Welcome To. Cecil Patterson, Jr., CPA

Transcription

1 Welcome To CIRA A & A Update Cecil Patterson, Jr., CPA Patterson & Associates, P. A. Post Office Box 2229 Ponte Vedra Beach, FL (904) Fax (904) pat@pattersoncpafirm.com

2 Background information Local CPA firm Audits Reviews Compilations Tax preparation Consultation Objectives Understanding professional standards and industry practices of CIRAs FASB Update Audit Update

3 GAAP Peer review standards ETHICS GAAP OCBOA (not GAAP) audit review State laws Quality control standards compilations IFRS Unusual Problems Common property Capitalization policy Disclosures to financials Fiduciary responsibilities Budgets

4 Professional A & A Standards Code of Professional Conduct - (Ethics) (ET) Accounting Standards (US GAAP or ASC) Auditing - United States (AU) Accounting and Review Services - SSARS (AR) Attestation Engagements (AT) Quality Control (QC) Peer Review (PR) International Standards Other Professional Standards Ethics (as applies) (ET) Tax Services (TS) Personal Financial Planning (PFP) Valuation Services (VS) Consulting Services (CS) Bylaws (BL) Continuing Professional Education (CPE ) International (as applies)

5 AICPA Code of Professional Conduct The Code of Professional Conduct was adopted by the membership to provide guidance and rules to all members - those in public practice, in industry, in government, and in education - in the performance of their professional responsibilities. (Intro. to Code) CIRA Guide Current professional standards apply Single most authoritative source of GAAP is the Accounting Standards Codification (ASC) from the FASB. The ASC replaces the CIRA Guide for GAAP. Most authoritative source of Generally Accepted Auditing Standards (GAAS) is the AICPA s CIRA Guide, Audits of Common Interest Realty Associations.

6 CIRA Accounting Standards Update FASB Concepts The more things change, the more they remain the same. (Jean Baptiste Alphonse Karr book "plus ça change, plus c'est la même chose )

7 FASB Concepts Materiality Misstatement Measurement Performance measurement Disclosure Form and content Basis of Accounting Applies to all financial statements Accounting Standards Codification Materiality A Key Concept What is it?

8 Definition of Materiality Magnitude of an omission or misstatement of accounting information that, in the light of surrounding circumstances, makes it probable that the judgment of a reasonable person relying on the information would change or be influenced. Defined by FASB Statement of Financial Accounting Concepts No. 2, Qualitative Characteristics of Accounting Information Materiality In terms of Audit Standards (the Audit Standards and the FASB Standards are connected)

9 AU Section Materiality in the Context of an Audit The auditor's consideration of materiality is a matter of professional judgment and is influenced by the auditor s perception of the needs of users of financial statements. AU Section (cont) The perceived needs of users are recognized in the discussion of materiality in Financial Accounting Standards Board (FASB) Statement of Financial Accounting Concepts No. 2, Qualitative Characteristics of Accounting Information, which defines materiality as

10 AU Section (cont) the magnitude of an omission or misstatement of accounting information that, in the light of surrounding circumstances, makes it probable that the judgment of a reasonable person relying on the information would have been changed or influenced by the omission or misstatement." (Emphasis mine) That discussion recognizes that materiality judgments are made in light of surrounding circumstances and necessarily involve both quantitative and qualitative considerations. Users AU Section In an audit of financial statements, the auditor s judgment as to matters that are material to users of financial statements is based on consideration of the needs of users as a group; the auditor does not consider the possible effect of misstatements on specific individual users, whose needs may vary widely.

11 AU Section The evaluation of whether a misstatement could influence economic decisions of users, and therefore be material, involves consideration of the characteristics of those users. AU Section (cont) Users are assumed to: a. Have an appropriate knowledge of business and economic activities and accounting and a willingness to study the information in the financial statements with an appropriate diligence; b. Understand that financial statements are prepared and audited to levels of materiality;

12 AU Section (cont) c. Recognize the uncertainties inherent in the measurement of amounts based on the use of estimates, judgment, and the consideration of future events; and d. Make appropriate economic decisions on the basis of the information in the financial statements. AU Section (cont) The determination of materiality, therefore, takes into account how users with such characteristics could reasonably be expected to be influenced in making economic decisions

13 Materiality Materiality has been defined in FASB, AICPA, SEC, and PCAOB documents. So what s the problem? Materiality (cont) There is no authoritative formulation of materiality in the law or accounting literature! May be quite small numerically Must be considered quantitatively and qualitatively

14 Misstatements Misstatement Simply put What is GAAP vs. what is in or on the financials and notes. If there is a difference then there is a misstatement. At this point, materiality comes back into play.

