Accounting rules for recognizing assessment revenue from members have recently been amended with the introduction of FASB ASC 606 Revenue Recognition: Revenue from Contracts with Customers, (recognizing assessment revenue from association members). The new guidance takes effect for associations with accounting periods ending December 15, 2019 and beyond. All Generally Accepted Accounting Principles (GAAP) – based (accrual) financial reports for year ends beginning with December 31, 2019 are affected. Some new terms include:
• Determine the transaction price (assessment) • Allocate the transaction price (assessment) to the separate
performance obligations
• Recognize revenue as each performance obligation is satisfied
Assessment revenue is recognized as the related performance obligations (expenses) are satisfied at transaction (assessment) amounts expected to be collected. An association’s performance obligations (expenses) related to its operating assessments are satisfied over time. Operating assessments are generally considered to be matched in the period operating expenses are incurred.
• Performance obligation – An association’s obligation to
The performance obligations (expenses) related to replacement fund (reserves) assessments are satisfied when those funds are expended for their designated purpose. Thus, under the new guidance, reserve assessments are recognized when reserve expenses are incurred.
• Transaction price – For most associations, assessments charged
Accounting for Association Revenue
• Contract – Agreement between member and association,
typically for assessments.
perform, i.e., incur expenses.
to owners • Contract Liability – Unused reserve fund assessments.
FASB ASC 606 establishes a Five Step Approach for recognizing and measuring assessment revenue: • Identify the association’s contract with members (assessments
Member Assessments The annual budget is generally the basis for establishing assessments to fund operations, reserves and other funds such as insurance funds and special project funds.
typically based on the association’sbudget).
Operating Fund Assessments
with members (operating expenses,reserve expenses)
An association’s performance obligation for operating assessments
• Identify the separate performance obligations of the contract
34 • CONTACT, SPRING 2020
