CIRA Financial Statements and Required Supplementary Information
Rutledge, Marilyn Z., The CPA Journal
Several years of study have resulted in an AICPA guide which sell new requirements for this important and growing industry. Information about future replacements and repairs is called for even if not susceptible to audit. This is the first time that such supplementary data is required to be included in statements of nonpublic companies. The guide is effective for financial statements beginning after September 15, 1991. Earlier application may make sense.
In September 1991 the AICPA issued an audit and accounting guide, Audits of Common Interest Realty Associations. The guide provides, for the first time, authoritative accounting, auditing, and compilation and review guidance specifically for common interest realty associations (CIRAs), that include condominium associations, homeowners' associations, and cooperative housing corporations. The guide was issued after more than 10 years of deliberation and is considered a milestone for the industry. Yet, some of its provisions are controversial and represent major changes from existing practice. A significant provision of the guide is its requirement that all CIRAs present certain unaudited information about future major repairs and replacements of their common property as supplementary information outside the basic financial statements. In the past, the FASB has required certain publicly held companies to present unaudited information outside the basic financial statements--for example, oil and gas reserve information. However, the issuance of the guide marks the first time that nonpublic entities must deal with the issue. The guide requires CIRAs to disclose the following supplementary information about future major repairs and replacements outside 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. Basis for calculations, including assumptions, if any, about interest and inflation rates; d. Sources used; and e. Dates of studies made for that purpose, if any.
* A presentation of components to be repaired and replaced that includes the following:
a. Estimates of the remaining useful lives of the components; b. Estimates of current or future replacement costs; and c. Amount of funds accumulated for each component, designated by the CIRA's board of directors.
Figure 1 and 2 illustrate two alternative presentations of required supplementary information. (Figures 1 and 2 omitted)
When required supplementary information is presented with audited financial statements in auditor-submitted documents, SAS 29 at AU Sec. 551.15 and SAS 52 at AU Sec. 558 apply.
* AU Sec. 558 requires auditors to apply certain limited procedures to the required supplementary information; and * AU Sec. 551.15 requires auditors to disclaim an opinion on required supplementary information unless they have been engaged to audit and express an opinion on it.
The auditors' responsibilities for required supplementary information are summarized in the flowchart in Figure 3. (Figure 3 omitted)
APPLYING LIMITED PROCEDURES
Required supplementary information differs from voluntary presentations of information outside the basic financial statements because standard-setting bodies such as the AICPA's AcSEC or the FASB consider the information an essential part of the financial reporting of certain entities and because authoritative guidelines for presentation of the information have been established. Thus, AU Sec. 558 requires auditors to apply certain limited procedures to the required supplementary information whenever it is included in the same document with audited financial statements, even though the required supplementary information is unaudited and auditors disclaim an opinion on it. The limited proceedures are described in AU Sec. …