15 .07 Nature and Causes of Misstatements The representation in the auditor's standard report regarding fair presentation, in all material respects, in conformity with generally accepted accounting principles indicates the auditor's belief that the financial statements, taken as a whole, are not materially misstated. (Emphasis mine) Nature and Causes of Misstatements (cont) Misstatements can result from errors or fraud and may consist of any of the following: a. An inaccuracy in gathering or processing data from which financial statements are prepared b. A difference between the amount, classification, or presentation of a reported financial statement element, account, or item and the amount, classification, or presentation that would have been reported under generally accepted accounting principles c. The omission of a financial statement element, account, or item

16 Nature and Causes of Misstatements (cont) d. A financial statement disclosure that is not presented in conformity with generally accepted accounting principles e. The omission of information required to be disclosed in conformity with generally accepted accounting principles f. An incorrect accounting estimate arising, for example, from an oversight or misinterpretation of facts; and g. Management s judgments concerning an accounting estimate or the selection or application of accounting policies that the auditor may consider unreasonable or inappropriate..08 Nature and Causes of Misstatements (cont) Misstatements may be of two types: known and likely, defined as follows: a. Known misstatements. These are specific misstatements identified during the audit arising from the incorrect selection or misapplication of accounting principles or misstatements of facts identified, including, for example, those arising from mistakes in gathering or processing data and the overlooking or misinterpretation of facts.

17 Nature and Causes of Misstatements (cont) b. Likely misstatements. These are misstatements that: i. Arise from differences between management s and the auditor s judgments concerning accounting estimates that the auditor considers unreasonable or inappropriate (for example, because an estimate included in the financial statements by management is outside of the range of reasonable outcomes the auditor has determined). ii. The auditor considers likely to exist based on an extrapolation from audit evidence obtained (for example, the amount obtained by projecting known misstatements identified in an audit sample to the entire population from which the sample was drawn)..09 Nature and Causes of Misstatements (cont) The term errors refers to unintentional misstatements of amounts or disclosures in financial statements. The term fraud refers to an intentional act by one or more individuals among management, those charged with governance, employees, or third parties, involving the use of deception to obtain an unjust or illegal advantage.

18 Nature and Causes of Misstatements (cont) Two types of misstatements resulting from fraud are relevant to the auditor's consideration in a financial statement audit: misstatements arising from fraudulent financial reporting and misstatements arising from misappropriation of assets. These two types of misstatements are further described in section 316, Consideration of Fraud in a Financial Statement Audit. Nature and Causes of Misstatements (cont).10 Although the auditor has no responsibility to plan and perform the audit to detect immaterial misstatements, there is a distinction in the auditor's response to detected misstatements depending on whether those misstatements are caused by error or fraud. When the auditor encounters evidence of potential fraud, regardless of its materiality, the auditor should consider the implications for the integrity of management or employees and the possible effect on other aspects of the audit.

19 Measurement What measurement? Historical Cost? Fair value? Other value?

20 FV in ASC Master Glossary Fair Value The amount at which an asset (or liability) could be bought (or incurred) or sold (or settled) in a current transaction between willing parties, that is, other than in a forced or liquidation sale. GAAP CODIFICATION PROJECT This project replaces all existing GAAP. It will eliminate the GAAP Hierarchy that existed in favor of only one status authoritative. The Financial Accounting Standards Board (FASB) has released in early 2008 the FASB Accounting Standards Codification (Codification) for verification by constituents. During the approximate one-year verification period, the FASB has made the Codification available through a new web-based research system to solicit feedback from constituents to confirm that the Codification accurately reflects existing U.S. generally accepted accounting principles (GAAP) for nongovernmental entities.

21 GAAP CODIFICATION PROJECT (cont) The goal of the Codification is to: Simplify the organization of thousands of authoritative U.S. accounting pronouncements issued by multiple standard-setters. GAAP CODIFICATION PROJECT (cont) The Codification does not change GAAP; instead, it introduces a new structure-one that is organized in an easily accessible, user-friendly online research system. The FASB expects that the new structure and new system will accomplish the following: Reduce the amount of time and effort required to solve an accounting research issue. Mitigate the risk of noncompliance with standards through improved usability of the literature.

