2011 cira update

27
©2011 LarsonAllen LLP 1 1 1 ©2011 LarsonAllen LLP CIRA Audit and Accounting Update 2011 Michael Kosinski, CPA LarsonAllen [email protected]

Upload: mkosinsk

Post on 04-Jul-2015

598 views

Category:

Documents


0 download

DESCRIPTION

2011 Presentation at FICPA FGCU conference covering changes in the CIRA operating environment

TRANSCRIPT

Page 1: 2011 CIRA Update

©2

01

1 L

ars

on

Alle

n L

LP

111

©2

01

1 L

ars

on

Alle

n L

LP

CIRA Audit and Accounting

Update 2011

Michael Kosinski, CPA

LarsonAllen

[email protected]

Page 2: 2011 CIRA Update

©2

01

1 L

ars

on

Alle

n L

LP

2

Objectives

• At the end of this session you will be able to

– Identify potential audit and accounting issues related

to CIRA’s

– Apply the proper accounting treatment these issues

– Identify potential issues that may require outside

counsel

– Apply Florida State Statutes to the financial statement

audit

Page 3: 2011 CIRA Update

©2

01

1 L

ars

on

Alle

n L

LP

3

What is a CIRA?

Common Interest Realty Association

Is a non taxable corporation… not tax exempt

Forms of CIRAs

Governed in large part by Florida Statutes

Page 4: 2011 CIRA Update

©2

01

1 L

ars

on

Alle

n L

LP

4

Brief History

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Cutoff

Reserves

Hurricanes

Developer

Foreclosures

Page 5: 2011 CIRA Update

©2

01

1 L

ars

on

Alle

n L

LP

5

Operating Environment

Foreclosures Local Economy

National Economy

Housing Slowdown

Audit Risk

Page 6: 2011 CIRA Update

©2

01

1 L

ars

on

Alle

n L

LP

6

Statutes - 2011 Changes

• Changes to provisions to liabilities to master

associations during foreclosure

• Changes to bulk purchaser requirements

• Assignment of rents to the association

Consult an attorney…

Page 7: 2011 CIRA Update

©2

01

1 L

ars

on

Alle

n L

LP

7

Wiki for CIRA

Page 8: 2011 CIRA Update

©2

01

1 L

ars

on

Alle

n L

LP

8

Statutes - Important Thresholds

• $100,000

• $199,999Compiled

• $200,000

• $399,999Reviewed

• $400,000

• And OverAudited

Page 9: 2011 CIRA Update

©2

01

1 L

ars

on

Alle

n L

LP

9

Bad Debt

“Management considers all assessments

receivable to be fully collectible; therefore, no

allowance for uncollectible amounts is deemed

necessary.”

