I Am Requesting The Following Case Problems Done

I Am Requesting The Following Case Problems Done Following The Steps O

I am requesting the following case problems be completed following the prescribed five-step accounting research process: 1) Identify the issue(s); 2) Collect the evidence; 3) Analyze and evaluate alternatives; 4) Develop a conclusion; 5) Communicate results and document the findings. The deadline for submission is July 14th by 5:30 pm Eastern time.

The specific cases are as follows:

1. Mount Pleasant Epilepsy Association is a not-for-profit organization. Its Chair, Joseph Howard, also owns Howard Insurance Company. The Association rents its facilities from Howard Insurance at $10 per square foot monthly, well below the city’s average market rate of $14. No formal rental agreement exists, and the rent has remained unchanged for five years. Howard has hinted at the possibility of future rent increases or relocation. The question is whether the Association should disclose this situation in its financial statements.

2. Oakland County Hospital serves many Medicare and Medicaid patients, resulting in reimbursements and profits. It conducts transactions with related subsidiaries, such as pharmacy, nursing, and anesthesiology units, which sometimes participate jointly in procedures leading to Medicare and Medicaid profits. The issue involves whether, when preparing consolidated financial statements, the Hospital should eliminate gains from these intra-group transactions—especially considering their regulated nature and related-party dealings.

Paper For Above instruction

Introduction

Financial reporting and disclosure are critical for providing transparent and accurate information to stakeholders, especially in complex scenarios involving related-party transactions and nonprofit organizations. This paper explores two case problems—one concerning a not-for-profit organization with related-party rental arrangements and another involving a healthcare provider with intra-group transactions affecting Medicare and Medicaid reimbursements. The analysis applies the five-step accounting research process to evaluate the issues, alternatives, and appropriate disclosures.

Case 1: Mount Pleasant Epilepsy Association and Related-Party Rental Arrangements

The first case involves the Mount Pleasant Epilepsy Association, a nonprofit entity renting space from Howard Insurance Company, owned by the Chair of its Board, Joseph Howard. The fundamental issue centers on whether the Association should disclose the nature of the rental arrangement, given that the rent is below market value and no formal lease agreement exists.

Step 1: Identify the issue

The primary issue is whether the Association needs to disclose related-party transactions and the potential for future rent increases, considering the absence of a formal lease and the below-market rent rate. This issue also encompasses whether such disclosures are required to comply with generally accepted accounting principles (GAAP) for nonprofit entities.

Step 2: Collect evidence

Evidence includes the rental rate history, market rates, the lack of a formal lease, the relationship between the Association and Howard Insurance, and relevant accounting standards (Financial Accounting Standards Board [FASB] ASC 958-205 on nonprofit financial statements and FASB ASC 850 on related-party disclosures).

Step 3: Analyze and evaluate alternatives

The alternatives include: (a) not disclosing the related-party arrangement as it might not meet the recognition threshold; (b) disclosing the relationship and the below-market rate, along with the potential for future rent changes, as required by GAAP; or (c) providing extensive disclosures about the possible future rent increases and the absence of a formal agreement.

Most accounting standards advocate transparent disclosure of related-party transactions to prevent misleading financial statement users. Since the rent is significantly below market value and no formal agreement exists, full disclosure adhering to FASB ASC 850 is appropriate, highlighting the related-party nature and the potential future rent change risks.

Step 4: Develop conclusion

The Association should disclose the related-party transaction, the rental arrangement's below-market rate, and the lack of a formal lease agreement. It should also note the hinted future rent increase or possible relocation, ensuring transparency and compliance with FASB standards.

Step 5: Communicate results

The final financial statements should include notes disclosing the relationship with Howard Insurance, the rental terms, market comparison, and potential future changes. Such disclosures support transparency, inform stakeholders, and mitigate potential perception of conflicts of interest.

Case 2: Oakland County Hospital and Intra-Group Medicare and Medicaid Transactions

The second case addresses whether the Hospital should eliminate gains from intra-group transactions involving Medicare and Medicaid reimbursements, especially those involving related subsidiaries participating jointly in procedures and generating profits.

Step 1: Identify the issue

The core issue is whether intra-group transactions that generate profits should be eliminated in the consolidated financial statements, considering that these dealings involve regulated activities with government payers and related subsidiaries.

Step 2: Collect evidence

Evidence includes relevant accounting standards (FASB ASC 810 on consolidations and ASC 958 on not-for-profit entities), regulations governing Medicare and Medicaid reimbursements, and the nature of intra-group profits and transactions within the hospital organization.

Step 3: Analyze and evaluate alternatives

The options are: (a) eliminate gains resulting from intra-group transactions to prevent double-counting and overstatement of income; (b) recognize profits as part of the consolidated entity, justified by the benefits of integrated provision of services; or (c) apply a case-by-case approach, considering the purpose of consolidation and regulatory implications.

Accounting literature, including FASB ASC 810-10 and relevant guidance, emphasizes that intra-group profits should typically be eliminated in consolidation to reflect the economic reality that such profits are not realized from external third-party transactions. This aligns with the principle of presenting the consolidation as a single economic entity, free of intra-group gains that do not represent external revenue.

Step 4: Develop conclusion

The Hospital should eliminate gains on intra-group Medicare and Medicaid transactions when preparing consolidated financial statements. Doing so ensures compliance with GAAP and present a true and fair view of the Hospital's financial position and operations, aligning with financial reporting standards and regulatory expectations.

Step 5: Communicate results

The consolidating statements should clearly reflect the elimination of intra-group profits, particularly those arising from joint participation in Medicare and Medicaid activities. Disclosures should also note the rationale for eliminations and the treatment of related-party transactions concerning government reimbursements.

Conclusion

Transparent disclosure of related-party arrangements and intra-group transactions is essential for accurate financial reporting, especially within nonprofit organizations and hospitals subject to complex regulations. Applying established accounting standards, such as those from FASB, ensures that organizations present their financial position accurately and provide stakeholders with relevant information. In the first case, proper disclosures about the rental arrangement prevent potential conflicts of interest, whereas, in the hospital scenario, eliminating intra-group profits aligns with the principles of consolidation and regulatory compliance.

References

  • Financial Accounting Standards Board (FASB). (2020). FASB Accounting Standards Codification® (ASC) 958-205, Not-for-Profit Entities—Presentation of Financial Statements.
  • Financial Accounting Standards Board (FASB). (2020). FASB ASC 850, Related Party Disclosures.
  • Financial Accounting Standards Board (FASB). (2020). FASB ASC 810, Consolidation.
  • Lee, T. A. (2018). Financial Reporting by Not-for-Profit Entities. Accounting Review, 93(3), 57-85.
  • Miller, D. (2016). Accounting for Related-Party Transactions. Journal of Accountancy, 222(4), 48-52.
  • Schwarz, A. (2019). Revenue Recognition and Intra-Entity Transactions in Healthcare. Healthcare Financial Management, 73(2), 25-33.
  • United States Government Accountability Office (GAO). (2017). Guidance on Federal Reimbursements and Compliance. GAO-17-113.
  • American Institute of Certified Public Accountants (AICPA). (2018). Audit and Accounting Guide: Not-for-Profit Entities.
  • Hospital Financial Management Association. (2019). Regulatory Impacts on Hospital Consolidation and Profit Recognition.
  • Wallace, R. S. (2020). Disclosures of Related-Party Transactions: Best Practices and Regulatory Requirements. Journal of Financial Reporting, 32(1), 10-22.

Related Assignments