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400.1 GAAP Requires the Accrual Basis CIRA financial statements should be prepared on the accrual basis of accounting to be in conformity with GAAP.
- It notes that accrual basis
- financial statements are particularly informative since member
- assessments are based on annual budgets, and accrual basis financial
- statements enable users to compare the results of operations to budgeted
- amounts. Many CIRAs, however, maintain their accounting records on a
- modified cash basis during the year, recording assessments from members
- on an accrual basis but recording expenses on a cash basis. Other CIRAs
- maintain their accounting records on a pure cash basis of accounting. In
- either case, the CIRA's financial records should be adjusted to the
- accrual basis at year end to prepare financial statements.
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400.2 Other Comprehensive Bases of Accounting CIRAs may sometimes present financial statements on a basis of accounting other than GAAP,
such as the cash or income tax
basis. (For example, accounting practices prescribed by income tax rules
may depart from GAAP.) This Guide specifically addresses
accounting and reporting on GAAP basis financial statements; however,
the authors offer the following guidance on preparing financial
statements on an other comprehensive basis of accounting (OCBOA):
- • Titles of OCBOA financial statements should differ from those for
- similar statements prepared in conformity with GAAP (see paragraph 401.2) so that there is no implication that the statements are GAAP basis statements.
- • The guidelines in an AICPA Technical Practice Aid at TIS 1500.05
- should be followed in deciding what modifications to the pure cash
- basis of accounting have substantial support. If modified cash basis
- statements are tantamount to accrual basis financial statements, the
- statements should be considered accrual basis.
- • For audited financial statements, SAS No. 62 at AU 623.10
- requires a note to the financial statements to state the basis of
- presentation and describe how it differs from GAAP. The note need not
- quantify the differences between GAAP and the OCBOA because the purpose
- of the note is not to reconcile the basis to GAAP. Instead, the note
- should (a) put readers of the financial statements on notice that the
- basis of accounting may be different from what they are used to seeing
- and (b) disclose how the presentation would have been materially changed
- if GAAP had been used.
- • For compiled and reviewed
- financial statements, the authors believe that many accountants will
- consider it necessary to also include a note to the financial statements
- that states the basis of presentation and describes how it differs from
- GAAP in order for the statements to be informative. (Accordingly, if
- reviewed financial statements omit such a disclosure, the authors
- believe the review report should be modified for an OCBOA disclosure
- exception.)• Financial statement disclosures should comply with FASB ASC 972-235-50 and the provisions of the AICPA guide (as summarized in Chapter 3). SAS No. 62 at AU 623.10
- states, “. . . when the financial statements contain items that are the
- same as, or similar to, those in financial statements prepared in
- conformity with generally accepted accounting principles, similar
- informative disclosures are appropriate.”
- • Interpretation 14 of SAS No. 62, Evaluating
- the Adequacy of Disclosure and Presentation in Financial Statements
- Prepared in Conformity with an Other Comprehensive Basis of Accounting (AU 9623.90-.95) provides expanded guidance on required disclosures in OCBOA financial statements.
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Fund Accounting
400.3 Fund accounting segregates the financial statement amounts into groupings based on the entity's specific activities.
- A fund can be defined as an
- accounting entity established to account for resources used for specific
- activities or objectives in accordance with special regulations,
- restrictions, or limitations. Most CIRAs present their financial
- statements using fund accounting because fund reporting generally is
- believed to be the most informative method of presenting a CIRA's normal
- operations, long-term major repair and replacement requirements, and
- commercial operations, if any. Fund accounting also is prevalent
- industry practice for most types of CIRAs, and this chapter addresses
- primarily that approach.
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400.4 Principal Funds CIRAs that use fund accounting for their financial statements generally segregate their activities into two principal funds
- —an operating fund and a fund for
- future major repairs and replacements (often called a reserve fund or
- replacement fund). CIRAs' financial statements may show one or more
- additional funds if they use separate funds to account for special
- assessments, significant amounts of property and equipment that are
- capitalized as assets, or commercial operations. When fund accounting is
- used, the financial statements should include a total column since a
- CIRA's financial statements are considered to be the financial
- statements taken as a whole and not the financial statements of the
- funds individually.
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400.5 Other Funds CIRAs often use additional funds to account for specific transactions. Examples of additional funds for CIRAs include:
- • Property fund• Construction defect fund
- • Recreation fund
- • Capital improvements fund
- • Settlement proceeds fund (for insurance and litigation)
- • Loan or debt fundSome
- CIRAs that maintain recreational facilities such as golf courses,
- marinas, or equestrian centers may also establish separate funds for
- those activities, particularly if the activity represents a significant
- portion of the association's overall budget.
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400.6 Using Nonfund Reporting GAAP does not require fund reporting. It states that CIRAs may not need to use fund reporting if they
- do not assess their members for
- future major repairs and replacements. (For example, the financial
- statements of cooperative housing corporations often are not presented
- using fund accounting.) If CIRAs present their financial statements
- using a nonfund approach, GAAP requires them to disclose assessments
- that were used for purposes other than those for which they were
- designated. (Although this chapter primarily addresses fund reporting,
- Appendix 4A-2 illustrates nonfund financial statements for a condominium association, section 301
- provides guidance on disclosing cash designated for specific purposes
- in the members' equity section of the balance sheet, and section 306 illustrates presenting interfund transactions between the operating and replacement funds when a nonfund approach is used.)
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Classified and Unclassified Balance Sheets
400.7 CIRAs generally present unclassified balance sheets
However, it recommends that CIRAs having significant commercial operations consider presenting classified balance sheets.
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Comparative Financial Statements
400.8 Similar to commercial businesses, CIRAs are not required to present comparative financial statements.
- However, FASB ASC 205-10-45-2
- recommends them. If CIRAs present their financial statements in
- columnar format, as is typically done, presentation of prior-period
- amounts for each fund may be very cumbersome and confusing. Thus, for
- the sake of simplicity, CIRAs generally present only total-all-funds
- information in a single column for the prior period. That practice is
- acceptable, but prior-year disclosures should include sufficient detail
- required by GAAP if accountants are to express an unqualified opinion
- (or unmodified review or compilation report) on it. For example, to
- provide sufficient detail required by GAAP, prior-year disclosures
- should include items such as funds designated for future major repairs
- and replacements. Section 811 includes an explanation of the auditors' reporting responsibility for comparative financial statements.
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