2. Amend paragraphs 954-430-25-1 and 954-430-35-4 and add paragraphs 954-430-25-1A through 25-1B, with a link to transition paragraph 954-430-65-1, as follows:

954-430-25-1 Under provisions of continuing-care contracts entered into by a continuing care retirement community and residents, nonrefundable advance fees represent payment for future services and shall be accounted for as deferred revenue. The estimated amount of advance fees that is expected to be refunded to current residents under the terms of the contracts shall be accounted for and reported as a liability. The remaining amount of refundable advance fees shall be accounted for as deferred revenue within the liability section of the balance sheet.

The portion of the fees that will be paid to current residents or their designees, only to the extent of the proceeds of reoccupancy of a contract holder's unit, shall be accounted for as deferred revenue, provided that legal and management policy and practice support the withholding of refunds under this condition. Similar amounts received from new residents in excess of the amount to be paid to previous residents or their designees also shall be deferred. See Section 954-605-05 for background on advance fees and reoccupancy clauses. See also Example 1 (paragraph 954-430-55-1).

[Content amended and moved to paragraphs 954-430-25-1A through 25-1B]

954-430-25-1A In situations where a contract between a continuing care retirement community and a resident stipulates that all or a

The

portion of the refundable advance fees

that

will be paid to current residents or their designees, only to the extent of the proceeds of reoccupancy of a contract holder's unit, that portion shall be accounted for as deferred revenue, provided that legal and management policy and practice support the withholding of refunds under this condition. Similar amounts received from

new

subsequent residents in excess of the amount to be paid to previous residents or their designees also shall be deferred. [Content amended as shown and moved from paragraph 954-430-25-1]

954-430-25-1B See Section 954-605-05 for background on advance fees and reoccupancy clauses. See also Example 1 (Section 954-430-55

paragraph

954-430-55-1). [Content amended as shown and moved from paragraph 954-430-25-1]

954-430-35-4 When a contract between a continuing care retirement community and a resident stipulates that all or a portion of the advance fee (see paragraph 954-430-25-1A) may be refundable if the contract holder's unit is reoccupied by another person and that the refund amount is limited to the extent of the proceeds of reoccupancy of a contract holder's unit, and if legal and management policy and practice support the withholding of refunds under this condition, the resulting deferred revenue shall be amortized to income over future periods based on the remaining useful life of the facility. The basis and method of amortization shall be consistent with the method for calculating depreciation.

3. Add paragraph 954-430-65-1 and its related heading as follows:

954-430-65-1 The following represents the transition and effective date information related to Accounting Standards Update No. 2012-01, Health Care Entities (Topic 954): Continuing Care Retirement Communities—Refundable Advance Fees:

4. Add paragraph 954-430-00-1 as follows:

Mr. Linsmeier dissents to the issuance of this Update for two reasons. First, he does not believe that the deferred revenue that is required to be recognized under this Update should be amortized to income over the useful life of the facility because that amortization period presumes that the continuing care retirement community will find new occupants for each unit throughout the life of the facility. He believes that there is more than a trivial risk that a new occupant will not be found to occupy vacated units and, therefore, believes the better accounting would be to amortize the deferred revenue relating to the advance fee paid by current occupant into income over the expected term of the current occupant's contract. Second, Mr. Linsmeier objects to the requirement that links the method for amortizing deferred revenue into income to the method for calculating depreciation. Mr. Linsmeier believes that revenue recognition has nothing to do with an entity's depreciation policy and, therefore, believes that an amortization method that is consistent with the pattern of how revenue is earned under the contract should be the required method for amortizing deferred revenue into income under this Update.

BC2. Many continuing care retirement communities have resident contracts that provide for payment of large advance fees. The extent to which advance fees are refundable varies depending on the contract. Generally, the refundable portion is accounted for and reported as a refund liability, while the nonrefundable portion of advance fees is accounted for as deferred revenue and amortized into income based on the estimated life of the resident or on the contract term, if shorter.

BC3. U.S. GAAP also provides specific guidance for advance fees that are refundable but only to the extent of the proceeds of reoccupancy of a contract holder's unit (that is, if the subsequent entrance fee received is lower, the refund is limited to that amount). Subtopic 954-430 indicates that the portion of the fees that will be paid to current residents or their designees, but only to the extent of the proceeds of reoccupancy of a contract holder's unit, should be accounted for as deferred revenue, provided that the legal environment and the entity's management policy and practice support the withholding of refunds under this condition. A number of continuing care retirement communities interpreted this guidance as stating that refundable advance fees can be accounted for as deferred revenue in all situations where payment of a refund is contingent upon receipt of an advance fee from the subsequent resident of that unit. The guidance in Subtopic 954-430, however, is intended to apply only to the subset of those situations in which all or a portion of the amount of the potential refund payable is limited to the proceeds from reoccupancy of that unit by a subsequent resident. The basis for this exception is that in this instance the continuing care retirement community is merely acting as an agent between the current resident and the subsequent resident and bears no risk associated with the refund.

