Financial Reporting Requirements

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Financial Reporting Requirements

  1. 1. Financial Reporting Requirements A Supplement to the Financial Responsibilities Guide Incorporating the new CICA Handbook Recommendations on Not-for-Profit Organizations
  2. 2. This publication is produced by BC Housing Management Commission. Copyright © April 1998
  3. 3. This supplement outlines the financial reporting requirements to be used when preparing the financial statements of a Not-for-Profit (NFP) Organization involved in one or more provincially assisted housing developments. The supplement also briefly describes the terms contained in a society’s operating agreements and explains many of the policies relating to financial statement presentation. Use the set of statements in the Appendix for further reference and as a guide for financial statement presentation. As these guidelines are for NFPs involved in a range of different housing program types, some guidelines may not apply to specific developments. For more information, refer to the Financial Responsibilities Guide and the appropriate operating agreements. To obtain copies of this guide, contact Program Operations, BC Housing, at (604) 433-1711. BC Housing gratefully acknowledges the contribution and support of the Institute of Chartered Accountants of British Columbia, the Certified General Accountants Association of British Columbia, Staley, Okada, Chandler & Scott Chartered Accountants, and Arthur Andersen & Co. Chartered Accountants. Financial Reporting Requirements iii
  4. 4. iv
  5. 5. Contents Glossary.........................................................................................................................1 Financial Statement Review and Subsidy Reconciliation ................................4 Reporting Requirements...........................................................4 Statement Presentation............................................................5 Restricted Fund Method ....................................................6 Deferral Method .................................................................6 Significant Accounting Policies ..............................................................................7 Fund Accounting .......................................................................7 Revenue and Expenses .............................................................7 Revenue Recognition – Restricted Fund Method ..............7 Revenue Recognition – Deferral with Fund Accounting..............................................................8 Repayable Assistance (HOMES BC) .................................9 Reporting Capital Assets ..........................................................9 Sample Journal Entries for Capital Asset Reporting ..................................................9 Sample Journal Entries for Mortgage Principal Reduction ......................................11 Transitional Provisions ....................................................10 Amortization of Capital Assets ........................................10 Sample Journal Entry for Capital Asset Amortization...........................................12 Separate Reporting .................................................................12 Shelter Revenues..............................................................12 Shelter Expenses ..............................................................13 Classification ....................................................................13 Tenant Information ..........................................................13 Accumulated Operating Surplus .....................................14 Disclosure ................................................................................14 Administration .................................................................14 Mortgage ...........................................................................14 Repayable Assistance .......................................................14 Subsidy Adjustments........................................................15 Identification of Funding Sources....................................15 Special Payments .............................................................15 Replacement Reserve .......................................................16 Financial Reporting Requirements v
  6. 6. Society Changes ............................................................... 16 Operating Surplus/Deficit................................................ 16 Appendix: Sample Financial Statements Statement of Financial Position Statement of Operations and Changes in Fund Balances Statement of Cash Flows Statement of Changes in Replacement Reserve Fund Schedule of Shelter Operations (Housing Fund) Schedule of Housing Fund Surplus Accounts Notes to Financial Statements vi
  7. 7. Glossary Operating For each assisted housing development, the society and Agreement signatories of the provincial government and/or federal government (depending on the program type) sign an operating agreement. This agreement defines the operational and reporting requirements for managing developments under that program. Approved For many of the assisted housing developments, BC Housing Operating approves an annual operating budget for the eligible shelter Budget components. The operating budget projects the costs for operating a development based on income and expenses. The budget is used to determine how much rent subsidy BC Housing provides each month to run the development. Approval of the budget is based on costs experienced by similar operations. The society is responsible for operating within the approved amounts. If your society exceeds its approved budget or encounters extraordinary expenses during the year, discuss the expenditure of funds with your BC Housing Property Portfolio Manager. This includes all shelter operating and capital expenses that are not covered in the current operating budget. Contingency for Contingency for vacancy loss is a budgeting item used to help Vacancy Loss the society meet normal operating expenses in times of moderate vacancies. As vacancy should be reflected in the actual operating statements, no expenses can be charged to this budget item. Unused contingency funds cannot be carried over to cover other expenses under all programs, except HOMES BC. Replacement Replacement reserves are established to replace capital items Reserve over the life of the development. Each year the society is required to set aside an amount as per the approved operating budget. Reserve funds must be fully funded and placed in a separate and secured interest-bearing account in Financial Reporting Requirements 1
