has given appropriate consent, it is necessary for the performance of a contract, is necessary for compliance with a legal obligation, or is vital to protect the interests of the data subject or the public
- Purpose limitation – the information is collected solely for the purpose established and agreed upon by all parties
- Data minimization – limited to what is necessary to complete the agreed upon processing
- Accuracy – the data is ensured to be accurate, and where necessary, kept up to date
- Storage limitation – the data is kept no longer than what is necessary for the purpose for which the personal data is being processed
- Integrity and confidentiality – the data is processed in a manner that ensures appropriate security of the personal data
GDPR Impact on US Companies
Under GDPR, organizations are accountable for reporting their covered processing activities to the applicable authorities, as well as being able to demonstrate their compliance with the Regulation. To be GDPR compliant, organizations must provide evidence of:
- Data protection by design and by default
- The creation and maintenance of a record of processing activities
- Security of the processing
- Data protection impact assessments and prior consultation
- The establishment of a data protection officer
- Codes of conduct and certification
GDPR’s Severe Fines and Penalties for Non-compliance
So why is this important to US Businesses?
Outside of the desire to keep one’s customer’s personal data safe and private, US Businesses who are not compliant with this Regulation may face significant penalties: administrative fines up to 20 million Euros, or 4% of the total worldwide annual turnover of the preceding financial year, whichever is higher.
Freed Maxick Can Help Your US Business Become GDPR Compliant
Our team of privacy and security control experts will work with you and your organization to review your overall compliance with GDPR. By conducting a thorough examination of your organization’s privacy practices, we can help you navigate GDPR, identify weak areas in your current processes, and advise you on the most effective and efficient ways to achieve and maintain GDPR compliance.View full article
What does you Fair Lending compliance program look like and how will the regulators view it?
Regardless of size, regulators are turning up the heat on fair lending compliance requirements for financial institutions. In fact, even smaller institutions are now required to perform quarterly analysis on their lending data.
Seems a bit much but regulatory scrutiny of large banks is increasingly being applied to smaller institutions.
Most of us think of the Equal Credit Opportunity Act (ECOA) and Fair Housing Act (FHA) as the sum of air Lending requirements, but, there are many regulations associated with Fair Lending.
The number of Fair Lending enforcement actions and fines will continue to increase. Ask American Express Centurion and FSB, Fifth Third, Hudson City, Nationstar, Bancorp South, Hudson City, Toyota Motor Credit, Honda Finance, Provident Funding, National City and Synchrony about their experiences and they’ll tell you that regulatory oversight is active, aggressive and intrusive.
Is Your Fair Lending Program Compliant?
A critical factor for assessing your Fair Lending program’s compliance is your overall Compliance Management System (CMS), and whether it matches the size and complexity of your institution. These systems can go from simple spreadsheets to complex vendor software but if your CMS matches your institution’s size and complexity, you’ll likely be okay.
The hard part is figuring that out. There are three areas of compliance that deserve special attention: risk factors, responsibility for compliance, and training.
Fair Lending Compliance Risk Factors
Some of the biggest risk factors that will come under regulatory scrutiny are your institution’s lending policies, pricing variability (indirect lending), underwriting and marketing.
- Review your lending policy for anything that can be perceived as prejudicial such as minimum loan amounts (disparate treatment and overt discrimination). Disparate impact is more difficult to understand. There is no shortage of banks that have been accused of red-lining while not intentionally discriminating against a prohibitive class.
- Review your indirect lending program and understand your dealer footprint. The program review should include controls such as contracts that are clear on Fair Lending requirements, underwriting standards, pricing controls and training. Your organization should review indirect lending data from low to moderate income (LMI) tracts against loans outside of those areas for potential disparate impact to consumers.
- Distributed manual underwriting presents a significant risk as it will be more judgmental and contain process variance. Automated underwriting systems generally reduce risk in underwriting as they are truly impartial and they reduce process variance. It is critical that your institution’s automated programming is well tested and matches your policies and procedures.
