Acquisition Accounting for Not-for-Profit Systems Becoming More Taxing: Preparing for SFAS 164

Published by Becker’s Hospital Review

Passage of the Health Care Reform Act in March has caused a dramatic increase in merger and acquisition volume within the healthcare services market. Now that the bill has become law, not-for-profit hospitals have entered the marketplace looking for merger and acquisition targets. The level of acquisition activity is expected to continue to rise with the gradual implementation of health care reform. To add further complexity to the current operating environment, accounting for these mergers and acquisitions has recently become much more challenging for NFP hospitals.

What happened

The Financial Accounting Standard Board (FASB) released new accounting guidance for NFPs through the Statement of Financial Accounting Standards (SFAS) 164, Not-for-Profit Entities: Mergers and Acquisitions, which will significantly change the accounting procedures for NFP combinations. FASB believes that NFPs should be held to the same standard of disclosure as for-profit enterprises. According to the FASB, “The objective of this statement is to improve the relevance, representational faithfulness, and comparability of the information that a not-for-profit entity provides in its financial reports about a combination with one or more other not-for-profit entities, businesses, or nonprofit activities.” The additional regulations on NFP will resemble the existing rules for for-profit companies and increase the financial reporting burden for NFPs.

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