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Healthcare Services Advisory - FASB Clarifies Treatment of Refundable Advance Fees by Continuing Care Communities

Monday, August 13, 2012 - Ronald D. Finkelstein, CPA*/ABV & Alexander E. Binelo, CPA

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The Financial Accounting Standards Board (FASB) has clarified the accounting treatment of refundable advance fees by continuing care retirement communities with its issuance of Accounting Standards Update (ASU) No. 2012-01, Health Care Entities (Topic 954): Continuing Care Retirement Communities -- Refundable Advance Fees.

In its Update, issued on July 24, the FASB said there are only specific circumstances when those fees can be treated as deferred revenue, with amortization over an appropriate number of years.

The FASB stated that an entity should classify an advance fee as deferred revenue when a continuing care retirement community has a resident contract that provides for payment of the refundable advance fee upon reoccupancy by a subsequent resident, which is limited to the proceeds of reoccupancy.

The FASB added that refundable advance fees that are contingent upon reoccupancy by a subsequent resident but are not limited to the proceeds of reoccupancy should be accounted for and reported as a liability.

For public entities (including conduit bond obligors), the amendments in this Update are effective for fiscal periods beginning after December 15, 2012. For nonpublic entities, the amendments in this Update are effective for fiscal periods beginning after December 15, 2013. Early adoption is permitted.

If you would like additional information on the FASB’s Accounting Standards Update on the accounting treatment of refundable advance fees by continuing care retirement communities, do not hesitate to contact our Healthcare specialists or call us at 1-800-239-1474.