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402 Supplementary Information402.1
CIRAs often present additional details of the basic financial
statements as supplementary information that is not required to be
presented, but provides additional information about the financial
statements for supplementary analysis purposes
- Examples of such information
- include additional details of revenues and expenses, actual operating
- results compared to budgeted amounts, and details of replacement fund
- expenditures. However, certain supplementary information relating to
- future major repairs and replacements is required by the FASB to
- be presented. Accountants' reporting responsibilities for supplementary
- information presented outside the basic financial statements is
- discussed in sections 811 and 906. Examples of supplementary information are included in the illustrative financial statements in Appendixes 4B and 4C-1
-
Supplementary Information Required by the FASB
402.2 FASB ASC 972-235-50-3 (formerly the AICPA guide, Paragraph 4.33)
requires CIRAs to disclose the following information about future major
repairs and replacements of its common property as supplementary
information outside of the basic financial statements:
- • Estimates of current or future costs of future major repairs and
- replacements of all existing components, such as roofs, including the
- following:
- a. Estimated amounts required
b. Methods used to determine the costs
c. The basis for calculations, including assumptions, if any, about interest and inflation rates
d. Sources used
e. Dates of studies made for that purpose, if any
• A presentation of components to be repaired and replaced that includes the following:td dl { margin-top: 0px; margin-bottom: 0px; }
a. Estimates of the remaining useful lives of the components
b. Estimates of current or future replacement costs
c. Amount of funds accumulated for each component to the extent designated by the CIRA's board of directors
- If the CIRA issues comparative financial statements, the authors believe
- that the required supplementary information only needs to be disclosed
- for the current period, since that is the approach taken in the
- illustrative financial statements in the AICPA guide.
-
402.3 Accountants should be aware
that some CPAs have been sued when audited financial statements did not
disclose information about
- future major repairs and
- replacements of common property and the related reserves. The litigating
- parties felt that excluding information about the CIRA's future major
- expenditures and the reserves accumulated to meet those expenditures led
- to financial statements with inadequate disclosures.
-
402.4 Similar to supplementary information described in paragraph 402.1, the required supplementary information
(a) is not part of the basic financial statements and
- (b) is not
- necessary for the financial statements to be presented in conformity
- with generally accepted accounting principles. Thus, omission of the
- required supplementary information does not preclude accountants from
- issuing a standard report on the basic financial statements.
- Nevertheless, the AICPA requires the supplementary information to be
- presented. Accountants' responsibilities for required supplementary
- information are explained in sections 811 and 905
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402.6 There is no requirement that a new
study be conducted each year.
-
Paragraph 3.07
of the AICPA guide recommends that the board annually reevaluate
changes to the common elements, as well as estimates of remaining useful
lives and costs of replacements or repairs.
- In addition, some states require the board to conduct studies
- periodically, such as every three years, and to review the study
- annually. Since a new study is not required each year, how is the
- required supplementary information presented in, for example, the
- financial statements for the year after a study was conducted? Do the
- ranges of years in the estimates of useful lives of the components need
- to be reduced by one year? Should the estimated costs of replacements or
- repairs be reduced by the actual amounts spent in the first year? Some
- associations make such adjustments to the schedule. The authors believe,
- however, that, in subsequent years, the information from the study does
- not have to be changed unless there have been material changes made in
- the estimates. A note on the face of the schedule should clearly
- disclose the date of the study on which the information is based.
-
402.7 An alternative issue arises
if the CIRA has two reserve studies. One reserve study may relate to the
current financial statement period. The second reserve study would be
prepared near the end of the current financial statement period and
would begin with the current year end and project reserve information
for the following year. The AICPA guide does not discuss
- which reserve report should be used
- when preparing the supplementary information. The authors recommend
- that the CIRA include information from the most recently prepared
- reserve report. The more recent reserve study contains information that
- generally can be assumed to be more reliable as it is based on actual
- information from the current financial statement period. As noted in
- paragraph 402.5, the schedule should clearly disclose the date of the study on which the supplementary information is based.
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402.8 Authoritative literature
does not preclude a CIRA from attaching a copy of the reserve study in
lieu of preparing a separate
- schedule of the required
- supplementary information, provided the reserve study conveys all
- required information about future major repairs and replacements of the
- CIRA's common property as explained in paragraph 402.2.
- However, a reconciliation of the amounts for the common area components
- and the ending fund balance for each component (if designated by the
- CIRA's board) between the reserve study and the CIRA's financial
- statements will probably be required.
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