22 GAAP CODIFICATION PROJECT (cont) Provide accurate information with real-time updates as new standards are released. Assist the FASB with the research and convergence efforts required during the standard-setting process. Become the authoritative source of literature for the completed XBRL taxonomy. Make clear that guidance not contained in the Codification is not considered to be authoritative. GAAP CODIFICATION PROJECT (cont) In an effort to encourage constituents to submit feedback about the Codification, the FASB will provide free online access to the FASB Accounting Standards Codification research system for the one-year verification period. The system will include features specifically designed for the Codification. During the verification period, constituents will be able to review the content and provide comments using a customized electronic feedback feature. After addressing issues raised during the constituent feedback process, the FASB expects to approve the Codification as the single authoritative source of GAAP in early 2009, superseding existing FASB, AICPA, EITF, and related literature. At that time, only one level of authoritative GAAP will exist. All other literature will be nonauthoritative.

23 Pending Content 1-9 Proposed Accounting Standards Updates are included in the FASB ASC until they become effective Effective date paragraph is referenced Accounting Standards Updates 2009 No Topic 105 Generally Accepted Accounting Principles No Omnibus Update - Amendments to Various Topics for Technical Corrections No SEC Update - Amendments to Various Topics Containing SEC Staff Accounting Bulletins No Accounting for Redeemable Equity Instruments - Amendment to Section S99 No Fair Value Measurements and Disclosures (Topic 820) - Measuring Liabilities at Fair Value

24 ASUs 2009 No Income Taxes (Topic 740) - Implementation Guidance on Accounting for Uncertainty in Income Taxes and Disclosure Amendments for Nonpublic Entities No Accounting for Various Topics - Technical Corrections to SEC Paragraphs No Earnings Per Share - Amendments to Section S99 No Accounting for Investments Equity Method and Joint Ventures and Accounting for Equity-Based Payments to Non- Employees - Amendments to Sections S99 and S99 No Financial Services Broker and Dealers: Investments Other - Amendment to Subtopic ASUs 2009 No Extractive Activities--Oil and Gas - Amendment to Section S99 No Fair Value Measurements and Disclosures (Topic 820) - Investments in Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent) No Revenue Recognition (Topic 605) - Multiple- Deliverable Revenue Arrangements a consensus of the FASB Emerging Issues Task Force No Software (Topic 985) - Certain Revenue Arrangements That Include Software Elements - a consensus of the FASB Emerging Issues Task Force

25 ASUs 2009 No Accounting for Own-Share Lending Arrangements in Contemplation of Convertible Debt Issuance or Other Financing No Accounting for Transfers of Financial Assets No Improvements to Financial Reporting by Enterprises Involved with Variable Interest Entities Accounting Standards Updates 2010 No Equity (Topic 505) - Accounting for Distributions to Shareholders with Components of Stock and Cash a consensus of the FASB Emerging Issues Task Force No Accounting and Reporting for Decreases in Ownership of a Subsidiary--a Scope Clarification No Oil and Gas Reserve Estimation and Disclosures No Accounting for Various Topics---Technical Corrections to SEC Paragraphs No Compensation--Stock Compensation (Topic 718)

26 ASU 2010 No Fair Value Measurements and Disclosures (Topic 820)Improving Disclosures about Fair Value Measurements No Not-for-Profit Entities (Topic 958)--Not-for-Profit Entities: Mergers and Acquisitions No Technical Correction to Various Topics No Subsequent Events (Topic 855) No Consolidation (Topic 810) ASU 2010 No Derivatives and Hedging (Topic 815) No Income Taxes (Topic 740) No Compensation--Stock Compensation (Topic 718) No Accounting for Extractive Activities--Oil & Gas No Financial Services--Insurance (Topic 944)

27 ASU 2010 No Entertainment Casinos (Topic 924): Accruals for Casino Jackpot Liabilities a consensus of the FASB Emerging Issues Task Force No Revenue Recognition Milestone Method (Topic 605): Milestone Method of Revenue Recognition a consensus of the FASB Emerging Issues Task Force No Receivables (Topic 310): Effect of a Loan Modification When the Loan Is Part of a Pool That Is Accounted for as a Single Asset a consensus of the FASB Emerging Issues Task Force ASU 2010 No Foreign Currency (Topic 830): Foreign Currency Issues: Multiple Foreign Currency Exchange Rates (SEC Update) No Receivables (Topic 310): Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses No Accounting for Technical Amendments to Various SEC Rules and Schedules Amendments to SEC Paragraphs Pursuant to Release No : Technical Amendments to Rules, Forms, Schedules and Codification of Financial Reporting Policies (SEC Update) No Accounting for Various Topics Technical Corrections to SEC Paragraphs (SEC Update)