Collectible

Intent

Ability

Page 10: 2011 CIRA Update

©2

01

1 L

ars

on

Alle

n L

LP

10

Common Property

Other Factors

OwnershipType

Real Property

Association

Cash Flows

CIRA Retains Proceeds

MembersNo

Capitalization

Page 11: 2011 CIRA Update

©2

01

1 L

ars

on

Alle

n L

LP

11

Reserves

“We can evade reality, but we cannot evade

the consequences of evading reality”-Ayn Rand

Reserve Study

Requirements Methods

Page 12: 2011 CIRA Update

©2

01

1 L

ars

on

Alle

n L

LP

12

Income Taxes - 1120H

Exempt Function

Capital Contributions

Developer Subsidy

Fines Late Fees

Special Assessments

Member Dues

Non Exempt Function

Member Services

Non Member Fees

Interest

Page 13: 2011 CIRA Update

©2

01

1 L

ars

on

Alle

n L

LP

13

Income Taxes - 1120

Member Income

Capital Contributions

Member Services

Developer Subsidy

Fines Late Fees

Special Assessments

Member Dues

Non Member Income

Non Member Fees

Interest

Page 14: 2011 CIRA Update

©2

01

1 L

ars

on

Alle

n L

LP

14

Income Taxes - Apportioned Expenses

• Interest – accounting, audit, tax prep, fidelity

bond, management

• Guest Suite Income – property insurance,

management, utilities, repairs, security, janitorial,

housekeeping

• Apportionment methods

• Keep in mind the 90% test

Page 15: 2011 CIRA Update

©2

01

1 L

ars

on

Alle

n L

LP

15

Developer Subsidy - Condominiums

• Examine subsidy requirements

– Non-assessment Revenues and Expenses

– Interest Earned

– Bad debt and Depreciation

“only regular periodic assessments for common expenses as provided

for in the declaration and prospectus and disclosed in the estimated

operating budget shall be used for payment of common expenses

during any period in which the developer is excused”

Page 16: 2011 CIRA Update

©2

01

1 L

ars

on

Alle

n L

LP

16

Developer Subsidy – HOA

• Developer Subsidy – HOA – Post October

1, 1995

• Must be in the documents

• Examine for expirations and maximums

• Non assessment revenue expenses

“the guarantor shall pay any deficits that exceed the guaranteed

amount, less the total regular periodic assessments earned by the

association from the members other than the guarantor during the

guarantee period regardless of whether the actual level charged was

less than the maximum guaranteed amount.” 708.308

Page 17: 2011 CIRA Update

©2

01

1 L

ars

on

Alle

n L

LP

17

Developer Subsidy - Reserves

• Do not use reserve funds in place of deficit

subsidy

• 61B-20.006 Enforcement Resolution and Civil

Penalties – Major Violations-Not providing sufficient cash/resources to provide payment on

a timely basis of all common expenses including full funding

of reserves.

-Comingling reserve funds with operating

funds

Page 18: 2011 CIRA Update

©2

01

1 L

ars

on

Alle

n L

LP

18

Successor Developer Issues

Was Turnover Triggered?

Will you be the successor developer?

What liability are you assuming?

Page 19: 2011 CIRA Update

©2

01

1 L

ars

on

Alle

n L

LP

19

Other Associations

Commercial Associations

Timeshares

Cooperatives

Page 20: 2011 CIRA Update

©2

01

1 L

ars

on

Alle

n L

LP

20

Timeshares

• Capitalization of Interior Furniture

• Property Taxes

• Foreclosed Unit Weeks

• Tax Considerations

Page 21: 2011 CIRA Update

©2

01

1 L

ars

on

Alle

n L

LP

21

Cooperatives

• Have title to the property

• Owners are stockholders

• Transfer of interest requires approval of the

board

• Real property is capitalized more frequently

• Must file 1120-C

Page 22: 2011 CIRA Update

©2

01

1 L

ars

on

Alle

n L

LP

22

Commercial Associations

• Can Not File 1120H

• Much of the same requirements

• Question as to whether Rev Ruling 70-604

applies

Page 23: 2011 CIRA Update

©2

01

1 L

ars

on

Alle

n L

LP

23

Fraud Risks

• Incentives – Changes in management

companies, auditors, reserve study

preparers, pressures to keep assessments

low, employees underpaid, economic conditions

• Attitudes – adverse relationships between CIRA

and employees, personal difficulties of

employees

Page 24: 2011 CIRA Update

©2

01

1 L

ars

on

Alle

n L

LP

24

Fraud Risks

• Opportunities – Lack of board oversight,

management has access to several associations

bank accounts, lack of financial knowledge,

weak management company internal controls,

little segregation of duties at the management

company, board members may not closely

review expenditures

Page 25: 2011 CIRA Update

©2

01

1 L

ars

on

Alle

n L

LP

25

Some Responses

• Confirm cash

• Journal entry testing

• Data extraction software

• Expenditure vouching

• Scanning the general ledger detail

• Review of vendor lists

Page 26: 2011 CIRA Update

©2

01

1 L

ars

on

Alle

n L

LP

26

Conclusion

• Dealing with issues early prevents unwanted

surprises

• Know when to obtain an outside opinion

• Be aware of unique developer issues

• And

of

course

Thank you for your time!!!

Page 27: 2011 CIRA Update

©2

01

1 L

ars

on

Alle

n L

LP

27

Questions???