- Marketing efforts, if not designed and published correctly, can be red flags to regulators and the public at large. This applies not only to advertising, but to your strategy, web presence, unsolicited mailings, targeted programs and branch promotions. All materials should be approved by the compliance department.
Fair Lending Compliance Responsibility
Who is responsible for compliance in your organization? Is it the compliance officer or does the tone from the top indicate that everybody (particularly senior management) is responsible for compliance?
Regulators will be now applying a Consumer Compliance (CC) Rating system to your Fair Lending compliance efforts going forward on a 1 – 5 scale (with 1 being the best). The critical factors in rating the CMS are Board and Management Oversight and Compliance Programs. FFIEC commentary indicates that there are carrots and sticks in this approach, but what can we reasonably expect? Are you performing self-assessments and self-reporting noted issues? This is supposed to be the carrot but it likely won’t matter if your overall program isn’t up to snuff or you have created harm to consumers.
A big component in your CMS should be addressing change management. If you are able to manage both regulatory change and process change that contemplates and addresses controls and regulatory requirements, you should be in pretty good shape. Strong project management together with an understanding of compliance is required.
Fair Lending Compliance Training
Fair Lending compliance training is a hot topic and training requirements are getting more and more comprehensive. Much like with Bank Secrecy Act requirements, institutions should be able to demonstrate that training materials are up to date and adequate, including differing and possibly more onerous State regulations.
Mostly everyone in the institution should be receiving Fair Lending training, but training for new hires is a must when they come on board and throughout their tenure with your institution. If new hires are customer-facing, or involved with lending in any way, training should happen within a reasonable time period after hire.
5 Questions That Will Help You Do a Fair Lending Compliance Self-Assessment
Before regulators cross your threshold again, here are a few questions that can help identify potential issues:
- Does your Fair Lending program reside in a silo or does it interface with HMDA and CRA?
- Is your Fair Lending policy a simple statement regarding compliance with FFIEC guidance or does it contain aspirational statements and more specific policy requirements regarding what your Fair Lending program will accomplish?
- Does your Fair Lending risk assessment include high level statements about markets and trends?
- Does your risk assessment contemplate your institution’s risk appetite or tolerance?
- Are you risk rating varying product types separately?
All of these things will affect how your examiner views your program and how your examination goes. Maintaining a strong CMS, including robust and thoughtful risk assessments and policies (and complying with them) can go a long way towards reducing your regulatory burden during a Fair Lending (or any other) compliance exam.
Freed Maxick Can Help You Evaluate and Remediate Your Fair Lending Compliance Program and Policies
For more information about our services for financial institutions, or for a quick assessment, connect with us HERE or call Sanath Rajapakse, Director (Partner) in Freed Maxick’s Enterprise Risk Management (ERM) practice at 716.847.2651 today.View full article
IRS Undermines a Family Limited Partnership
Author: Joe Aquino
Recently, the IRS celebrated another victory in its long-running campaign to challenge family limited partnerships (FLPs). In Estate of Lockett v. Commissioner, the agency attacked an FLP for being an invalid partnership under state law. Ultimately, however, it was the decedent’s estate planning that undermined the FLP, thus handing the IRS another win.
Widow takes ownership
Lois Lockett was predeceased by her husband, whose will established a trust for her benefit (Trust A). In 2000, as part of her estate planning, Lockett formed Mariposa Monarch, LLP under Arizona law. The partnership’s formal agreement, signed in 2002, named her sons Joseph and Robert as general partners. Lockett, the sons and Trust A were named as limited partners. At that point the parties hadn’t yet agreed on initial capital contributions or their percentage interests in Mariposa.
Shortly after the agreement was signed, Lockett and Trust A began funding Mariposa. Joseph and Robert never made any contributions. In 2003, Trust A was terminated, and Lockett became the owner of her limited partnership interest in the partnership. An amended agreement was executed to reflect this. The agreement continued to list the sons as Mariposa’s general partners, but an exhibit listed their mother as holding 100% of the partnership and each of the sons holding 0%.
