# ASC 405-954-25: Liabilities — Health Care Entities — 25 Recognition Source: FASB Accounting Standards Codification, Basic View [Read online](https://asc.understandingaccounting.org/asc/405/954/#25-recognition) Study and research edition. Verify current requirements with the official source. Summaries, enrichment, and tags are machine-generated study aids. Paragraph html preserves source markup; snippet is abbreviated. Pending content is not necessarily effective. Tables and mathematical or amendment markup are retained as HTML where Markdown would lose structure. Source downloaded (UTC): 2026-09-10T00:19:32.072Z to 2026-09-10T00:19:32.072Z Record version: sha256:c197dc615aca53f6b77ac0d63a367c4527f82a43fe68d20c4d767e34a4a0c812 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. ## ASC 405-954-25: 25 Recognition [Read section](https://asc.understandingaccounting.org/asc/405/954/#25-recognition) SEC content: no #### Health Care Contracting ##### [405-954-25-1](https://asc.understandingaccounting.org/asc/405/954/#405-954-25-1) Pending content: no Source downloaded (UTC): 2026-09-10T00:19:32.072Z to 2026-09-10T00:19:32.072Z Record version: sha256:755374ff53a0c6181d18e36a663db0047d87fccfabc7681f7f79240e8f380383 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. If a capitation contract obligates the provider to assume the risk of physician referrals and other outside services, a liability for unpaid claims, including incurred but not reported claims, shall be established. A lag analysis may be helpful in estimating the liability. #### Prepaid Health Care Services ##### [405-954-25-2](https://asc.understandingaccounting.org/asc/405/954/#405-954-25-2) Pending content: no Source downloaded (UTC): 2026-09-10T00:19:32.072Z to 2026-09-10T00:19:32.072Z Record version: sha256:31116dca1169688194c818c2b601eac983d0f3e3e7beb7c6f3a1c55e3e85f411 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. Health care costs shall be accrued as services are rendered, including estimates of the costs of services rendered but not yet reported. Furthermore, if a provider of [prepaid health care services](https://asc.understandingaccounting.org/glossary/p/#prepaid-health-care-services "Any form of health care service provided to a member in exchange for a scheduled payment (or payments) established before care is provided, regardless of the level of service subsequently provided.") is obligated to render services to specific members beyond the premium period due to provisions in the contract or regulatory requirements, the costs of such services to be incurred also shall be accrued currently. Costs that will be incurred after a contract is terminated, such as guaranteed salaries, rent, and depreciation, net of any anticipated revenues, shall be accrued when it is determined that a contract with a sponsoring employer or other group will be terminated. Amounts payable to hospitals, physicians, or other health care providers under risk-retention, bonus, or similar programs shall be accrued during the contract period based on relevant factors, such as experience to date. ##### [405-954-25-3](https://asc.understandingaccounting.org/asc/405/954/#405-954-25-3) Pending content: no Source downloaded (UTC): 2026-09-10T00:19:32.072Z to 2026-09-10T00:19:32.072Z Record version: sha256:555c27ae5c30831044b2d8c4d0e447839413f9d9b239b1b9e76505015a221d16 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. [Paragraph superseded by Accounting Standards Update No. 2014-09](https://asc.understandingaccounting.org/updates/asu-2014-09/). #### Medicare Settlement Agreements ##### [405-954-25-4](https://asc.understandingaccounting.org/asc/405/954/#405-954-25-4) Pending content: no Source downloaded (UTC): 2026-09-10T00:19:32.072Z to 2026-09-10T00:19:32.072Z Record version: sha256:17bab8c918ddf295f4a766d01e90e6c28602c7f87280ff575b80d76c9895add5 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. A number of health care entities have entered into settlement agreements with the U.S. government regarding allegations of Medicare fraud. In addition to the promise to pay specified penalties to the U.S. government, the settlement agreements impose an obligation on the health care entity to engage an independent review entity to test and report on compliance with Medicare requirements each year for the following five years. ##### [405-954-25-5](https://asc.understandingaccounting.org/asc/405/954/#405-954-25-5) Pending content: yes Source downloaded (UTC): 2026-09-10T00:19:32.072Z to 2026-09-10T00:19:32.072Z Record version: sha256:c5255df484c8fd1d60ffcb233c3fbad03e872535ab7aeff0f2c21f8ee0a594e0 Snapshot version: sha256:15aea8165dff9f5ae47d9484f8470588b13b307f56e1d50801bf4d85ec190e3f Effective as of: not established by retrieval timestamps. The settlement agreement represents a promise by a health care entity to perform future compliance audits and a duty or responsibility on which others are justified in relying is created by that promise. However, that promise creates a present duty or responsibility only if an obligating event has already occurred (the third characteristic of a liability; see paragraph 6 of FASB Concepts Statement No. 6, Elements of Financial Statements) that leaves the health care entity with little or no discretion to avoid the future transfer or use of assets. The obligating event for the costs of the future compliance audits is not entering into the agreement. Therefore, the entity shall not recognize a liability for the future Medicare compliance audits on the date the settlement is agreed to. Transition date:(P) December 16, 2024; (N) December 16, 2025Transition guidance: [105-10-65-9](https://asc.understandingaccounting.org/asc/105/10/#105-10-65-9)The settlement agreement represents a promise by a health care entity to perform future compliance audits and a duty or responsibility on which others are justified in relying is created by that promise. However, that promise creates a present duty or responsibility only if an obligating event has already occurred that leaves the health care entity with little or no discretion to avoid the future transfer or use of assets. The obligating event for the costs of the future compliance audits is not entering into the agreement. Therefore, the entity shall not recognize a liability for the future Medicare compliance audits on the date the settlement is agreed to.