Revenue Recognition for CIRAs
Please VOTE at right. Click on "Yes" or "No" then "Vote" to register your vote. Only about one in ten of site visitors have so far voted. This is not a statistically valid survey, but does serve as an indicator of what site visitors think. If you're not sure yet, read the information on this site, then vote. You have to vote to be able to see results, but so far about 91% of the more than 300 who voted prior to 12/31/23 do NOT support the "contract liability" method of reporting reserve assessments. As the polling software was "rolled over" to year 2024 a programming change caused all prior votes to be lost.
Common Interest Realty Associations (CIRAs) are commonly known as homeowner associations or community associations. With the effective date of the Financial Accounting Standards Board (FASB) new revenue recognition rules under ASC 606 taking effect for December 31, 2019 financial statements, this issue has just come into focus for most people. Most industry CPAs looked very briefly at the new ASC 606 section on revenue recognition somewhere during the last few years (the standard was issued in 2014 with an effective date of December 15, 2018) and pretty much ignored it because, to them, it was obvious that the contract liability method would not apply to community associations because members are not customers with respect to assessments, although they could be customers with respect to other services.
A CPA who performs services for the community association industry and who also participated in a revenue recognition task force reached a much different conclusion and exerted significant influence on the PPC Guide which is the nonauthoritative guide used by most CPAs that work in the community association industry. His influence resulted in PPC adopting a revenue recognition position (the contract liability method with respect to reserve assessments) that represented a radical change as compared to prior practice. It was not until PPC issued its annual update in September 2019 that most practitioners became aware of this, and then only if they actually read the update. Many CPAs ignored their PPC update until November or December when they began their own internal update of forms and checklists in preparation for their 2019 audits. In mid November the Florida Institute of CPAs (FICPA) held its annual CIRA conference which included a presentation on revenue recognition by this same CPA.
The result was that mid November is when most of the industry finally woke up to the fact that someone was proposing a radical change in accounting treatment of reserve assessments. Since the majority of industry CPAs had already reached the opposite opinion there was widespread confusion as to what was the correct accounting treatment. What developed since November 2019 is that there are now two "camps" - one camp stating that their interpretation of the ASC 606 standards supports the contract liability position, and the other camp stating that their interptretation supports that fact that contract liability method does not apply to reserve assessments of community associations. The fact that these two camps exist and have reached exactly opposite interpretations of the same standard tells us one thing; there is no consensus position. Neither side can legitimately claim that they are right and the other side is wrong as their positions simply reflect their interpretation of the revenue recognition standard. More importantly it means that, no matter how strongly certain individuals feel about the positions they have adopted, neither side can claim that their position represents GAAP - it is simply their position and nothing more.
A CPA performing audit or review services can claim to be independent ONLY IF their client (association or management staff) possesses the necessary Skills, Knowledge, and Experience (SKE) to understand the financial statements and any audit adjustments proposed by the CPA. It follows that the association should be reaching its own conclusion regarding interpretation of ASC 606 on their financial statements. The CPA's role is to render their opinion on whether or not the association's financial statements are presented in accordance with GAAP. Given the above discussion it would appear that, no matter which interpretation is adopted by the association, if the CPA does not agree with that position, the CPA could NOT state that the financial statements are not presented in accordance with GAAP, because there is no consensus on GAAP. Theoretically the CPA could not qualify the audit opinion for a GAAP departure, no matter how much they disagreed with the association's interpretation, because there is no consensus on GAAP.
This site is maintained by a group of community association industry CPA firms solely for the purpose of providing information to the community association industry. The contract liability position is well documented in the PPC Guide and FICPA conference material. There has been no central repository of information supporting the position that the contract liability method does not apply to the community association reserve assessments, although several prominent CPA firms have provided position papers on this point to their clients and other CPA firms. Consequently, the majority of information presented on this site is either neutral or supports the position that the contract liability method does not apply to community association reserve assessments. FASB source documents are provided on this site. This site provides information only, readers are encouraged to make their own interpretation of ASC 606 as it applies to community associations.