28 ASU 2010 No Health Care Entities (Topic 954): Measuring Charity Care for Disclosure a consensus of the FASB Emerging Issues Task Force No Health Care Entities (Topic 954): Presentation of Insurance Claims and Related Insurance Recoveries (a consensus of the FASB Emerging Issues Task Force) No Plan Accounting Defined Contribution Pension Plans (Topic 962): Reporting Loans to Participants by Defined Contribution Pension Plans (a consensus of the FASB Emerging Issues Task Force) No Financial Services Insurance (Topic 944): Accounting for Costs Associated with Acquiring or Renewing Insurance Contracts (a consensus of the FASB Emerging Issues Task Force) CIRA Auditing Standards Update

29 Auditing Standards Generally accepted auditing standards apply to audits of the financial statements of CIRAs in the same manner as they do to audits of other financial statements. (Paragraph 7.01 of the Guide) Auditing Standards Issued by the AICPA s Auditing Standards Board Referred to as Statements on Auditing Standards (SASs) For non issuing (privately held) companies PCAOB issues auditing standards for issuing entities (public companies)

30 AU Section 110 Responsibilities and Functions of the Independent Auditor Source: SAS No. 1, section 110; SAS No. 78; SAS No. 82. Issue date, unless otherwise indicated: November, The objective of the ordinary audit of financial statements by the independent auditor is the expression of an opinion on the fairness with which they present, in all material respects, financial position, results of operations, and its cash flows in conformity with generally accepted accounting principles. AU Section 110 (cont) The auditor's report is the medium through which he expresses his opinion or, if circumstances require, disclaims an opinion. In either case, he states whether his audit has been made in accordance with generally accepted auditing standards. These standards require him to state whether, in his opinion, the financial statements are presented in conformity with generally accepted accounting principles and to identify those circumstances in which such principles have not been consistently observed in the preparation of the financial statements of the current period in relation to those of the preceding period.

31 SAS 99: Fraud Consideration of Fraud in a Financial Statement Audit 10-3a Description and characteristics of fraud Importance of exercising professional skepticism Discussion among engagement personnel Obtaining information needed to identify risks Identifying risks that may result in material misstatement due to fraud 10-3b SAS 99 (cont) Assessing the identified risks Responding to the results of the assessment Evaluating audit test results Communicating about fraud to management, audit committee, and others Documenting the auditor s consideration of fraud

32 Problems for CIRAs Independence Selling ancillary services to clients Lack of professional skepticism Shortened audit procedures from years gone by. Auditors claimed they were being unfairly painted No denial that a fix was needed. Conditions in All Frauds Incentive or pressure to commit fraud Opportunity for fraud Rationalization to commit fraud

33 Requirements (cont) Brainstorming Speaking directly to management Venture out of accounting department and speak to others SAS 99 Simplified (3 Ds) Discuss, Discuss, Discuss Design, Design, Design Document, Document, Document

34 SAS 103 Audit Documentation 9-9 Supersedes SAS 96 Form, content, and extent Significant findings or issues Identification of preparer and reviewed Specific items tested Departures from SASs Revisions after date of audit report SAS 103 (cont) Changes date of auditor s report File completion within 60 days Retain audit documentation for up to 5 years

35 SAS 103 (cont) Adds six requirements to work papers: 1. Who prepared it? 2. When prepared? 3. Who reviewed it? 4. When reviewed? 5. Where did it come from? 6. Where is it going? SAS 115 Communicating Internal Control Related Matters Identified in an Audit Supersedes SAS 112 Effective for periods ending on or after December 15, Provides guidance on the communication.

36 New SASs and CIRAs SAS 118 Other Information in Documents Containing Audited Financial Statements This SAS is effective for audits of financial statements for periods beginning on or after December 15, Early application is permitted. This Standard supersedes the requirements and guidance in AU section 550. Along with SAS No. 119, Supplementary Information in Relation to the Financial Statements as a Whole. This SAS also supersedes the requirements and guidance in AU section 551.

