Issue link: https://imageup.uberflip.com/i/1303711
By Christopher Mitchell, CPA, CMCA, CCAM In March 2020, as the annual audit of the 2019 financial statements was being finalized, the Sun Lakes Board of Directors and FirstService was advised of the new FASB 606 requirement for recognizing assessment revenues. Specifically, the auditors stated: The Financial Accounting Standards Board (FASB) issued new guidance that created Topic 606, Revenue from Contracts with Customers, in the Accounting Standards Codification (ASC). Topic 606 supersedes the revenue recognition requirements in FASB ASC 972-605, Real Estate – Common Interest Realty Associations, Revenue Recognition, and requires the recognition of revenue when promised goods or services are transferred to customers in an amount that reflects the consideration to which a CIRA expects to be entitled in exchange for those goods or services. Adoption of the new guidance resulted in changes to the accounting policies for assessment revenue and contract liabilities (assessments received in advance-replacement fund). This change requires that the portion of assessment payments that relate to the Repair & Replacement fund, not be recognized in the assessment revenue account. Prior to this FASB rule, all assessments would be posted to one assessment account. So how did this change affect the August 2020 financials? You will see several changes to revenue accounts that needed to be corrected to comply with the FASB 606 requirement: • Account 14000-Homeowner Assessment Revenue – This account needed to be adjusted to remove the portion of assessments that related to Repair & Replacement fund contributions for the period from January 1, 2020 to August 31, 2020. Though the current month shows a large variance, the year to date amount reflects the true pure operating assessment revenue earned for the first eight months of the year. Also, account 19758, was an offset to account 140000, and will no longer be utilized in the future. • Account 14000R – Homeowner Assessment – Reserves – This new account represents assessment revenue earned that matches the reserve expenditures made (account 19801R); this was a FASB 606 requirement that revenues can only be recognized in an amount equal to approved reserve expenditures. There is no budget for this revenue item. The budget will be developed as part of the 2021 budget. • Account 14000SL – Homeowner Assessments – CIP – This new account represents assessment revenue earned that matches the Capital Improvement expenditures made (account 19801SL); this was a FASB 606 requirement that revenues can only be recognized in an amount equal to approved Capital Improvement expenditures. There is no budget for this revenue item. The budget will be developed as part of the 2021 budget. This is a one-time event that brings the financials in line with the FASB 606 requirement. The bottom line. The Association has not lost any money. The funds for the Repair & Replacement and the Capital Improvement are still in the bank account. Going forward, the assessment revenue accounts (14000/14000R/14000SL) will properly account for their respective revenue type (Operating/Repair & Replacement/Capital Improvement) and will be in compliance with FASB 606. Below is a link to the FASB website for more information: h t t p s : / / w w w . f a s b . o r g / j s p / F A S B / F A S B C o n t e n t _ C / CompletedProjectPage&cid=1175805486538. Sun Lakes Country Club Homeowners Association Board & Community FASB 606 Required Change & the Affect on the August 2020 Financial Statement 6 | SUN LAKES LIFESTYLES | NOVEMBER 2020 |