  8. 8. the society’s name. Any interest earned on the funds is to be used to offset the effects of inflation. These funds, along with the accumulated interest, must be held in a separate bank account and/or invested only in accounts or instrument insured by the Canada Deposit Insurance Corporation, The Credit Union Deposit Insurance Corporation, or investments as agreed upon with BC Housing. BC Housing will annually review the use of replacement reserve funds. Tenant Rent The tenant rent contribution (TRC) represents the amount Contribution payable by an eligible tenant or family group as a (TRC) contribution towards the monthly economic rent on a unit. The TRC is based on a percentage of gross household income or the approved BC Rent Scale, and is adjusted for any applicable rebates or surcharges. All TRCs are reviewed annually to reflect any changes in household income and/or composition. Note: Some programs do not require calculation of TRCs. Heat Rebates If a unit’s rent does not include heat, a tenant may be eligible to obtain a monthly rebate to offset heating costs. The rebate amount is set by BC Housing and is based on unit size and location. Economic Rent Economic rent is the estimated monthly operating cost for each unit. To determine the amount of funds required, BC Housing pro-rates the total development budget by unit, depending on the unit mix. Economic rent is set at the beginning of each fiscal period and is used to calculate subsidy. Market Rent Some programs have a market rent applied to each unit. Market rents reflect current private market rental rates for different unit sizes in different areas. Even though a unit’s economic rent may exceed the market rent, an individual’s TRC will not exceed the set market rent. 2
  9. 9. Rent Subsidy Economic Rent – TRC (net of rebates/surcharges) = Rent Subsidy The difference between the economic rent and the TRC determines the monthly rent subsidy payment. Rent subsidy is estimated at the beginning of the fiscal year based on the approved budget and adjusted accordingly for any under/ overpayment upon review of the audited financial statements. For developments with mortgage assistance only, BC Housing calculates the rent subsidy based on the variables relating to the mortgage. Financial Reporting Requirements 3
  10. 10. Financial Statement Review and Subsidy Reconciliation Upon receiving the society’s annual financial statements, BC Housing reviews the operating results of each development to verify rent subsidies paid, to determine if any rent subsidy adjustment is required, and to evaluate adherence to the financial management terms of the operating agreement. Reporting Requirements All societies are required to provide audited financial statements within three months of their fiscal year-end, except for groups with HOMES BC developments. For these groups, the required submission period is within four months of their fiscal year-end. The appointed auditor shall meet one of the following criteria: • be a member, or a partnership whose partners are members, in good standing of The Canadian Institute of Chartered Accountants or the Certified General Accountants Association of BC • be certified by the Auditor Certification Board under the Company Act • have prior approval from BC Housing to prepare and audit financial statements. The auditor must be independent of the society. 4
  11. 11. The audit, as described in the development operating agreement, includes: 1. Audited financial statements including: • Statement of Financial Position • Statement of Operations and Changes in Fund Balances • Statement of Cash Flow • Statement of Changes in Replacement Reserve Fund • Schedule of Shelter Operations (Housing Fund) for each Building • Schedule of Housing Fund Surplus Accounts 2. Provision of note disclosure within the financial statements or a special report (section 5815, CICA Handbook) indicating the following: • the society has or does not have on file verification for the income and assets of all tenants and that Tenant Rent Contributions are or are not being correctly charged to Rent-Geared-to-Income (RGI) tenants (this assessment may be done on a sample basis) • the Replacement Reserve Fund is funded and maintained in accordance with the operating agreement, and that interest accruing to the fund has been recorded • For all HOMES BC developments, the Accumulated Operating Surplus is being spent and accounted for as provided in the HOMES BC agreement. Statement Presentation Financial statements should be prepared in accordance with Generally Accepted Accounting Principles (GAAP), including the CICA Handbook recommendations for NFPs, effective for fiscal periods beginning on or after April 1, 1997. BC Housing has revised the financial reporting requirements to incorporate the new recommendations, particularly in the area of amortization of capital assets. Financial Reporting Requirements 5
  12. 12. To facilitate the presentation of operating results for financial review and rent subsidy reconciliation, BC Housing requires the use of fund accounting and separate shelter schedules for each development under agreement with BC Housing. The use of fund accounting enables the society to adapt the recommendations in the CICA Handbook for asset capitalization and amortization, and still provide BC Housing and other funding agencies with information on annual rent subsidy surplus or deficit. Under GAAP, the two methods of NFP accounting for contributions are the Restricted Fund Method and the Deferral Method. Restricted Fund Method To ensure that information is consistent and comparable for all NFPs involved in managing subsidized group homes and housing developments, BC Housing recommends the restricted fund method. A set of sample financial statements adopting the restricted fund accounting method is included in the Appendix. Schedules and Notes to Financial Statements, also in the Appendix, includes the additional information that BC Housing needs to reconcile the excess of revenue over expenses of operations determined in accordance with BC Housing’s reporting policies. Deferral Method The deferral with fund accounting method is also an option for NFPs. Contact Program Operations, BC Housing, at (604) 433-1711 for copies of sample financial statements for the deferral method. 6
  13. 13. Significant Accounting Policies Fund Accounting The following restricted funds should be used to reflect all of the related activities pertaining to BC Housing rent subsidies. Housing Fund – Reports the shelter operations and activities of the development under agreement with BC Housing and Canada Mortgage and Housing Corporation (CMHC). Capital Asset Fund – Reports the ownership and equity related to the NFP’s capital assets. Replacement Reserve Fund – Reports the assets, liabilities, revenues, and expenses related to a NFP’s capital asset replacement activities. A NFP can designate additional restricted and unrestricted funds. Society Fund – Reports the financial activities of a NFP’s non-shelter activities, including fundraising and membership activities. Revenue and Expenses Revenue and expenses should be recorded according to the accrual basis of accounting. Revenue Recognition – Restricted Fund Method Under the restricted fund method, contributions should be recognized as follows: • Initially recognize contributions for annual operations from BC Housing and CMHC as revenues in the Housing Fund, and allocate them to restricted funds by way of interfund transfers. Financial Reporting Requirements 7