37 SAS 119 Supplementary Information in Relation to the Financial Statements as a Whole This SAS is effective for audits of financial statements for periods beginning on or after December 15, Early application is permitted. SAS 119 (cont) This Standard establishes a presumptively mandatory requirement that in order to opine on whether supplementary information is fairly stated in relation to the financial statements as a whole that the auditor determine that all of the following conditions are met:

38 SAS 119 (cont) the supplementary information was derived from, and relates directly to, the underlying accounting and other records used to prepare the financial statements. the supplementary information relates to the same period as the financial statements. the financial statements were audited, and the auditor served as the principal auditor in that engagement. neither an adverse opinion nor a disclaimer of opinion was issued on the financial statements. the supplementary information will accompany the entity s audited financial statements, or such audited financial statements will be made readily available by the entity. SAS 120 Required Supplementary Information This SAS is effective for audits of financial statements for periods beginning on or after December 15, Early application is permitted. This Standard supersedes the requirements and guidance in AU section 558.

39 SAS 120 (cont) This Standard defines required supplementary information as information that a designated accounting standard setter requires to accompany an entity s basic financial statements. SAS 120 (cont) Required supplementary information is not part of the basic financial statements; however, a designated accounting standard setter considers the information to be an essential part of the financial reporting for placing the basic financial statements in an appropriate operational, economic, or historical context. In addition, authoritative guidelines for the methods of measurement and presentation of the information have been established.

40 SAS 120 (cont) Defines designated accounting standard setter as a body designated by the AICPA council to establish GAAP pursuant to Rule 202, Compliance With Standards (AICPA, Professional Standards, vol. 2, ET sec. 202, par..01) and Rule 203, Accounting Principles (AICPA, Professional Standards, vol. 2, ET sec. 203, par..01). SAS 120 (cont) The bodies designated by the council to establish professional standards with respect to financial accounting and reporting principles pursuant to Rules 202 and 203 are the Financial Accounting Standards Board, the Governmental Accounting Standards Board, the Federal Accounting Standards Advisory Board, and the International Accounting Standards Board.

41 SAS 120 (cont) Establishes the auditor s objectives when a designated accounting standard setter requires information to accompany an entity s basic financial statements are to perform procedures in order to describe, in the auditor s report, whether required supplementary information is presented and communicate therein when some or all of the required supplementary information has not been presented in accordance with guidelines established by a designated accounting standard setter or when the auditor has identified material modifications that should be made to the required supplementary information for it to be in accordance with guidelines established by the designated accounting standard setter. ASB Projects Rewriting existing standards for: Clarity Convergence Big Bang date Date for newly rewritten standard to be effective Expected no earlier than periods beginning after December 15, Redrafted clarity standards are to be in convergence with international standards.

42 Other Audit Considerations Use current and industry specific practice aids Do not get caught with SALY Reconsider all evaluations of internal control using new technology and fraud SASs Engagement letters should be slightly different than other types of engagements due to the industry specifics of CIRAs Turn Over or Transitional Engagements Revenues are critical feature in a turn over engagement Issue might be when is a unit a unit Requirements vary from state to state Requirements are often found in the bylaws or documents of the CIRA

43 Accounting for Common Property Common Real and Personal Property Overview and Background General 05-1 This Subtopic addresses recognition and disclosure issues for common real and personal property related to common interest realty associations.

44 Old Common Property Considerations Common property of a CIRA includes all real property to which title or other evidence of ownership is held (a) by the individual members in common or (b) by the CIRA directly, as indicated by a CIRAs declaration or covenants. It also includes personal property, such as furnishings and recreational and maintenance equipment, that is owned by the CIRA and used on common real property." (Paragraph 2.01) ASC Common Property Glossary An association, also known as a community association, responsible for the governance of the common interest community, for which it was established to serve. A common interest realty association is generally funded by its members via periodic assessments by the common interest realty association so that it can perform its duties, which include management services and maintenance, repair, and replacement of the common property, among other duties established in the governing documents and by state statute. Standard Where Ref'd Common Property A common interest realty association s real or personal property to which title or other evidence of ownership is held by either: a. Individual members in common b. The common interest realty association directly.

45 Property Accounting Considerations When is an Asset an Asset? Type of association Capitalization policy How does a CIRA acquire Property? By purchase By purchase of a lease By developer transfer Funds may come from: Excess cash Special assessments Reserves Borrowings

46 When is an asset an asset? Depends on Type of association Type of property Policy of the association Title (may be most important issue) Real Property Real Property may depend on type of association and whether or not the property is Directly associated with units Not directly associated with units

47 Cooperatives and Common Property Recognition General > Common Real Property Standard 25-1 Cooperatives shall recognize common real property as assets. Because of their legal structure, cooperatives have title to all their common property and have the authority to dispose of it and retain the proceeds. Other common interest realty associations, such as condominiums and homeowners associations, have adopted other practices for recognizing common real property. Common Real Property Real Property Directly Associated with the Units Standard 25-2 Most common interest realty associations other than cooperatives, regardless of whether they have title, do not recognize as assets real property directly associated with the units. > Real Property Not Directly Associated with the Units Standard 25-3 Most common interest realty associations other than cooperatives recognize real property not directly associated with the units as assets when the common interest realty association has title or other evidence of ownership of the property and any of the following conditions are met: a. The common interest realty association can dispose of the property, at the discretion of its board of directors, for cash or claims to cash, with the common interest realty association retaining the proceeds. b. The property is used by the common interest realty association to generate significant cash flows from members on the basis of usage or from nonmembers.

