New Guide for Common Interest Realty Associations. Finally! There's Guidance for These Unique Not-for-Profit Organizations
Gomberg, Mandel, Tanenbaum, Joel, Journal of Accountancy
NEW GUIDE FOR COMMON INTEREST REALTY ASSOCIATIONS
Finally! There's guidance for these unique not-for-profit organizations.
What's a common interest realty association (CIRA)? A CIRA is an association of persons who own condominiums or another kind of housing with common property--property that all the owners hold in common. The CIRA is responsible for maintaining the common property and providing certain services, such as snow removal, guard service and lawn maintenance.
Why is a CIRA's financial reporting so important? CIRA financial statements directly affect and are more important to more people than the financial statements of any other kind of reporting entity. Community Associations Institute estimates that 29 million--or one in eight Americans--live in housing that has CIRAs. Those CIRAs spent over $12.5 billion last year and the numbers mount daily.
For most of these people, the CIRA is their single most important investment. The initial cash outlay for the unit (purchase price or downpayment) and subsequent payments (monthly maintenance, mortgage and special assessments) are the largest payments most people make. Investing in a CIRA means making such fundamental decisions as
* Where to live.
* Whom to live among.
* What rules to follow.
The decision to live in CIRA housing also should be based on the CIRA's financial statements.
CIRAs are generally not-for-profit organizations and their members are all the owners of the common property. Condominium associations, homeowner associations and cooperative housing corporations (co-ops) are all CIRAs. In non-co-op CIRAs, members own their individual real property dwellings (units). When a unit is bought, the owner becomes a member of the association. In co-ops, however, the members own shares of a corporation. Co-op shareholders are entitled to use certain property owned by the corporation--including the shareholders' individual housing units.
Until now, no financial reporting or auditing guidance existed specifically for CIRAs. However, such guidance soon will become available when the American Institute of CPAs issues its long-awaited audit and accounting guide, Common Interest Realty Associations.
The guide was prepared by a task force of seven members knowledgeable about CIRAs, including practitioners from small and medium-sized firms. It's intended to
* Make CIRA financial statements more useful to users.
* Increase the comparability of their financial statements.
* Provide guidance on auditing issues specific to CIRAs.
The guide has been approved by the AICPA accounting standards executive committee (AcSEC) and at press time is awaiting Financial Accounting Standards Board clearance. It's expected to be issued in January 1990 and will become immediately effective. (See exhibit 1 The birth of a CIRA guide)
WHAT THE CONCEPTS STATEMENTS SAY
According to FASB Concepts Statement no. 4, Objectives of Financial Reporting by Nonbusiness Organizations, the objectives of financial reporting by nonbusiness organizations are to provide
* Helpful information to current and potential resource providers and other users of financial statements in assessing the services the entity provides and its ability to continue to provide those services.
* Information that's helpful in assessing how the organization's managers discharged their stewardship responsibilities and other aspects of their performance.
* Information about the economic resources, obligations and net resources of the organization and the effects of transactions, events and circumstances that change the resources and interests in those resources.
* Information about the organization's performance during a specified period.
* Information about how the organization obtains and spends cash or other liquid resources, about its borrowings and repayments of borrowings and about other factors that may have an effect on its liquidity and solvency. …