  14. 14. • Recognize contributions received from BC Housing to acquire capital assets as revenues in the Capital Asset Fund. • Recognize contributions received for replacement reserve funding as revenues in the Housing Fund, and allocate them to the Replacement Reserve Fund by way of interfund transfers. • Recognize interest earned on replacement reserve funds as revenue in the Replacement Reserve Fund in the period in which the income is earned. • Recognize interest earned on operating funds as revenue in the Housing Fund in the period the income is earned. • Recognize interest earned on funds in trust held to repay the mortgage principal as revenue in the Capital Asset Fund in the period in which the income is earned. Revenue Recognition – Deferral with Fund Accounting Under the deferral method, contributions received from BC Housing should be recognized as follows: • Recognize contributions to acquire capital assets as revenues in the Capital Asset Fund. • Report contributions received for replacement reserve funding as revenues in the Operating Fund, and allocate them to the Replacement Reserve Fund by way of interfund transfers. • Recognize interest earned on replacement reserve funds as revenue in the Replacement Reserve Fund. • Recognize income earned on funds in trust held to repay the mortgage principal as revenue in the Capital Asset Fund in the period in which the income is earned. 8
  15. 15. Repayable Assistance (HOMES BC) For HOMES BC developments, a portion of the rent subsidy provided is classified as repayable assistance. For rent subsidy reconciliation, all contributions should be reported as revenue for the period in the Housing Fund. The repayable assistance is reported as a contingent liability in the Notes to the Financial Statements. Reporting Capital Assets Under GAAP, capital assets and their replacements are recorded at their original cost. Capital assets retired should be eliminated from the books and the disposal gains or losses determined. Capital assets include buildings, equipment purchases, land held under long-term leases, as well as capital assets associated with modernization and improvement projects. Organizations may expense all capital assets if the average of all annual revenues recognized in the statement of operations for the current and preceding period of the organization and any entities it controls is less than $500,000. Societies may consider this exemption when accounting for their capital assets. Organizations may fall in and out of this exemption, but it is expected that after falling out once, the organization will continue to apply the CICA Handbook recommendations. Capitalize as capital assets all purchases that are financed by contributions, including furniture, fixtures, and modernizations and improvements to buildings. Recognize acquired capital assets in the Capital Asset Fund. Replacement assets are funded by BC Housing rent subsidy through an annual provision in the operating budget. Periodic allocations to the Replacement Reserve Fund should be accounted for as interfund transfers. Sample Journal Entries for Capital Asset Reporting When modernizations and improvements (M & I) are made: Financial Reporting Requirements 9
  16. 16. Capital Asset Fund Dr. Cash XXX Cr. Capital Asset Revenue – BCH M & I Payment XXX Dr. Capital Assets XXX Cr. Cash XXX When money is set aside for replacing assets: Replacement Reserve Fund Dr. Cash XXX Cr. Interfund transfer from Housing Fund XXX Housing Fund Dr. Interfund transfer to Replacement Reserve Fund XXX Cr. Cash XXX When replacement assets are purchased: Utilization of replacement reserve funds should be accounted for as interfund transfers from the Replacement Reserve Fund to the Capital Asset Fund. The actual purchase of replacement assets is then accounted for in the Capital Asset Fund. Replacement Reserve Fund Dr. Interfund transfer to Capital Asset Fund XXX Cr. Cash XXX Capital Asset Fund Dr. Cash XXX Cr. Interfund transfer from Replacement Reserve Fund XXX Dr. Capital Assets XXX Cr. Cash XXX 10
  17. 17. Sample Journal Entries for Mortgage Principal Reduction Housing Fund Dr. Interfund transfer to Capital Asset Fund XXX Cr. Cash XXX Capital Asset Fund Dr. Mortgage Payable XXX Cr. Interfund transfer from Operating Fund XXX The amount of mortgage principal repayment pertaining to the housing developments under agreement with BC Housing, should be reported in the Capital Fund. Transitional Provisions The accounting policies required under GAAP as described earlier should be applied retroactively, except in circumstances in which the necessary financial information is not reasonably determinable. For financial reporting purposes, BC Housing does not recommend the retroactive restatement of Capital Assets that were purchased through the Replacement Reserve Fund. The collection of such information is unduly onerous and is not reasonably determinable. Please note that the sample financial statements in the Appendix do not include the necessary adjustments or disclosures required under GAAP for the changes in accounting policy. Please consult your auditor, the Canadian Institute of Chartered Accountants or the Certified General Accountants Association for guidance in this area. Amortization of Capital Assets Under GAAP, capital assets, including long-term prepaid land leases, are amortized over the economic life of the assets in a rational and systematic manner. For BC Housing financial reporting requirements, amortization should be reported in the Capital Asset Fund. Financial Reporting Requirements 11
  18. 18. All revenue and expenses relating to the ownership of capital assets should be reflected in the Capital Asset Fund. The useful life of a capital asset is the estimate of the period over which an organization is expected to use the asset. The life of a capital asset may extend beyond its useful life to an organization. Based on BC Housing’s experience, the following ranges may be useful as guidelines for the estimated useful life of the assets listed below: • buildings – 35 to 50 years • equipment – 10 to 20 years Sample Journal Entry for Capital Asset Amortization Capital Asset Fund Dr. Amortization expense XXX Cr. Accumulated Amortization XXX Separate Reporting Many societies operate more than one housing development or have several activities and sources of funding. For rent subsidy review purposes, BC Housing requires a society to submit a separate schedule of shelter revenues and expenses for each housing development. These schedules should be included as part of the financial statement package submitted by the society. In each schedule, outline shelter- related income and expenses for operating the development. Identify these separately from other activities such as fundraising or providing care for residents. Shelter Revenues Shelter revenues include the approved TRCs, rent subsidy received for the period, interest on housing funds, special payments, and other building income such as laundry and parking. 12
