GASB Accounting and Financial Reporting Issues Related to the CARES Act

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On Thursday, June 11th the Governmental Accounting Standards Board (GASB) issued a proposed technical bulletin to clarify accounting and financial reporting issues related to the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) of 2020 and Coronavirus Disease.  There is a 15 day comment period with an immediate effective date upon final issuance.

The following questions are addressed in the proposed technical bulletin.

  1. Are resources from the Provider Relief Fund (HHS) used to address governmental healthcare entities’ loss of revenue considered an eligibility requirement for purposes of revenue recognition?   Because loss of revenue is not an expenditure, consideration should be given to whether the provision of resources for loss of revenue includes eligibility requirements (affects timing of revenue recognition) or purpose restrictions (doesn’t affect timing of revenue recognition).  The governmental healthcare entity’s primary actions were to comply with stay-at-home orders and to slow the spread of the virus by modifying services, including cancellations of elective procedures.  Those actions resulted in a loss of revenue and satisfies the contingency eligibility requirement of a voluntary nonexchange transaction.  See further insight and considerations below.
  2. Should resources from the Provider Relief Fund (HHS) to a business-type activity or enterprise fund be reported as nonoperating revenues? Yes, except for “fee for service” payments (such as the Uninsured Program that constitute payments for care or treatment of uninsured individuals and testing for COVID-19).  Provider Relief Fund resources support specific activities and reimburse allowable costs, which result in subsidies rather than payment for services.  These subsidies should be reported as nonoperating revenues.  See further insight and considerations below.
  3. If a governmental entity received a forgivable Paycheck Protection Program (PPP) loan and determines that the loan will be forgiven in a subsequent reporting period based on compliance with the program requirements, should the entity continue to report the loan as a liability at the end of the reporting period?   The PPP loans have been identified as liabilities and should be reported as a liability until legally released from the debt.  See further insight and considerations below.
  4. Should expenses (such as unplanned costs) incurred in response to the coronavirus disease be reported as extraordinary or special items?   It is reasonable to expect the coronavirus disease to recur in the foreseeable future and the disease is not within management’s control.

The proposed technical bulletin also clarifies that amendments to the CARES Act enacted after the balance sheet date do not represent conditions that existed as of the period-end date being reported, and therefore should be considered nonrecognized subsequent events.  For example, if legislation enacted after the balance sheet date retroactively removed eligibility requirements, the financial statements would not reflect those changes.  The amounts recognized in the financial statements should be consistent with the CARES Act as of the balance sheet date.

A complete copy of GASB’s Proposed Technical Bulletin can be accessed by clicking here.

CARES Act Provider Relief Fund further insight and considerations:  GASB Statement No. 33, Nonexchange Transactions, provides guidance for governmental entities as it relates to transactions in which the entity receives value without directly giving equal value in exchange.  Nonexchange transactions include derived tax revenues, imposed nonexchange revenues, government-mandated nonexchange transactions, and voluntary nonexchange transactions.  Providers of resources in government-mandated and voluntary nonexchange transactions frequently establish purpose restrictions and eligibility requirements.  Purpose restrictions and completion of purely routine requirements (for example, filing of periodic progress reports) do not affect the timing of recognition for nonexchange transactions.  Eligibility requirements are conditions established by enabling legislation or the provider that are required to be met before a transaction (other than the provision of cash in advance) can occur.  Eligibility requirements (specified by the provider) can include one or more of the following:

  1. Required characteristics of recipients – characteristics (for example, healthcare provider)
  2. Time requirements – period when resources are required to be used, use is first permitted, or resources are being maintained intact
  3. Reimbursements – “expenditure-driven” basis for allowable costs
  4. Contingencies – contingent upon a specified action occurring

Recipients of government-mandated and voluntary nonexchange transactions should only recognize receivables and revenues when all applicable eligibility requirements are met.  Advance payments to a recipient, with unmet eligibility requirements, are reported as a liability (unearned revenue).  When the only remaining eligibility requirement is time, the recipient no longer has a present obligation to sacrifice resources and the advance payments no longer meet the definition of a liability (unearned revenue).  As such, these advance payments are reported as deferred inflows of resources (DIR).

The following is an example of general ledger transactions associated with receipt and recognition of HHS Provider Relief Fund payments.