When Lois Lockett died in 2004, Mariposa held assets worth more than $1 million. On its tax return, the estate valued Lockett’s 100% ownership interest in Mariposa at $667,000 after applying control and marketability discounts.
IRS raises state law
Initially, the IRS argued that Mariposa wasn’t a valid partnership under Arizona law. In that state, partnerships are defined as an association of two or more persons and are formed to operate a business for profit. The IRS contended that only Lockett contributed assets to Mariposa and that Mariposa wasn’t operated for profit.
Nevertheless, the court found that Mariposa was a valid partnership. Although the sons didn’t hold interests in it, Trust A contributed assets and was therefore a limited partner, satisfying the requirement of an association of two or more persons.
The court also found no requirement that an Arizona business engage in a certain level of economic activity. Moreover, it determined that Mariposa was operated to derive a profit. The partnership hired a financial advisor to manage its stock portfolio, purchased real estate that it leased and made loans requiring annual interest payments. It thus operated as a business for profit.
Trust termination found faulty
Unfortunately for the estate, the IRS had an alternative argument. Even though a valid partnership was formed, it had terminated at the time of Lockett’s death because she had acquired 100% of the interest in it. This occurred when Trust A was terminated in May 2003 (effective Dec. 31, 2002). At that point, Lockett had become the owner of Trust A’s limited partnership interest in Mariposa as well as being its sole partner.
Arizona law provides that a partnership is dissolved when a dissolution event previously agreed upon in the partnership agreement occurs. The Mariposa agreement established that the FLP would be dissolved when one partner acquired all of the other partners’ interests. So on Dec. 31, 2002, Mariposa dissolved and Lockett became the legal owner of its assets.
Many potential errors
Because the FLP had dissolved by the time of Lockett’s death, its assets were included in her gross taxable estate. If her sons had made contributions to fund their general partnership interests or she had gifted them with small interests in Mariposa, the FLP may well have withstood scrutiny and removed the assets from the estate.
Lockett’s mistakes were only a few of the many errors that can sabotage an FLP. To protect your clients from IRS attack, work with financial experts when drafting partnership agreements and making estate plans.
If you have any questions about FLPs or any other issue, give us a call at 716.847.2651, or you may contact us here.
By: Sandra DeSimone, CPA, Supervisor
The Single Audit Act was established in 1984 for the purpose of auditing States, local governments, and Indian Tribal governments that administered federal financial assistance programs. The Office of Management and Budget (OMB) issued OMB Circular 128, and later A-133 (for non-profit organizations) to offer implementation guidance.
What is the purpose of the reforms?
The proposed reforms of OMB Circular A-133 are designed to streamline the way the federal government administers the more than $600 billion in grants annually. These changes are designed to eliminate redundant requirements to achieve better outcomes at a lower cost. The two main areas affected by these changes are:
The threshold triggering a single-audit requirement is presently $500,000 in federal expenditures. This proposal would raise that threshold to $750,000.
There are now 14 compliance requirements that must be considered during a single audit; the proposal would reduce that number to only 6 requirements.
The OMB has stated that raising the threshold as proposed would not significantly change the overall coverage of single audit dollars being tested and would reduce the audit requirement for smaller organizations expending federal funds. Also, the OMB has received feedback from auditors that some of the 14 present requirements are rarely applicable, meaning that test work can be combined with other compliance requirements to make the audit process more effective and efficient.
If you would like to learn more about these or other OMB changes, feel free to contact Freed Maxick. Connect with our experts, or call us at 716-847-2651.
How Accurate are Corporate Earnings Reports?
