Accountants' Handbook Special Industries and Special Topics 10th Edition_11

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Accountants’ Handbook Special Industries and Special Topics 10th Edition_11 •34 48 FORMAT A— FORMAT B—UNCONSOLIDATED CONSOLIDATED PRESENTATION (STANDALONE ) PRESENTATION Note C. Contingencies Note C. Contingencies In addition to the general liability and malpractice insurance No disclosures related to medical malpractice would be in- carried by the individual physicians, GoodDocs is insured with cluded in the financial statements. The discussion of the busi- respect to general liability and medical malpractice risks on a ness contained in the Form 10-K filed by GoodDocs would claims-made basis. Management is not aware of any claims probably contain a statement similar to the following: against the company. In addition, GoodDocs has not accrued a “The provision of medical services by the physician group with loss for unreported incidents or for losses in excess of insur- which GoodDocs contracts entails an inherent risk of profes- ance coverage, as the amount, if any, cannot be reasonably sional liability claims. GoodDocs does not control the practice estimated and the probability of an adverse outcome cannot be of medicine by physicians or the compliance with certain determined at this time. It is the opinion of management that regulatory and other requirements directly applicable to physi- the ultimate resolution of any unasserted claims will not have a cians and physician groups.” material adverse effect on GoodDocs’ financial position or re- sults of operations. Exhibit 34.1 Continued. 34.4 SPECIAL ACCOUNTING PROBLEMS OF SPECIFIC TYPES OF PROVIDERS 34 49 •recently consummated, a significant management agreement generally are not required in an IPOfiling if the PPM does not consolidate the practice and does not guarantee any minimum practiceincome, extend unusual credit terms, or fund operating losses. However, if the PPM is expected to have a material dependence on the PC, separate financial in-formation about the practice would be material to investors. For example, if the management feefrom the practice is expected to generate more than 20% of the PPM’s revenues in the next 12months, the SEC has requested audited financial statements of the practice. However, the SEC hasaccepted only unaudited summary financial information about the practice for the three most recentfiscal years if audited financial statements are not readily available and its owners are not promotersof the offering being registered. Historical information about the practice for any period before its ownership by the current own-ers would not be requested unless the PPM is of the view that a change in an owner does not funda-mentally change the underlying business. If the owners of a practice generating 20% or more of thePPM’s revenues own 10% or more of the PPM at the time of its IPO or are promoters of the offering,audited financial statements of that practice for at least its most recent fiscal year ordinarily would berequired, unless effects of providing the management services to the practice have been included inthe PPM’s audited financial statements for at least nine months. If financial information of a man-aged practice is presented, care should be taken to avoid the impression that an investor is obtainingan interest in the practice or that the historical results are indicative of future results under the alteredincentive structure and management affiliates established with the PPM.Disclosure Issues. The SEC staff expects PPM registrants to clearly and accurately describetheir business and contractual relationships. Financial statement disclosures should address thefollowing: WHAT IS THE NATURE OF THE PPM’S BUSINESS? • Describe the contractual relationship among the PPM and the medical practices. Describe the PPM’s rights and limitations under the contracts. • Disclose how the PPM’s fees are determined. If the fees are based on a percentage of certain items, what are those percentages, or what is the range of the percentages? What items affect the calculation? • Even if the PPM combines the operations of the medical practice group for financial statement purposes or has consolidated subsidiaries that provide the medical services, the PPM must clearly distinguish the services it provides from the practice of medicine. WHAT IS THE PPM’S RELATIONSHIP WITH MANAGED CARE PROVIDERS? • Disclose whether the PPM (or an assignee) ent ...