  1. Receipt of HHS Provider Relief Fund advance payments for current operations:
    Debit – Current Restricted Cash (Asset)
    Credit – Unearned Revenue (Liability)
  1. Fulfilment of all applicable eligibility requirements, other than time requirement:
    Debit – Unearned Revenue (Liability)
    Credit – CARES Act Provider Relief Fund (DIR)
  1. Fulfilment of time eligibility requirement:
    Debit – CARES Act Provider Relief Fund (DIR)
    Credit – CARES Act Provider Relief Fund grant (Nonoperating Revenue)

Healthcare entities will need to evaluate the HHS Provider Relief Fund “terms and conditions” to ensure any and all eligibility requirements are met before revenue is recognized.  Certain reports are also required to be submitted to demonstrate compliance.  We recommend establishing separate general ledger accounts to accurately track payments received to ensure appropriate and complete compliance reporting and financial statement disclosure.  We also recommend capturing data that supports lost revenues and eligible expenditures to validate the healthcare entity’s need and adherence with HHS Provider Relief Fund conditions.  Accurate and complete documentation of Provider Relief Funds will also be very important as these Federal Expenditures may trigger Office of Management and Budget (OMB) Single Audit Act requirements.

CARES Act Uninsured Program further insight and considerations:  Governments that engage in business-type activities resemble private-sector businesses because there is an exchange relationship between the provider and the consumer.  There is often a direct relationship between the charge and the service, termed an “exchange relationship” and a user fee is charged for a specific service provided.  The exchange between parties should be identifiable with essentially equal values.  Both parties are affected in equal but opposite ways by the transfer of value from one party to the other.  For a hospital authority, the exchange transactions associated with providing health care services to patients are the entity’s principal activity and are reported as operating revenues.  The CARES Act Uninsured Program constitute payments for care or treatment of uninsured individuals and testing for COVID-19.  The government is acting as a third-party payer (i.e., making payments on behalf of specific individuals whose health care services they agree to cover), and accordingly the payments would be reported as patient service revenue.

The following is an example of general ledger transactions associated with receipt and recognition of Uninsured Program COVID-19 patient fee for service payments.

  1. Record patient services for uninsured COVID-19 patients:
    Debit – Patient Accounts Receivable, Net (Asset)
    Credit – Net Patient Service Revenue (Operating Revenue)
  1. Receipt of claims reimbursement for services of uninsured COVID-19 patients:
    Debit – Current Cash (Asset)
    Credit – Patient Accounts Receivable, Net (Asset)

CARES Act Paycheck Protection Program (PPP) loan further insight and considerations:  The CARES Act included the PPP which authorized the Small Business Administration (SBA) to guarantee loans that can be forgiven if certain conditions are satisfied.  The forgivable loans are made to eligible recipients by eligible financial institutions.  Given the SBA guarantee, the guidance in GASB Statement No. 70, Nonexchange Financial Guarantees, establishes that revenue is recognized when the governmental entity is legally released as an obligor from the debt and from any liability to the guarantor.

The following is an example of general ledger transactions associated with receipt and forgiveness recognition of a PPP loan.

  1. Receipt of PPP loan (debt issuance costs are expensed as incurred and loan interest should be accrued):
    Debit – Current Restricted Cash (Asset)
    Credit – Note Payable (report current separate from long-term) (Liability)
    Debit – Interest Expense (includes any debt issuance costs) (Nonoperating Expense)
    Credit – Accrued Interest Payable (Liability)
  1. Legal release (defeasance) of debt:
    Debit – Note Payable (report current separate from long-term) (Liability)
    Debit – Accrued Interest Payable (Liability)
    Credit – Discharge of PPP Loan/Gain on Extinguishment (Nonoperating Revenue)

Regulations for the PPP program are being updated on a continuous basis.  It is imperative borrowers consult the SBA website daily for Q&As and guidance as they determine forgiveness eligibility and submission of the forgiveness application.

In conclusion: The CARES Act provides many different funding mechanisms for governmental healthcare entities.  It is important to evaluate each transaction under current accounting and financial reporting guidance to ensure proper recognition.

At Draffin & Tucker, LLP we are committed to providing our clients with the latest information related to COVID-19.  Please do not hesitate to contact us with any questions or concerns.  Visit our COVID-19 webpage for more information and updates (

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