Author: Tim McPoland
Researchers from Duke University and Emory University recently released surprising results of their study on the prevalence of corporate earnings “management.” As described in the report, “Earnings Quality: Evidence from the Field,” the researchers surveyed 169 CFOs of public companies and conducted in-depth interviews of 12 CFOs and two setters of accounting standards. Their report provides valuable insight into earnings manipulations that potentially could affect damages calculations and other legal matters.
Signs of quality
The report explains what constitutes high-quality earnings. According to the surveyed CFOs, a company’s earnings are “high quality” when they’re sustainable and backed by actual cash flows. Other, more-specific characteristics of quality include consistent reporting choices over time and avoidance of long-term estimates.
The study’s researchers indicate that this view of earnings quality is consistent with a valuation perspective because a company’s value is assessed by estimating and discounting the stream of future profits. Thus, current earnings should be considered high quality if they serve as a reliable guide to a company’s long-term profits.
What’s wrong with management?
For its part, earnings management is defined as manipulation that misrepresents performance but nonetheless falls within Generally Accepted Accounting Principles (GAAP). The CFOs estimated that, in any given period, roughly 20% of companies manage earnings, and that the typical misrepresentation was about 10% of reported earnings per share.
The study’s subjects believe that 60% of earnings management increases income, while 40% decreases income. While the latter figure may sound counterintuitive, the researchers attribute it to accounting practices such as “cookie jar reserves,” whereby, for example, a company records a discretionary expense in a period with high profits because it can afford to take the income hit.
“Big baths” is another accounting practice that could explain the 40% decrease. In that scenario, a company manipulates its income statement to make weak results appear even worse by, for example, shifting profits from a bad year forward to artificially enhance the following year’s earnings. Such manipulation produces a performance bonus.
Watch for red flags
Researchers asked the participants to list three red flags that would help detect earnings misrepresentations. The most commonly cited were:
- Earnings inconsistent with cash flows. More than 100 CFOs identified this or the similar “weak cash flows” and “earnings strength with deteriorating cash flows” as warning signs. The authors noted that the importance of the link between earnings and underlying cash flows was prominent throughout the study.
- Deviation from norms. Deviations from industry norms or experience registered 88 responses. Specific examples include disparity in financial statement items such as cash cycle, average profitability, revenue and investment growth, and asset impairments.
- Unusual accruals. Another red flag is “lots of accruals or unusual behavior in accruals,” including large jumps. The CFOs emphasized changes in accruals, as opposed to extreme levels of accruals.
With reported earnings playing a critical role in a variety of legal matters — from damages calculations to transaction prices — your clients can’t afford to take them at face value. A qualified financial expert can help detect managed earnings that misrepresent performance.
If you have any questions about reported earnings or any other forensic accounting issue, give us a call at 716.847.2651, or you may contact us here.
Court Determines the Gift Tax Exclusion Applies to FLP
Author: Ron Soluri Jr.
Recently, we discussed a case where the U.S. Tax Court held that gifts of interests in a family limited partnership (FLP) qualified for the federal annual gift tax exclusion. The decision in Estate of Wimmer v. Commissioner came as a surprise to some because, in three previous cases, the same court held that the exclusion didn’t apply to gifts of limited partnership interests.
Keeping it in the family
A married couple formed an FLP in 1996, funding it with publicly traded and dividend-paying stock. The FLP was established in part to restrict nonfamily rights to acquire family assets. The husband and wife made gifts of limited partnership interests in the FLP to various family members.
In 1996, the FLP began receiving quarterly dividends from the stock. To allow the limited partners to pay federal income tax, the FLP made distributions from 1996 through 1998. Beginning in 1999, the FLP continuously distributed all dividends — net of partnership expenses — to the partners when they were received. These were made in proportion to partnership interests. Limited partners were also given access to capital account withdrawals and they used such withdrawals for, among other things, paying portions of their residential mortgages.
After the husband died and his estate filed an estate tax return, the IRS returned a tax deficiency of $263,711. The estate asked the Tax Court to find that the gifts of limited partnership interests qualified for the annual gift tax exclusion.
