Revenue Recognition: Frequently Asked Questions

What criteria should we use to determine if accounts are not collectible and, therefore, should not be recorded as revenue under the new revenue recognition standards?

Developing a policy to predict whether future assessments (or other revenue) is collectible involves significant management judgement.  There is no right or wrong way to develop an estimate for a revenue recognition policy to determine uncollectible assessments.  We suggest the Association consider including member accounts that are in bankruptcy or foreclosure at the beginning of the year as accounts that are uncollectible.  The important step is for each Association to have a written policy.

How should we handle recording other revenue, such as late fees, legal fees, etc.?

We recommend the Association follow the policy developed above.  If the policy states that revenue from members in bankruptcy or foreclosure should be considered uncollectible, then other revenue due from this member would also be considered uncollectible and not recorded as revenue under the revenue recognition standard.

If our financial statements are on a cash basis, does this new standard apply?

Yes, this new standard applies in that you need to develop a policy for determining when assessments are not collectible.  The auditor will need this policy to convert the financial statements from cash to accrual.  But, nothing will change in how you record revenue in the Association’s monthly cash basis financial statements.

Should assessments for reserves be deferred?

No, assessments for reserves should be recorded in the financial statements as assessed and should not be deferred.

How should special assessments be recorded?

Please provide us with the notice the Association sent to its members to notify them of the special assessment.  We can help the Association determine how this revenue should be recorded.

Can you write the revenue recognition policy for us?

No, our firm cannot write the revenue recognition policy for the Association, as we need to remain independent to be able to audit the Association’s financial statements.  We can offer guidance and recommendations.

Do we still need an allowance for doubtful assessments?

Yes.  The Association should continue to evaluate the adequacy of the allowance for doubtful assessments in conjunction with its policy.  However, member assessments and other income that did not meet the revenue recognition criteria would be in the contra receivable account and not included in the allowance.