48 Common Real Property (cont) Standard 25-4 However, some common interest realty associations recognize as assets all real property to which they have title or other evidence of ownership and that is not directly associated with the units, regardless of whether either of the above conditions is met. Personal Property Personal Property Standard 25-5 Common interest realty associations shall recognize common personal property, such as furnishings, recreational equipment, maintenance equipment, and work vehicles, that is used by the common interest realty association in operating, preserving, maintaining, repairing, and replacing common property and providing other services, as assets.

49 Personal Property (cont) Personal property Other issues Title or evidence of ownership Single purchases Group purchases Depreciate??? Personal Property (cont) Examples of personal property include: Furniture Fixtures Lawn equipment Work vehicles Golf carts Swimming pool furniture Tools

50 Initial Measurement 30-1 Common property recognized as assets of a common interest realty association shall be initially measured at the common interest realty association's cost to acquire it if the common interest realty association acquired the property in a monetary transaction. If the common interest realty association acquired the property in a nonmonetary transaction, such as by a nonreciprocal transfer from the developer, and if the property is recognized as an asset of the common interest realty association, the common interest realty association shall initially measure the property using fair value at the date of its acquisition. It may be helpful to consider the developer's cost, if it is known, in determining the fair value Subsequent Measurement 35-1 Property and equipment recognized as assets by common interest realty associations shall be depreciated based on their estimated useful lives.

51 Disclosure General Information Standard 50-1 All of the following information about a common interest realty association'scommon property shall be disclosed in the notes to its financial statements: a. The accounting policy for recognition and measurement of common property b. A description of common property recognized as assets in the common interest realty association's balance sheet c. A description of common property to which the common interest realty association has title, or other evidence of ownership, that is not recognized as assets in the common interest realty association's balance sheet d. The common interest realty association's responsibility to preserve and maintain the common property e. Terms and conditions of existing land or recreation leases f. Restrictions on the use or disposition of the common property Disclosure (cont) Standard 50-2 All property owned by a cooperative shall be presented on its balance sheets. Cooperatives generally own the real estate and have the ability to borrow and pledge their assets as collateral. Some cooperatives, therefore, do not accumulate funds for future major repairs and replacements. > Depreciation Standard 50-3 For property and equipment recognized as assets by common interest realty associations the following information shall be disclosed: a. Depreciation expense for the period b. Balances of major classes of depreciable assets, by nature or function, at the reporting date c. Accumulated depreciation, either by major classes of depreciable assets or in total, at the reporting date d. A general description of the method or methods used in computing depreciation for major classes of depreciable assets.

52 Future Repairs and Maintenance "A CIRA's primary duties are to maintain and preserve the common property." (Paragraph 3.01) Whose responsibility Fiduciary relationship Disclosure Required supplementary information Methods for Determining Reserves Current replacement costs Future replacement costs Straight line method Pool method Other factors Inflation Interest earnings Other income situations

53 Accounting for Future Repairs and Replacements The Fiduciary Relationship A CIRA's primary duties are to maintain and preserve the common property. Because the costs of maintaining and preserving common property are shared by all owners, it is the CIRA's duty to decide how to fund the cost of future major repairs and replacements. (Paragraph 3.01)

54 Required Reserve GAAP Disclosures State statute requirements CIRA s documents requirements CIRA s compliance with policies Funding policy and compliance with Statement concerning estimates based on current or future costs, that actual costs may vary, and that variations may be material Required Reserve GAAP Disclosures (copy) The current period assessments Disclosure about any study made Disclosure about the association s ability to borrow Right, if any, to have special assessments

55 Required Supplementary Information Two points to make: "Estimates of current or future costs of future major repairs and replacements of all existing components... including: "Presentation of... Reserve Examples Straight Line Calculation Pooled Calculation Example of incorrect pooling Another example of incorrect pooling Required disclosure for FAC AICPA Supplementary Disclosure

56 Thank you for your attention