Annual gift tax exclusions are available for “present interest gifts” only, not to gifts of future interests in property. As the court clarified, a gift in the form of a transfer of an equity interest in a business or property, such as limited partnership interests, isn’t necessarily a present interest gift.
To qualify as a present interest gift, the gift must confer on the recipient a substantial present economic benefit by reason of use, possession or enjoyment of either the property or income from the property. In this case the court decided that, because of the significant transfer restrictions in the FLP’s partnership agreement, the donees didn’t receive the rights to immediately use, possess or enjoy the limited partnership interests themselves.
However, the court found that the estate satisfied three requirements for income from the limited partnership interests to qualify the gifts of the interests as present interest gifts: 1) the partnership would generate income; 2) some portion of that income would flow steadily to the limited partners; and 3) that portion of income could readily be ascertained. The court concluded that the limited partners received a substantial present economic benefit.
Wimmer provides an example of the right way to administer an FLP. It’s possible to put restrictions — which often are used to create valuation discounts — on gifted limited partnership interests while still satisfying the requirements for the gifts to qualify for the annual gift tax exclusion. To ensure your clients’ FLP operating agreements walk this fine line, work with an experienced financial advisor.
If you have any questions about the gift tax exclusion or any other litigation support issue, give us a call at 716.847.2651, or you may contact us here.
Report Sheds Light on Fraud Perpetrators
Author: Adrienne Schreier
In its 2012 Report to the Nations on Occupational Fraud and Abuse, the Association of Certified Fraud Examiners (ACFE) estimates that the typical organization loses 5% of its revenues to occupational fraud every year. The median loss in the ACFE’s survey of almost 1,400 fraud cases was $140,000, and more than 20% of these cases resulted in losses of at least $1 million.
The numbers are alarming, as few companies can afford such losses. Perhaps more surprising are the ACFE’s findings related to fraud perpetrators. The employees behind such costly schemes aren’t your average criminals.
Tone at the top
Although it’s easy to place the blame for occupational fraud on lower-level employees, research tells another story: 42% of the perpetrators in the ACFE survey were nonmanagement, but 38% were managers and 18% were owners or executives.
And, in fact, the higher the thief’s position in the company, the more costly the fraud. Owners and executives were responsible for losses that were approximately three times higher than managers instigated. For their part, managers rang up losses about three times higher than regular employees caused. The ACFE attributes such statistics to the fact that those with more authority have greater access to their company’s assets. They’re also in a better position to override internal controls. Not surprisingly, the study also finds that the amount of fraud losses increases with perpetrators’ tenure and education — which typically are associated with higher positions and greater trust.
Other notable findings
Certain departments provide greater opportunities for fraud. Accounting, operations, sales, executive / upper management, customer service and purchasing areas together accounted for 77% of all cases.
Another important finding is that most occupational thieves aren’t career criminals. Of the 860 cases in the ACFE study (where information was available), only 6% involved a perpetrator who had previously been convicted of a fraud-related offense. And of 695 cases with information on the perpetrator’s employment history, 84% of them had never been punished or terminated by an employer for fraud.
Most fraud perpetrators turn to theft because they’re experiencing some type of pressure — at work, in their personal lives or both. The pressure could be financial — stemming from debt, addiction, gambling losses, poor investments, medical bills, divorce, or “keeping up with the Joneses.” Or pressure may come from supervisors with unreasonable performance goals or from company shareholders with high earnings expectations.
Frequently, occupational thieves are motivated by anger and dissatisfaction with their manager or the company’s leadership. Their anger may be fueled by a perception that management’s own ethics and integrity are lacking. In rare cases, perpetrators draw personal satisfaction from outsmarting their boss or the system.
The ACFE report makes several recommendations to employers that want to prevent fraud:
Set up fraud reporting mechanisms. Typically, this means a confidential tipline accessible to both internal and external sources. As in previous surveys, the ACFE report found that such tiplines were one of the most effective methods of catching occupational thieves.