  19. 19. Shelter Expenses The approved operating budget outlines the acceptable shelter expenses. These include building related expenses such as property taxes, utilities, maintenance, mortgage interest, as well as reasonable amounts for audit, legal, and administration. Chapter 4 of the Financial Responsibilities Guide provides detailed information on eligible shelter expenses. To obtain copies of this guide, contact Program Operations, BC Housing, at (604) 433-1711. Some expenses are not eligible for rent subsidy, including space that is based on or used for staff sleeping quarters, child care, a nursing station, community projects, or retail outlets. Classification BC Housing recognizes that operations may vary from development to development. However, for ease of comparison, BC Housing encourages all societies to classify the shelter revenue and expenses according to the approved operating budget categories. Standardized classification will help identify approved shelter expenses and assist societies with annual budgeting. Tenant Information A statement in the Notes to the Financial Statements or a special report (section 5815, CICA Handbook) is required, indicating that the society has or does not have on file verification for the income and assets of all tenants, and that the Tenant Rent Contributions are or are not being correctly charged to the Rent-Geared-to-Income tenants (this assessment may be done on a sample basis). Financial Reporting Requirements 13
  20. 20. Accumulated Operating Surplus A statement in the notes to the financial statements or a special report (section 5815, CICA Handbook) is required, indicating that for all HOMES BC developments, the Accumulated Operating Surplus is being spent and accounted for as provided in the HOMES BC operating agreement. Disclosure Disclosure required under GAAP should be presented in the financial statements. Specific disclosures required for BC Housing financial reporting requirements are identified below. Administration When a society operates many developments, or has agreements with more than one sponsor, overhead and other common expenses should be allocated on a reasonable basis (i.e., pro-rate them based on number of units, actual time spent, or percentages). The basis of allocation used should be disclosed in the Notes to the Financial Statements. Mortgage The statements must disclose the mortgage information, as required by GAAP, for each development. Repayable Assistance For HOMES BC developments, the repayable assistance should be treated as a contingent liability. The amount, terms, and date of repayment is determined by a set of circumstances in the future. The amount of repayable assistance, as confirmed by BC Housing, should be disclosed in the Notes to the Financial Statements. 14
  21. 21. Subsidy Adjustments After completing a financial review and/or rent subsidy reconciliation, BC Housing determines the operating expenditures that are eligible for rent subsidy. Based on the accepted expenses, BC Housing may either make up a deficit or request repayment of a rent subsidy surplus for all developments except HOMES BC developments, where the society manages the deficit or surplus. The amount of the reconciled rent subsidy surplus or deficit may differ from the surplus or deficit shown on the financial statements. The adjustments from prior years should be shown separately on the Schedule of Shelter Operations (Housing Fund) and disclosed in the notes. It is not necessary to restate prior years’ financial statements to account for BC Housing rent subsidy adjustments. Identification of Funding Sources Financial statements for all housing programs except HOMES BC, should disclose that the rent subsidy received represents the financial contribution shared jointly by Canada Mortgage and Housing Corporation on behalf of the federal government and BC Housing on behalf of the provincial government. The rent subsidy received by HOMES BC programs is fully funded by BC Housing on behalf of the provincial government. Special Payments When an extraordinary expenditure has been approved by a BC Housing Property Portfolio Manager, a special payment may have been issued in addition to regular rent subsidy payments. A special payment should be reported as a separate revenue item apart from regular rent subsidies. A special payment for a non-capital item(s) recognized into revenue should be matched by an approved expenditure of an equal amount, and an appropriate comment made in the Notes to the Financial Statements. Financial Reporting Requirements 15
  22. 22. A special payment for a capital or modernization and improvement item(s) is recognized as revenue in the Capital Fund, and an appropriate comment made in the Notes to the Financial Statements. Replacement Reserve All activities relating to the revenue and expenses of the Replacement Reserve should be disclosed on a separate statement as part of the financial statements (see the Appendix). The Notes to the Financial Statements should also include a statement indicating that the society has funded the reserves at least annually, and has deposited and kept the reserve and accumulated interest in a separate bank account or in one of the following accounts or instruments: • in an account insured by the Canadian Deposit Insurance Corporation or by the Credit Union Deposit Insurance Corporation • in an investment guaranteed by a Canadian government • in other investment instruments as agreed upon with BC Housing. Society Changes If a society’s operations or structure changes significantly, an appropriate comment should be made in the Notes to the Financial Statements. Note: The operating agreements and/or development land leases contain clauses limiting society changes. Operating Surplus/Deficit The Schedule of Shelter Operations should clearly identify, by development, the shelter operating surplus or deficit for the year. 16
  23. 23. The statements should also identify the rent subsidy adjustments and the accumulated shelter operating surplus or deficit for each development. This information may be disclosed on the Statement of Operations and Changes in Fund Balances, in the Notes to the Financial Statements, or on a separate schedule (see Schedule B of the Appendix). Financial Reporting Requirements 17
  24. 24. 18
  25. 25. Appendix: Sample Financial Statements
  26. 26. AUDITORS' REPORT To the Members of ABC Society: Auditors should prepare an appropriate Auditor’s Report as per the recommendations in section 5400-CICA Handbook. City, Province (signed) AUDITOR Date The accompanying notes are an integral part of these financial statements.
