Accounting for Common Interest Realty Associations
Tanju, Murat Neset, Sylvestre, A. J., The National Public Accountant
Accounting For Common Interest Realty Associations
In 1961, the U.S. Congress enacted the National Housing Act which extended the government issuance of mortgages to condominiums. This was viewed as a declaration of confidence by the U. S. Congress and the Federal Housing Authority which provided the impetus for condominium legislation on the state level such that by 1969 all 50 states had passed some form of condominium legislation.(1) Legislation for other similar forms of real estate ownership began to appear in the years that followed.
Today, condominiums, cooperatives, planned unit developments and time shares are household terms. Unique to these forms of real estate ownership is the existence of common property and the establishment of an association to manage such property. These associations are generally referred to as common interest realty associations (CIRAs). Indeed, so popular is this form of real estate ownership that the Community Associations Institute recently reported that one of every eight Americans lives in housing that is managed by CIRAs.(2)
CIRAs are required to provide financial information to their members on a regular basis. Financial statements of CIRAs are of utmost importance to members of the CIRA in order to determine whether assessments are used for budgetary purposes and whether common property is maintained and replaced according to a specified plan. Potential buyers are also keenly interested in these statements in order to properly assess the value of their purchases. Only through an understanding of these statements can new buyers and existing owners avoid costly surprises. Many other users, such as real estate agents, lenders, insurers and taxing authorities, are also interested in the information provided in a CIRA's financial statements.
Today, all user groups demand better accountability from the managers of CIRAs. This demand, in turn, encourages CIRA management teams to utilize the services of accountants. The increasing number of CIRAs and the emphasis placed upon improving the quality of information provided in financial statements have expanded the need for accounting services. Given the growing importance of this market, practitioners should be aware of those regulatory and accounting developments that affect CIRAs, especially in such bellwether states as Florida and California.
For example, Florida now requires condominium association boards to deliver to each unit-owner a complete report of actual cash receipts and disbursements for the last 12 months. The Florida administrative code requires condominium associations to provide:
1. Compiled statements when
annual cash receipts total from
$100,000 to $200,000, 2. Reviewed financial statements
when annual receipts are
within $200,000 to $400,000, 3. Audited financial …
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Publication information: Article title: Accounting for Common Interest Realty Associations. Contributors: Tanju, Murat Neset - Author, Sylvestre, A. J. - Author. Magazine title: The National Public Accountant. Volume: 35. Issue: 9 Publication date: September 1990. Page number: 22+. © 1999 National Society of Public Accountants. COPYRIGHT 1990 Gale Group.
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