'allowance--contractual adjustments' limited to healthcare? 2405

  • Please let me ask, are the requirements pertaining to an allowance for contractual adjustments limited to the healthcare industry??
    thanks, WW

  • Hi and welcome to the forums 🙂
    I believe the answer is ‘NO’, as SOX statutory guidelines are written at a generic high level covering a wide range of business types, (e.g., it rare to see specific language related to a requirement in the health care industry alone).
    As contractual adjustments or write-offs can impact the financial books for any company, the key would be to evaluate the frequency and ranges of adjustments (severity) in the context of risk management.
    If this represents a material risk for your company, then it should be a control that needs to assessed, strengthened, or periodically tested. The SOX external auditors may also help in assessing whether this risk needs special handling also.

  • harry’,
    thanks, for taking the time to reply and for the info.
    I think you’re correct but I had seen a generic, ie not authoritative, article which seemed to imply the requirement for an ‘allowance for contractual adjustment’ was limited to or intended for the healthcare industry. Subsequently, a google-type search indicated, sure enough, all the hits were in the healthcare industry. However, I couldn’t find a legal, regulatory, or authoritative cite. So I concluded the numerous google-hits were a function of the very nature of the healthcare industry: (a) they bill Social Security or other healthcare providers the full-invoice amount, knowing full well they will receive only partial reimbursement; and (b) bad-debt type accounts.
    It’s not a material risk for my employer–we’re in the defense electronics business. Hopefully that eliminates (b); and controls on our bidding/proposal processes should mitigate under-bidding.
    thanks again, WW

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