BC4. The FASB learned of the diversity in practice after the AICPA exposed for public comment a working draft of an updated Audit and Accounting Guide for health care organizations in 2011. That working draft proposed clarifying the guidance about the recognition and subsequent measurement of refundable advance fees where refund amounts are contractually limited to the proceeds of reoccupancy received from the subsequent resident. The responses received by the AICPA indicated that the proposed clarifications were inconsistent with how the guidance was being interpreted. As a result, the FASB exposed the proposed amendments related to the recognition and subsequent measurement of refundable advance fees that are limited to the proceeds of reoccupancy by a subsequent resident in its October 2011 proposed Accounting Standards Update, Technical Corrections. Six comment letters were received that specifically addressed the continuing care retirement community proposed amendments.

BC5. Some Board members questioned the impact of the proposed amendments. Entities that have refundable advance fees that are not limited to the proceeds of reoccupancy would likely have a reclassification from deferred revenue to a refund liability, an increase in the refund liability, and a reduction to net assets and revenue for previously amortized deferred revenue. Such a reclassification also may trigger recognition of a liability associated with the obligation to provide future services. On an annual basis, a continuing care retirement community is required to evaluate whether the costs that are expected to be incurred to provide future services and the use of facilities to individuals over their remaining lives exceed the related anticipated revenues to determine whether a liability should be reported in the financial statements. The liability calculation includes the present value of future net cash flows, minus the balance of unamortized deferred revenue, plus depreciation of facilities to be charged related to contracts, plus unamortized costs of acquiring the related initial continuing-care contracts, if applicable. Therefore, the proposed amendments could have a direct impact on the obligation to provide future services calculation and whether a liability is recorded as a result.

BC6. Some Board members questioned the awareness of the proposed amendments within the October 2011 Technical Corrections Exposure Draft given the significance of the impact on continuing care retirement communities. The proposed amendments had been exposed by the AICPA before their exposure in the proposed Update on technical corrections. In addition, staff outreach indicated that a substantial portion of the continuing care retirement community industry was aware of the proposed amendments. However, to provide greater visibility to stakeholders the Board decided to finalize the proposed amendments in a separate Update.

BC7. In reviewing Subtopic 954-430, some Board members and staff members raised concerns about how deferred revenue is initially measured and the pattern of release into earnings. However, the majority of the Board does not view reconsideration of that issue as a technical correction, but rather, a reconsideration of revenue recognition, which is within the scope of the Board's active joint project with the IASB. Those Board members decided that any reconsideration of the revenue recognition for these contracts should be done within the context of the Boards' revenue recognition project, rather than to initiate a project to reconsider this narrow issue at this time.

BC8. The Board decided that the amendments in this Update should be effective for public entities for fiscal periods beginning after December 15, 2012.

BC9. The Board considered the amount of time that nonpublic entities would need to adopt the amendments in this Update, including the education cycle for many preparers and auditors of nonpublic entities, and decided that for those entities the amendments should be effective for fiscal periods beginning after December 15, 2013.

BC10. The Board decided that the amendments in this Update should be applied retrospectively by recording a cumulative-effect adjustment to retained earnings (or unrestricted net assets) as of the beginning of the earliest period presented. The Board concluded that this transition method will create better comparability of financial information of an entity across periods, noting that continuing care retirement communities should have the information readily available, since it would be needed if the Update was to be applied at the beginning of the period of adoption.

BC11. The Board decided to permit early adoption of the amendments in this Update to eliminate existing diversity as soon as practicable.

BC12. The objective of financial reporting is to provide information that is useful to present and potential investors, creditors, donors, and other capital market participants in making rational investment, credit, and similar resource allocation decisions. However, the benefits of providing information for that purpose should justify the related costs. Present and potential investors, creditors, donors, and other users of financial information benefit from improvements in financial reporting, while the costs to implement new guidance are borne primarily by present investors. The Board's assessment of the costs and benefits of issuing new guidance is unavoidably more qualitative than quantitative because there is no method to objectively measure the costs to implement new guidance or to quantify the value of improved information in financial statements.

BC13. The Board understands that some entities will incur incremental costs as a result of the amendments in this Update but those costs are not expected to be recurring. Those one-time incremental costs are expected to be associated with determining the amount of deferred revenue that should be reclassified to refund liability, the amount of revenue previously recognized related to that deferred revenue that must be reversed, and the impact to the calculation of the obligation to provide future services. The amendments will provide the benefit of eliminating diversity in practice by increasing the consistency of the treatment of refundable advance fees of continuing care retirement communities, which the Board believes justifies those costs.