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2011-01-01 22:40:00
Basic Fiancial Statements

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  1. 401.1 The basic financial statements of CIRAs are as follows:
    • • Balance sheet
    • • Statement of revenues and expenses
    • • Statement of comprehensive income
    • • Statement of changes in fund balances (or statement of changes in members' equity if nonfund reporting is used)
    • • Statement of cash flows
    • • Notes to financial statements
  2. Financial Statement Titles
    401.2 Even though a CIRA's
    financial statements typically show an operating fund, a replacement
    fund, and a total-all-funds column, accountants only report on
    • the total column. (See the illustrative reports in Appendixes 8A, 9A, and 9B.)
    • Accordingly, the authors recommend that the titles of financial
    • statements be singular (for example, Balance Sheet rather than Balance
    • Sheets and Statement of Changes in Fund Balance rather than Statements
    • of Changes in Fund Balances). Practice varies in that regard, however,
    • and some accountants do use plural financial statement titles. Although
    • that practice is acceptable, care should be taken to use singular titles
    • in the accountants' report because the accountants are reporting only
    • on the CIRA's financial statements taken as a whole and not on the
    • financial statements of the funds individually. (If comparative
    • financial statements are presented, however, plural titles should be
    • used.)
  3. Balance Sheet

    401.3 A CIRA's balance sheet is
    very similar to that of a commercial business and shows assets,
    liabilities, and the difference between assets and liabilities, which,
    for a CIRA, is usually termed
    • “fund balance” rather than
    • “retained earnings.” (CIRAs that present their financial statements
    • using a nonfund approach typically use the term “members' equity.”)
    • Although CIRAs generally present unclassified balance sheets, assets
    • usually are presented in the order of liquidity and liabilities are
    • presented in the order of maturity.
  4. 401.4 Presenting Interfund Transactions
    GAAP does not explicitly address whether interfund transactions should
    be eliminated if fund accounting is used for a CIRA's financial
    statements (similar to the approach required when consolidated or
    combined financial statements are presented). In the authors' opinion,
    interfund transactions should be eliminated and they should not be
    reflected in the
    • “total” column since, as explained in paragraph 400.4,
    • the CIRA's financial statements are considered to be the financial
    • statements taken as a whole. Various mechanical methods may be used to
    • eliminate the interfund transactions. For example, the financial
    • statements may include an elimination column, or a note to the total
    • column may explain that interfund transactions have been eliminated.
    • (Also, see the examples in Appendixes 4A-4D.)
  5. 401.6 The authors recommend that interfund borrowings be presented at
    • their net amounts (that is, net
    • receivable or net payable). If material, interfund receivables and
    • payables should be presented separately from receivables and payables
    • from other sources. 2 There may be tax implications to interfund transactions. Section 501 discusses the tax implications of transfers between operating and reserve funds.
  6. 401.7 Cash Designated for Future Repairs and Replacements As discussed in section 301,
    funds designated for future repairs and replacements should be
    segregated from cash available for current operations in the CIRA's
    financial statements. If the
    • association uses fund accounting, it may comply with that requirement by
    • reporting the funds for future major repairs and replacements in a
    • separate replacement fund. When a nonfund reporting approach is used,
    • the authors recommend disclosing funds designated by the unit owners for
    • specific purposes on the face of the balance sheet with a caption such
    • as, “Cash for future repairs and replacements.” In addition, the authors
    • believe such amounts should be reported as a separate classification of
    • members' equity (or disclosed in the notes).
  7. 401.8 It is not uncommon for the
    cash balance designated for future repairs and replacements to differ
    from the fund balance designated for future repairs and replacements.
    This situation can occur due to inadequate accounting or spending funds
    from the wrong account. Specific examples include—
    • • A journal entry to
    • record a transfer to the reserve account is made, but recorded as
    • operating fund expense with no interfund journal entry recorded.

    • Funds are expended from the reserve cash account, but recorded as
    • operating fund expense with no interfund journal entry recorded.

    • • A journal entry to record the budgeted reserve account allocation is made, but the cash transfer was not made by year end.Differences
    • between the cash balance designated for future repairs and replacements
    • and the fund balance designated for future repairs and replacements
    • that occur as a result of those situations, should be eliminated by
    • recording the appropriate journal entry (either recording an interfund
    • transfer or an interfund receivable/payable) to correct the account
    • balances.
  8. 401.9 Discrepancies between the
    cash balance or the fund balance account on the balance sheet and the
    supplementary information disclosed about major repairs and replacements
    are also common.
    • This situation occurs primarily
    • because the supplementary information is based upon a reserve study
    • prepared in advance on estimated information. Appendix 4A-2 presents such example financial statements.
  9. 401.10 When such a situation as described in paragraph 401.9
    occurs, modifications to the accountant's report are not necessary as
    long as the supplementary information meets the requirements discussed
    beginning in paragraph 402.2.
    • However, to eliminate such a situation from occurring, the authors
    • suggest that either (a) the supplementary disclosure related to the
    • year-end allocation of designated cash be modified to match the actual
    • cash and investments on hand, or (b) an interfund journal entry be
    • posted to balance the amounts (either by recording an interfund transfer
    • or an interfund receivable/payable). Reasons for material differences
    • in amounts should be investigated and resolved.
  10. Statement of Revenues and Expenses
    401.11 GAAP does not require the
    title “Statement of Revenues and Expenses” to be used, but most CIRAs do
    use that title. However,
    • CIRAs with significant commercial
    • operations and some cooperatives use the title “Statement of Operations”
    • [or, if there is an excess of expenses over revenues, “Statement of
    • Operations and (Accumulated) Deficit”].
  11. 401.12 The statement of revenues
    and expenses should report the excess (deficiency) of revenues over
    expenses for the period. CIRAs usually present income
    • taxes in the same manner as other
    • operating expenses. It generally is not meaningful to present income
    • taxes as a separate caption after “Excess (deficiency) of revenues over
    • expenses before income taxes” because income taxes generally are not
    • related to the excess of revenues over expenses. Thus, the statement of
    • revenues and expenses of most CIRAs generally shows only one “excess”
    • caption. The discussion of depreciation beginning in paragraph 304.35 indicates CIRAs may show the excess (deficiency) of revenues over expenses both before and after depreciation.
  12. 401.13 There are few strict rules for presenting statements of revenues and expenses.
    • As explained in Chapter 3,
    • the principal sources of revenue and categories of expenses should
    • either be presented separately in the statement, or amounts may be
    • combined and additional detail disclosed in the notes to the financial
    • statements. (Financial statement presentation of excess revenues over
    • expenses that are either refunded to the members or carried forward to
    • the following year is discussed under “Member Assessments” in section 303.) Information for supplementary analysis purposes may be presented as additional information. (See paragraph 402.1.)
  13. 401.14 The statement of revenues
    and expenses may include a reconciliation between beginning and ending
    fund balance by fund, or the CIRA may present a separate statement of
    changes in fund balance.
    (See paragraph 401.16.) If a combined statement is presented, the title generally is “Statement of Revenues, Expenses, and Changes in Fund Balance.”
  14. Statement of Comprehensive Income

    401.15 FASB ASC 220-10-45-3 (formerly SFAS No. 130)
    requires comprehensive income and its components to be reported when a
    CIRA has items of other comprehensive income and presents a full set of
    • financial statements that report financial position, results of operations, and cash flows. As discussed beginning at paragraph 401.18,
    • comprehensive income may be reported in a combined statement of
    • revenues, expenses, and comprehensive income; in a separate statement of
    • comprehensive income; or in a statement of changes in fund balance or
    • members' equity.