The Communicator - Volume 1, Issue 1 - (Page 12)

The Devil Is in the Details New Accounting Requirements for CIDs By Linnea Juarez, CCAM, PCAM The boards themselves have often fought accrual accounting on the basis that the reports were too Boards are becoming more educated each year and association financial activities. difficult to understand. This is just a matter of training. are understanding the need for proper accounting of WE OFTEN LOSE sight of the small, insignificant issues due to our concentration on the bigger picture … but that small issue can carry a big punch. In July 2006, Civil Code section 1365.2 became operative. This section was titled “Association records: availability to member; redactions; use by member; remedies.” Most of us concentrated on the obvious issues of how to comply – costs involved and time. What was overlooked by many was the statement: “The records described in this paragraph shall be prepared in accordance with generally accepted accounting principles.” This one sentence could have changed the method of doing business for over 90 percent of the management companies in the State of California. We have no hard figures, but from discussions with various CPAs around the state, it appears that only 10 percent of CID management companies prepare their financial reports on the accrual basis. GAAP (generally accepted accounting principles) is the body of rules and guidelines which govern how CPAs conduct audits, reviews, and compilations and present financial reports. Under GAAP, accrual accounting is the only accepted method of financial accounting for CIRAs (Common Interest Realty Associations) which we call CIDs or Common Interest Developments. In order to understand this issue, I need to explain the difference between Cash and Accrual Accounting. CASH ACCOUNTING Cash Accounting is the recognition of revenue when received and expenses when paid. It works in a similar manner to your own checkbook recording. You record your deposits when you make them and you record your expenses when you write the check. That is cash accounting. In a CID, cash accounting carries many pitfalls for the board and any third-party reader: 12 • The Communicator

Table of Contents Feed for the Digital Edition of The Communicator - Volume 1, Issue 1

The Communicator - Volume 1, Issue 1 Contents President’s Message Capitol Recap Complying with California’s Reserve Study and Disclosure Laws The Devil Is in the Details Ask the Experts – Deferred Maintenance HOA Banking, Then and Now 2008 Events & Education Calendar Welcome to CAI BayCen Index to Advertisers

The Communicator - Volume 1, Issue 1

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