The industry today largely adheres to Generally Accepted Accounting Principles (GAAP) as promulgated by the American Institute of Certified Public Accountants (AICPA) and codified by the Financial Accounting Standards Board. CCRC accounting is prescribed differently from that of other industries, which violates the consistency principle fundamental to sound accounting.
The prescribed accounting also departs from the matching principle. There is no requirement that revenue recognition be matched to the contractual and other obligations that the revenues are intended to fund. There is a need for a Statutory Accounting Standard so that financial provisions better ensure that CCRC promises made can be kept.
In addition to unmatched accounting valuation standards, accounting for certain “refund” liabilities is questionable. Some “refunds” at death or withdrawal are made contingent on a successor resident paying an Entrance Fee at least as great as the amount of the refund.
Current GAAP accounting allows funds subject to call as refund obligations to be taken into income which can leave the organization financially vulnerable and unable to meet its refund liabilities. The AICPA rationalization for this surprising practice is that:
“In those situations, the CCRC’s own funds will never be used to make the refunds to the prior resident; instead, the CCRC is effectively facilitating the transfer of cash between the successor resident and the prior resident.” (National Association of Insurance Commissioners Submission at #68).
The National Association of Insurance Commissioners prescribes Statutory Accounting Standards for insurance companies which can be readily adapted for CCRCs. Statutory Accounting…