Provide targeted fraud-awareness training. At a minimum, a qualified fraud expert should explain to employees and managers the actions that constitute fraud, how fraud harms everyone in the organization and how employees can safely voice their suspicions. ACFE research shows that organizations with antifraud training programs experience lower losses and schemes of shorter duration than those without.
Educate on the characteristics and behavior of fraud perpetrators. It’s important that managers and employees be able to spot red flags — and know how to report them.
No program can prevent all fraud, but following these tips should help you reduce its incidence in your organization. When you know how to detect fraud schemes, you can stop them quickly and thereby reduce overall losses. In addition, potential perpetrators may be more hesitant to steal if they know that management and co-workers are on the lookout for fraud and have the means to report it.
Don’t go it alone
A little knowledge about fraud can go a long way, but companies can get themselves in trouble by acting too hastily on mere suspicions. Encourage your clients to retain fraud experts who have experience performing thorough and comprehensive investigations.
If you have any questions about fraud perpetrators or any other issue, give us a call at 716.847.2651, or you may contact us here.
New Rule Includes Core Objectives for Hospitals
CMS has, at long last, released its final rule regarding Stage 2 of the Electronic Health Record (EHR) Incentive Program. These final regs address several key areas you should be aware of.
The final rule requires all hospitals to satisfy some 16 “core objectives” and three of six “menu objectives.” The new regs also replace and add other objectives. In Stage 1, for example, hospitals were required to fulfill 14 core objectives and five of 10 menu objectives. Some Stage 1 objectives were either eliminated or combined, but most of them have been finalized. Many require meaningful use by higher thresholds of the patient population, however.
Core objectives of “capability to exchange key clinical information” and “provide patients with an electronic copy of their health information” have now been replaced. The respective replacements are “transitions of care” (which requires the provision of a summary of care record for each referral or transition) and “electronic/online access” to patients’ health information within 36 hours of being discharged.
The final rule also adds a new core objective that requires that facilities “automatically track medications from order to administration using assistive technologies in conjunction with an electronic medication administration record (eMAR).”
And the rule adds these five new menu objectives:
- Record electronic notes in patient records.
- Offer access to imaging results available through Certified EHR Technology (CEHRT).
- Record patient family health history as structured data.
- Generate and transmit permissible discharge prescriptions electronically.
- Provide structured electronic lab results to ambulatory providers.
The sixth menu objective — which is to record whether a patient 65 years old or older has an advance directive — is a holdover from Stage 1.
Hospitals and CQMs
While the final rule removes clinical quality measure (CQM) reporting as a core objective, facilities must still report on CQMs to demonstrate meaningful use. And specifically, all facilities must report on 16 out of 29 CQMs, beginning in 2014.
Moreover, hospitals must select CQMs from at least three of six key health care policy domains as identified in the Department of Health and Human Services’ National Quality Strategy. The domains include:
- Patient and family engagement,
- Patient safety,
- Care coordination,
- Population and public health,
- Efficient use of health care resources, and
- Clinical processes/effectiveness.
Beginning in 2014, Medicare providers that are beyond the first year of demonstrating meaningful use must electronically report CQM data to CMS. Hospitals will provide reporting through the EHR Reporting Pilot infrastructure for hospitals or electronic submission of aggregate data through a CMS Portal.
Medicare payment adjustments are supposed to take effect in fiscal year 2015 (Oct. 1, 2014). Medicare hospitals that demonstrate meaningful use this year will avoid a 25% payment reduction that applies to the percentage increase to the inpatient prospective payment system (IPPS) reimbursement amount in 2015. A Medicare hospital that first demonstrates meaningful use in 2014 will avoid that penalty by registering and attesting to meaningful use by July 1, 2014. If the increase in the IPPS amount in 2015 is 2%, for example, a hospital failing to meet meaningful use would only receive a 1.5% increase (1 – 25% reduction = 75%; 75% × 2% IPPS increase = 1.5% increase for nonconforming hospital).
