Dennis,
Our HOA audited financials for 2020 and 2021 do not properly follow ASC606. Are AZ HOA’s not following this revenue recognition ruling that went into effect on 1/1/2020?

On 1/1/2020, ASC 606 is a principles‐based framework for recognizing revenue and replaced Generally Accepted Accounting Principles (GAAP) revenue recognition requirements and accounting guidance that homeowner associations have followed for many years

The most significant and controversial change resulting from the implementation of ASC 606 is the timing of recognizing revenue for replacement and reserve funds.

Under ASC 606, a CIRA will recognize revenue as individual performance obligations are met or in this case as replacement reserve funds are spent. To implement ASC 606, CIRAs will start by moving the beginning fiscal year fund balance for the replacement reserve fund to a new liability account named “Contract Liabilities – Assessments Received in Advance – Replacement Reserve Fund”. Next all replacement reserve fund assessments will be posted to this same contract liability account. As reserve expenses are incurred and thus performance obligations met, the CIRA will recognize the revenue by moving the funds spent from the liability to revenue. This is similar to the historical treatment of special assessment funds. The end result of these adjustments on the replacement reserve fund, in the absence of interest income, being that the Balance Sheet will show a zero fund balance and the Statement of Revenue and Expenses, will net to zero each year. Interest income generated on the replacement reserve funds would generate fund balance in the replacement reserve fund after implementation and not create an additional contract liability.