  27. 27. ABC SOCIETY STATEMENT OF FINANCIAL POSITION AS AT DATE 19x8 19x7 Society Housing Capital Replacement Fund Fund Asset Fund Reserve Fund Total Total Current assets Cash and term deposits 23,500 68,500 92,000 81,700 $ $ $ $ $ $ Accounts receivable 500 7,200 7,700 6,700 Other receivable (specify where material) Prepaids 200 2,800 3,000 3,500 24,200 78,500 102,700 91,900 Restricted cash and term deposits (Note 3) 6,500 68,000 214,100 288,600 232,400 Capital assets, net (Note 4) 2,721,500 2,721,500 2,771,900 24,200 85,000 2,789,500 214,100 3,112,800 3,096,200 $ $ $ $ $ $ Current liabilities Accounts payable and accrued liabilities 200 24,000 24,200 23,600 $ $ $ $ $ $ Security deposits 6,500 6,500 5,900 Deferred revenue 16,500 16,500 19,800 Current portion of long term debt 26,400 26,400 25,300 Other (specify where material) 200 47,000 26,400 73,600 74,600 Mortgages payable - long-term (Note 5) 2,594,100 2,594,100 2,620,500 Fund balances Invested in capital assets 101,000 101,000 126,100 Externally restricted (Note 6) 38,000 68,000 214,100 320,100 254,500 Internally restricted Unrestricted 24,000 24,000 20,500 The accompanying notes are an integral part of these financial statements.
  28. 28. 24,000 38,000 169,000 214,100 445,100 401,100 24,200 85,000 2,789,500 214,100 3,112,800 3,096,200 $ $ $ $ $ $ The accompanying notes are an integral part of these financial statements.
  29. 29. ABC HOUSING SOCIETY STATEMENT OF OPERATIONS AND CHANGES IN FUND BALANCES FOR THE YEAR ENDED ______________, _______ Operating Funds Restricted Funds Capital Replacement Asset Reserve Total Total Society Housing Fund Fund 19x8 19x7 Revenues Donations 4,000 4,000 1,000 $ $ $ $ $ $ Fundraising 2,000 2,000 1,000 Tenant rent contributions 142,000 142,000 134,900 Rent subsidies CMHC 60,000 60,000 63,000 BC Housing 304,000 304,000 298,000 BCH Special Payment (Note 10) 4,000 4,000 3,800 BCH - M & I Special Payment (Note 10) 10,000 10,000 Interest 1,000 1,300 3,400 9,700 15,400 13,600 Sundry 800 800 800 7,000 512,100 13,400 9,700 542,200 516,100 Expenses Property taxes/licenses 20,000 20,000 19,000 Land lease (if applicable) Insurance 7,000 7,000 6,700 Utilities - heating and hot water 25,000 25,000 23,800 - electricity 5,000 5,000 5,300 - water and sewer 6,000 6,000 5,700 - garbage removal 5,500 5,500 5,200 Maintenance - salaries, wages and benefits 50,000 50,000 47,500 - building maintenance 14,000 14,000 32,400 - grounds 4,500 4,500 4,300 - service contracts 8,300 8,300 7,900 Administration - salaries, wages and benefits 1,000 35,000 36,000 34,300 - office overhead 1,500 3,500 5,000 4,700 - accounting fees Audit and legal fees 500 3,000 3,500 3,400 Mortgage interest 227,600 227,600 229,500 Amortization of capital assets 65,400 65,400 52,600 Miscellaneous 500 500 Other - Security (Note 10 ) 4,000 4,000 3,500 418,400 65,400 487,300 482,300 Excess (deficiency) of revenue over expenses 3,500 93,700 (52,000) 9,700 54,900 33,800 Rent subsidy adjustments (Schedule A) (10,900) (10,900) (4,600) Excess (deficiency) of revenue over expenses from operations 3,500 82,800 (52,000) 9,700 44,000 29,200 Fund balances, beginning 20,500 28,000 190,700 161,900 401,100 371,900 Interfund transfers: Mortgage principal repayments (25,300) 25,300 Replacement reserve provision (47,500) 47,500 Capital assets acquired 5,000 (5,000) Fund balances, ending 24,000 38,000 169,000 214,100 445,100 401,100 The accompanying notes are an integral part of these financial statements.
  30. 30. Operating Funds Restricted Funds $ $ $ $ $ $ The accompanying notes are an integral part of these financial statements.