The final rule also lists three categories of hardship exceptions that facilities may apply for to avoid any payment adjustments: infrastructure, new eligible hospitals and unforeseen circumstances. In the first category, hospitals must demonstrate that they’re in an area without sufficient Internet access or face insurmountable barriers to obtaining infrastructure (for example, the lack of broadband).
The second category allows hospitals with new CMS Certification Numbers that would not have had time to become meaningful users to apply for a limited exception for one full-year cost reporting period. And the third category regards unforeseen circumstances, such as natural disasters.
Getting a jump on the deadline
The Stage 2 rule offers providers more time to meet the Stage 2 criteria than was originally laid out in the Stage 1 regs. Now, the earliest that hospitals must meet Stage 2 criteria is in fiscal year 2014. But savvy hospitals will likely take steps to get a jump on the deadline to avoid 2015 Medicare payment adjustments.
If you have any questions about the Stage 2 rule or any other issue pertaining to the rule change, give us a call at 716.847.2651, or you may contact us here.
With the ever-changing and complex regulatory environment, compliance with accounting for income taxes
(ASC 740), formerly known as FAS 109, has become more difficult for companies to manage efficiently. Companies must work hard to ensure that they minimize compliance related errors with the current tax laws and financial accounting and reporting standards.
In this two-hour LIVE webcast on May 17th, a panel of distinguished professionals assembled by The Knowledge Group will discuss the significant topics related to tax accounting rules and implementation of ASC 740. The faculty will discuss:
- Brief Overview of ASC 740 and Refresher in Current and Deferred Tax Computation
- Pertinent Accounting Principles and Tax Accounting Provisions
- Application of ASC 740 to State and International Income Taxes
- Hot Topics in Internal Controls
- Issues Relating to Compensation and Benefits Developments
- Best Practices and Practical Guidance for Tax Preparation, Compliance and Effectiveness
- Up-to-the-Minute Regulatory Updates
This is a must attend event for Finance Executives, CPAs, Attorneys, Enrolled Agents, Tax Practitioners, and other Interested Professionals. Attending this course will give you the tools you need to understand the latest developments in ASC-740.
Course Level: Intermediate
Method Of Presentation: Group-Based-Internet
Developer: The Knowledge Group, LLC
Recommended CLE/CPE Hours: 1.75 - 2.0
Advance Preparation: Print and review course materials
Course Code: 134416
$199 - $249 (Early Bird Discounted Rate - on or before 05/07/2013)
$299 - $349 (Regular Rate - registration after 05/07/2013)
$149 (Government / Nonprofit Rate)
(Please click here for details)
Featured Speakers for ASC 740: Income Tax Accounting for 2013 LIVE Webcast :
Douglas I Schwartz, LLC
Douglas I. Schwartz, CPA/CFF, Cr.FA
speaker bio »»
Freed Maxick CPAs, PC
Mark A. Stebbins, CPA
Director - Tax Practice Leader
speaker bio »»
Freed Maxick CPAs, PC
Samuel C. DiSalvo, CPA J.D.
speaker bio »»
Who Should Attend?
- Finance Executives
- Tax Attorneys
- Enrolled Agents
- Tax Practitioners
- Tax Directors
- Tax Managers/Executive
- Internal Audits
- Financial Planners and Executives
- Tax Consultants
- And Other Interested Professionals
This is a must attend event for anyone interested in understanding the related issues and changes to Income Tax Accounting (ASC 740). In this live virtual course, you will hear:
- Detailed guidance explained by the most qualified key leaders & experts
- Hear directly from experienced practitioners & thought leaders
- Interact directly with panel during Q&A
Advanced registration is recommended as space is limited. Please click the “Register” button below to enroll in this course today. Significant discounts apply for early registrants.