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This financial accounting and reporting practice aid is invaluable to anyone who prepares financial statements and reports for common interest realty associations (CIRAs). The checklists have been updated to reflect AICPA and FASB pronouncements and interpretations issued as of October 31, 2007. These checklists can be used by preparers of CIRA financial statements prepared in conformity with generally accepted accounting principles and by practitioners who audit, review, or compile those financial statements as they evaluate the adequacy of disclosures made in the basic financial statements, notes to the financial statements, and required supplementary information. Illustrative financial statements and auditor’s reports are included in this practice aid.
This nonauthoritative practice aid has been prepared by the AICPA staff and has not been reviewed, approved, disapproved, or otherwise acted on by any senior technical committee of the AICPA and do not represent official positions or pronouncements of the AICPA.
Checklists and Illustrative Financial Statements for Common Interest Realty Associations
Description
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In the 1960's, certain forms of real estate ownership gained popularity, particularly Common Interest Communities (CICs). It was not until the beginning of that decade that the Federal Housing Administration (FHA) began providing mortgage insurance and Chicago Title and Trust began offering title insurance for condominiums. Other prevalent types of CICs include cooperatives, planned unit developments (“PUD”) and timeshare associations. A key feature of these forms of real estate ownership is the existence of an association of owners referred to as a Common Interest Realty Association (CIRA). A CIRA is responsible for maintaining certain property that all owners share or own in common, and providing certain services such as enforcing bylaws, covenants, conditions, and restrictions that apply to the property.
The Community Associations Institute in Alexandria, VA, estimates that currently, there are 57 million residents occupying CICs in the United States, representing approximately 20% of the value of all U.S. residential real estate. These common types of CIC ownership are described in more detail below:
Condominium: Each owner has title to a defined interior space within a building or combination of buildings and an undivided ownership interest in common property within a development, such as the grounds, recreational facilities, and exteriors of buildings shared in common with all other owners. A condominium association generally owns no real property but is responsible for maintaining the common property and providing necessary services. In certain jurisdictions, condominiums may be established as condominium trusts; such entities may own the real estate and all the improvements. If they do, the accounting and reporting for condominium trusts are the same as for cooperatives.
Cooperative: A form of ownership in which a corporation owns the common property, including all of the improvements, and is responsible for its maintenance, debt service, repairs, and so forth. The owners do not own any of the common property, but they own shares of stock of the corporation. Their ownership interests permit them only to lease from the cooperative, to occupy their individual units, or to sell their shares. Members are assessed carrying charges for units they occupy or lease. The corporation functions in the same way as a CIRA in maintaining common property and providing services.
Planned Unit Development: A form of land development in which various residential and nonresidential structures are clustered to allow optimal use of the property and to provide certain open spaces and amenities not otherwise available in traditional forms of subdivision developments. In many PUDs, tracts of land are set aside for all owners to use for active or passive recreational purposes, parking areas, and streets. A PUD owner buys a lot and improvements on the lot. The title to common property is held by a CIRA, generally a Homeowners’ Association (“HOA”), which has obtained it at no cost to the association. The CIRA assesses owners for funds needed to maintain common property and provide necessary services.
Time-share Development: A form of ownership in which each owner has a time-share interest, commonly referred to as interval use, that represents a right to use a unit in a time-share development for a specified number of weeks during a year. Such interests may be in the form of (a) fee-simple ownership, evidenced by a deed that specifies the amount of time the deed holder is entitled to use the unit, or (b) a lease giving the owner the right to use a unit for a predetermined lease term. These types of entities may also be referred to as fractional ownership associations.
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Regardless of the form of ownership of a CIRA, a CIRA member has a defined ownership interest that can be transferred to buyers of the units or shares. Additionally, the CIRA member is entitled to share in the distribution of resources in the event of a liquidation. Membership in a CIRA is generally mandatory for owners and is a condition in the agreement to purchase either shares in a cooperative, a unit in a condominium or HOA.
Checklists—General
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This checklist and the accompanying illustrative financial statements have been developed by the staff of the Accounting and Auditing Publications Team of the AICPA as nonauthoritative technical practice aids. Readers should be aware of the following:
The checklists and illustrative financial statements do not include all disclosures and presentation items promulgated, nor do they represent minimum requirements. Disclosures described by pronouncements whose applicability to CIRAs is deemed remote are not included in this document.
For additional disclosures and promulgations pertaining to corporations, see November 2006, Checklists and Illustrative Financial Statements for Corporations (AICPA Publication 008937).
The checklists and illustrative financial statements are “tools” and in no way represent official positions or pronouncements of the AICPA.
The checklists have been updated to include relevant accounting and auditing pronouncements issued through December 31, 2006:
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This checklist and the accompanying illustrative materials have been prepared by the AICPA staff. They have not been reviewed, approved, disapproved, or otherwise acted on by any senior technical committee of the AICPA and do not represent official positions or pronouncements of the AICPA.
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If financial statements are prepared in conformity with an other comprehensive basis of accounting (OCBOA), the provisions of the auditing interpretation, “Evaluating the Adequacy of Disclosure and Presentation in Financial Statements Prepared in Conformity With an Other Comprehensive Basis of Accounting” of SAS 62, Special Reports, should be considered. The interpretation, issued in November 1997 and amended in January 2005 by the Audit Issues Task Force of the Auditing Standards Board, applies to cash, modified cash, and income tax basis presentations.
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Section 4300 of this checklist is for audits conducted in accordance with generally accepted auditing standards and assurance standards for nonissuers. However, an auditor may be engaged to also follow PCAOB standards in the audit of a nonissuer. Refer to Audit Interpretation 18, “Reference to PCAOB Standards in an Audit Report on a Nonissuer,” of SAS 58 as amended (AU 9508.89–.92). If the auditor is engaged to audit both a nonissuer’s financial statements and management’s assessment of the effectiveness of internal control over financial reporting in accordance with PCAOB auditing standards, refer to paragraphs 162–199 of PCAOB Auditing Standard No. 2, An Audit of Internal Control Over Financial Reporting Performed in Conjunction With an Audit of Financial Statements (AICPA, PCAOB Standards and Related Rules, AU sec. 320) for the audit reports that should be used.
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