  31. 31. ABC SOCIETY STATEMENT OF CASH FLOWS FOR THE YEAR ENDED ______________, _______ Operating Activities Financing and Investing Activities Society Housing Total Total Capital Replacement Total Total Fund Fund 19x8 19x7 Asset Fund 19x8 19x7 Reserve Fund Sources of cash CMHC contributions $ 60,000 $ 60,000 63,000 $ $ $ $ $ $ BC Housing contributions 304,700 304,700 303,300 10,000 10,000 Interest income 1,000 1,300 2,300 2,300 3,400 9,700 13,100 11,600 Rental revenue 141,100 141,100 133,700 Security deposit interest 600 600 200 Other receipts 5,900 800 6,700 2,700 Uses of cash Payments for operating expenses Salaries and benefits (85,000) (85,000) (80,800) Materials and services (3,500) (105,700) (109,200) (127,500) Subsidy repaid to BC Housing (9,900) (9,900) (4,600) Mortgage interest (227,600) (227,600) (229,500) Mortgage principal (25,300) (25,300) (23,400) Capital assets acquired (15,000) (15,000) (7,000) Interfund transfers: Repayment of mortgage principal (25,300) (25,300) (23,400) 25,300 25,300 23,400 Replacement reserve provision (47,500) (47,500) (34,000) 47,500 47,500 34,000 Capital assets acquired 5,000 (5,000) Net increase in cash and term deposits 3,400 7,500 10,900 5,400 3,400 52,200 55,600 38,600 Cash and term deposits, Beginning 20,100 67,500 87,600 82,200 64,600 161,900 226,500 187,900 Cash and term deposits, Ending 23,500 $ 75,000 $ 98,500 87,600 68,000 214,100 282,100 $ 226,500 The accompanying notes are an integral part of these financial statements.
  32. 32. $ $ $ $ $ The accompanying notes are an integral part of these financial statements.
  33. 33. ABC SOCIETY STATEMENT OF CHANGES IN REPLACEMENT RESERVE FUND FOR THE YEAR ENDED _____________, __________ 19X8 19X7 Building 1 Building 2 Building 3 Total Total Balance, beginning of year $ 40,000 $ 45,000 $ 76,900 $ 161,900 $ 126,500 Add: Transfer from operating fund for the year (Note 11) 4,600 17,900 25,000 47,500 34,000 Interest income 2,400 2,700 4,600 9,700 8,400 Other (please specify) Less: Transfer to capital asset fund for asset replacement (Note 11) (details below) (700) (4,300) (5,000) (7,000) Balance, end of year (Note 11) $ 46,300 $ 61,300 $ 106,500 $ 214,100 $ 161,900 Capital asset replacement for the year consisting of: Appliances $ 700 $ $ 700 $ 1,500 Flooring 4,300 4,300 5,500 $ 700 $ 4,300 $ 5,000 $ 7,000
  34. 34. SCHEDULE A ABC SOCIETY SCHEDULE OF SHELTER OPERATIONS (HOUSING FUND) FOR THE YEAR ENDED ______________, _______ Total Total Building 1 Building 2 Building 3 19X8 19X7 Revenues Tenant rent contributions $ 35,000 $ 22,000 85,000 142,000 134,900 $ $ $ Rent subsidies CMHC 60,000 60,000 63,000 BC Housing 110,000 194,000 304,000 298,000 BCH Special Payment (Note 10) 4,000 4,000 3,800 Interest 400 500 400 1,300 1,200 Sundry 500 100 200 800 800 95,900 136,600 279,600 512,100 501,700 Expenses Property taxes/Licenses 4,000 6,000 10,000 20,000 19,000 Land lease (if applicable) Insurance 1,400 2,100 3,500 7,000 6,700 Utilities - heating and hot water 5,000 7,500 12,500 25,000 23,800 - electricity 1,000 1,500 2,500 5,000 5,300 - water and sewer 1,200 1,800 3,000 6,000 5,700 - garbage removal 1,100 1,650 2,750 5,500 5,200 Maintenance - salaries, wages and benefits 10,000 15,000 25,000 50,000 47,500 - building maintenance 2,400 6,500 5,100 14,000 32,400 - grounds 900 1,350 2,250 4,500 4,300 - service contracts 1,660 2,490 4,150 8,300 7,900 Administration - salaries, wages and benefits 7,000 10,500 17,500 35,000 33,300 - office overhead 700 1,050 1,750 3,500 3,300 - accounting fees Audit and legal fees 600 900 1,500 3,000 2,900 Mortgage interest 30,900 46,400 150,300 227,600 229,500 Rent Other - Security expense ( Note 10) 4,000 4,000 67,860 108,740 241,800 418,400 426,800 Excess of revenues over expenses 28,040 27,860 37,800 93,700 74,900 Interfund transfers Mortgage principal repayments (6,100) (11,900) (7,300) (25,300) (23,400) Replacement reserve provision (4,600) (17,900) (25,000) (47,500) (34,000) Rent subsidy surplus (deficit) from operations 17,340 (1,940) 5,500 20,900 17,500 Rent subsidy adjustments (Note 8) Payment (to) from BC Housing (8,500) (1,400) (9,900) (4,600) Rent subsidy adjustments 500 (1,500) (1,000) Rent subsidy surplus (deficit) for the year $ 9,340 $ (3,340) 4,000 10,000 12,900 $ $ $ The accompanying notes are an integral part of these financial statements.
  35. 35. SCHEDULE B ABC SOCIETY SCHEDULE OF HOUSING FUND SURPLUS ACCOUNTS FOR THE YEAR ENDED _____________, __________ Building 1 Building 2 Building 3 Total Total 19X8 19X7 Surplus beginning 9,000 1,400 17,600 28,000 15,100 $ $ $ $ $ Excess of revenue over expenses 28,040 27,860 37,800 93,700 74,900 Interfund transfers Mortgage principal repayments (6,100) (11,900) (7,300) (25,300) (23,400) Replacement reserve provision (4,600) (17,900) (25,000) (47,500) (34,000) Rent subsidy adjustments (Note 8) Payment (to) from BC Housing (8,500) (1,400) (9,900) (4,600) Rent subsidy adjustments 500 (1,500) (1,000) Surplus (deficit), end of year 18,340 (1,940) 21,600 38,000 28,000 $ $ $ $ $ The accompanying notes are an integral part of these financial statements.
  36. 36. ABC SOCIETY NOTES TO FINANCIAL STATEMENTS ______________, ______ 1. PURPOSE OF THE SOCIETY ABC Society (the “Society”) is incorporated under the laws of the Society Act of British Columbia as a not-for-profit organization and is a registered charity under the Income Tax Act. The Society provides low cost specialized housing to seniors and people with disabilities in British Columbia. It has three projects subsidized through BC Housing Management Commission (“BC Housing”). 2. SIGNIFICANT ACCOUNTING POLICIES Fund Accounting The Society follows the restricted fund method of accounting for contributions. The Society Fund accounts for the Society’s fundraising and membership activities. The Housing Fund reports restricted operating grants, revenue and expenses related to the society’s housing activities. The Capital Asset Fund reports the ownership and equity related to the Society’s capital assets. The Replacement Reserve Fund reports the assets, liabilities, revenues and expenses related to capital asset replacement activities. Revenue Recognition Contributions from BC Housing Contributions received from BC Housing for the replacement reserve fund have been reported as interfund transfers from the Housing Fund to the Replacement Reserve Fund. Contributions received from BC Housing for the acquisition of capital assets have been recognized as revenue in the Capital Fund. Other Contributions All other contributions are recognized as revenue of the appropriate fund in the year in which the related expenses are incurred. Investment Income Interest Income earned on replacement reserve funds is recognized as revenue in the Replacement Reserve Fund in the period the investment income is earned. Interest Income earned on funds held in trust for repayment of the mortgage principal is recognized as revenue in the Capital Fund in the period in which the income is earned. –2–
  37. 37. Capital Assets Purchased capital assets are recorded at cost. Amortization is provided on a straight-line basis over the assets’ estimated useful lives, which for buildings is xx years and for furniture and equipment are xx years. Prepaid land lease is amortized on a straight-line basis over the remaining term of the lease. Amortization expense is reported in the Capital Asset Fund. Deferred Revenue The deferred revenue reported in the Housing Fund represents restricted operating funds received in the current year that is related to the subsequent period. Administration Costs Administration costs are allocated among shelter and non-shelter components based on the number of units, the actual time spent or a percentage of the total administration. 3. RESTRICTED CASH AND TERM DEPOSITS Cash designated for specific purposes is segregated as follows: 19x8 19x7 Cash held in trust by BC Housing relating to the construction $ 68,000 $ 64,600 of the housing project. Any cash funds not used for completion costs must be used to reduce the principal amount outstanding upon renewal of the Society’s mortgage. Security Deposits and accrued interest owing to tenants 6,500 5,900 Replacement Reserves 214,100 161,900 $ 288,600 $ 232,400 4. CAPITAL ASSETS 19X8 19X7 Cost Accumulated Net Book Net Book Depreciation Value Value Land $ 100,000 $ $ 100,000 $ 100,000 Land – Lease 720,000 (81,600) 638,400 650,400 Buildings 2,230,000 (291,000) 1,939,000 1,976,000 Furniture & fixtures 57,000 (21,200) 35,800 35,800 Equipment 21,000 (12,700) 8,300 9,700 $ 3,128,000 $ (406,500) $ 2,721,500 $ 2,771,900 –3–
  38. 38. 5. MORTGAGES PAYABLE 19X8 19X7 Mortgage - Canada Mortgage Housing Corporation $ 383,200 $ 389,400 This mortgage relates to Building 1 and is repayable in monthly installments of $3,090, which include interest at 8%. The mortgage matures December 1, 2002. Mortgage - Canada Mortgage Housing Corporation 708,000 719,900 This mortgage relates to Building 2 and is repayable in monthly installments of $4,860, which include interest at 7%. The mortgage matures February 1, 1999. Mortgage - XYZ Bank 1,529,300 1,536,500 This mortgage relates to Building 3 and is repayable in monthly installments of $13,126, which include interest at 9.8% The mortgage matures April 1, 2000. __________ __________ 2,620,500 2,645,800 Less: current portion 26,400 25,300 $ 2,594,100 $ 2,620,500 All of the mortgages above are secured by a registered first charge and an assignment of rents and fire insurance proceeds on the respective property. Principal payments due on the long-term debt in each of the next five years are as follows: 19x9 $ 26,400 20x0 27,600 20x1 29,600 20x2 32,000 20x3 34,600 Subsequent to 20x3 2,470,300 $ 2,620,500 6. EXTERNALLY RESTRICTED NET ASSETS Major categories of externally imposed restrictions on net assets are as follows: 19X8 19X7 Restricted for replacing capital items $ 214,100 $ 161,900 Restricted for payment of mortgage principal at maturity 68,000 64,600 Contributions, restricted for housing operations, as approved by BC Housing 38,000 28,000 $ 320,100 $ 254,500 –4–
  39. 39. 7. CONTINGENT LIABILITY The cumulative non-Rent-Geared-to-Income (non-RGI) assistance of $50,193 as at 19x8 is contingently repayable to BCHMC in the event that the total non-RGI tenant rent contribution in any year exceeds the economic rent of the suites occupied by non-RGI tenants. The society is required to commence repayment of the cumulative non-RGI assistance on the first day of the fiscal year following the fiscal year in which the preceding event occurs. The balance then bears interest at bank prime and the required monthly payments are set annually, based upon the amount by which non-RGI tenant rent contribution exceeds economic rent for these suites in the prior year. Repayable Assistance: 19X8 19X7 Balance, beginning of year $ 25,630 $ 0 Addition in current year 24,563 25,630 Balance, end of year $ 50,193 $ 25,630 8. SUBSIDY ADJUSTMENTS BC Housing conducts an annual review of the Financial Statements and may adjust for any operating surplus or deficit. Prior years funding adjustments are recognized in the fiscal year they are determined. In 19X8 subsidies of $9,900 were repaid to BC Housing. (19X7 - $4,600) 9. SUBSIDY ASSISTANCE PAYMENTS The Society received subsidy assistance from Canada Mortgage and Housing Corporation on behalf of the Federal Government and the BC Housing on behalf of the Provincial Government to provide housing for families, seniors and people with disabilities. The amount of assistance recorded for the year ended 19X8 was $368,000 (19X7 - $364,800), with respect to the eligible residential component. 10. SPECIAL PAYMENTS During the year, $4,000 additional subsidy was provided by BC Housing for the services of a security company with respect to Building 2. During the year, a Modernization and Improvement payment of $10,000 was provided by BC Housing for window replacement with respect to Building 1. 11. REPLACEMENT RESERVE Under the terms of the agreement with BC Housing, the Replacement Reserve accounts are to be credited in the amount determined by the budget provision per annum plus interest earned. These funds along with the accumulated interest must be held in a separate bank account and/or invested only in accounts or instruments insured by the Canada Deposit Insurance Corporation or the Credit Union Deposit Insurance Corporation; in investments guaranteed by a Canadian government; or in other investment instruments as agreed upon with BC Housing. –5–
  40. 40. The reserve funds may only be used for capital repairs and replacements in accordance with the operating agreement. The funds in reserve consist of the following: 19X8 19X7 Cash $ 34,100 $ 61,900 Term deposits 180,000 100,000 $ 214,100 $ 161,900 12. OTHER NOTES AS REQUIRED BY THE CICA HANDBOOK Additional notes may include lease commitments, related party transactions, etc. ADDITIONAL NOTES REQUIRED, IF A SEPARATE AUDITORS REPORT IS NOT PROVIDED: REPLACEMENT RESERVES At the fiscal year end, 19x8, the replacement reserve was funded and maintained in accordance with the operating agreement and all interest accruing to the fund has been recorded. 13. TENANT RENT The Society has on file, verification of the Income and Assets of all Tenants as required by the operating agreement with BC Housing. The Tenant Rent Contributions, as approved by BC Housing, are being charged correctly to the Rent-Geared-to-Income Tenants. 14. ACCUMULATED OPERATING SURPLUS The Accumulated Operating Surplus is being spent and accounted for as provided in the HOMES BC Operating Agreement. –6–
  41. 41. This example is provided for illustrative purposes only. Auditors will need to review the CICA Handbook sections 5800 and 5815, the relevant BC Housing Operating Agreements and other appropriate documentation to determine the appropriate format and content for a report. AUDITOR’S REPORT ON COMPLIANCE WITH AGREEMENT(S) WITH BC HOUSING To: BC Housing I have audited ________ Society’s compliance as at ______,19___ with the criteria established in Sections X, XX, XXX, XXXX of the Society’s Operating Agreement(s) with BC Housing dated ______, 19____, in respect of: (i) Section X - verification of Income and Assets for all Tenants, (ii) Section XX - Tenant Rent Contributions being charged to Rent-Geared-to-Income Tenants, (iii) Section XXX - funding and maintenance of the Replacement Reserve, and the interest income related thereto, (iv) Section XXXX - spending and accounting for the Accumulated Operating Surplus of the Homes BC development. Compliance with the criteria established by the provisions of the Operating Agreement(s) is the responsibility of the management of ___________ Society. My responsibility is to express an opinion on this compliance based on my audit. I conducted my audit in accordance with generally accepted auditing standards. These standards require that I plan and perform an audit to obtain reasonable assurance whether ____________ Society complied with the criteria established by the provisions of the Operating Agreement(s) referred to above. Such an audit includes examining, on a test basis, evidence supporting compliance, evaluating the overall compliance with the agreement ,and where applicable, assessing the accounting principles used and significant estimates made by management. In my opinion, _____________ Society is in compliance, in all material respects, with the criteria set out in Sections X, XX, XXX, XXXX of the Society’s Operating Agreement(s) with BC Housing dated _________, 19______. City, Province ____________________ Date (signed) AUDITOR –7–

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