financial reporting requirements

Financial Reporting RequirementsA Supplement to the Financial Responsibilities Guide

Incorporating the newCICA Handbook Recommendationson Not-for-Profit Organizations

This publication is produced byBC Housing Management Commission.

Copyright © April 1998

Financial Reporting Requirements iii

This supplement outlines the financial reportingrequirements to be used when preparing the financialstatements of a Not-for-Profit (NFP) Organization involvedin one or more provincially assisted housing developments.The supplement also briefly describes the terms contained ina society’s operating agreements and explains many of thepolicies relating to financial statement presentation. Use theset of statements in the Appendix for further reference andas a guide for financial statement presentation.

As these guidelines are for NFPs involved in a range ofdifferent housing program types, some guidelines may notapply to specific developments.

For more information, refer to the Financial ResponsibilitiesGuide and the appropriate operating agreements. To obtaincopies of this guide, contact Program Operations,BC Housing, at (604) 433-1711.

BC Housing gratefully acknowledges the contribution andsupport of the Institute of Chartered Accountants of BritishColumbia, the Certified General Accountants Association ofBritish Columbia, Staley, Okada, Chandler & ScottChartered Accountants, and Arthur Andersen & Co.Chartered Accountants.

Financial Reporting Requirements v

Contents

Glossary.........................................................................................................................1

Financial Statement Review and Subsidy Reconciliation ................................4

Reporting Requirements...........................................................4Statement Presentation............................................................5

Restricted Fund Method ....................................................6Deferral Method .................................................................6

Significant Accounting Policies ..............................................................................7

Fund Accounting.......................................................................7Revenue and Expenses .............................................................7

Revenue Recognition – Restricted Fund Method..............7Revenue Recognition – Deferral with Fund Accounting..............................................................8Repayable Assistance (HOMES BC) .................................9

Reporting Capital Assets..........................................................9Sample Journal Entries for Capital Asset Reporting ..................................................9Sample Journal Entries for Mortgage Principal Reduction ......................................11Transitional Provisions ....................................................10Amortization of Capital Assets ........................................10Sample Journal Entry for Capital Asset Amortization...........................................12

Separate Reporting .................................................................12Shelter Revenues..............................................................12Shelter Expenses ..............................................................13Classification ....................................................................13Tenant Information ..........................................................13Accumulated Operating Surplus .....................................14

Disclosure ................................................................................14Administration .................................................................14Mortgage ...........................................................................14Repayable Assistance .......................................................14Subsidy Adjustments........................................................15Identification of Funding Sources....................................15Special Payments .............................................................15Replacement Reserve .......................................................16

vi

Society Changes ...............................................................16Operating Surplus/Deficit................................................16

Appendix: Sample Financial Statements

Statement of Financial PositionStatement of Operations and Changes in Fund BalancesStatement of Cash FlowsStatement of Changes in Replacement Reserve FundSchedule of Shelter Operations (Housing Fund)Schedule of Housing Fund Surplus AccountsNotes to Financial Statements

Financial Reporting Requirements 1

Glossary

For each assisted housing development, the society andsignatories of the provincial government and/or federalgovernment (depending on the program type) sign anoperating agreement. This agreement defines the operationaland reporting requirements for managing developmentsunder that program.

For many of the assisted housing developments, BC Housingapproves an annual operating budget for the eligible sheltercomponents. The operating budget projects the costs foroperating a development based on income and expenses. Thebudget is used to determine how much rent subsidyBC Housing provides each month to run the development.Approval of the budget is based on costs experienced bysimilar operations. The society is responsible for operatingwithin the approved amounts.

If your society exceeds its approved budget or encountersextraordinary expenses during the year, discuss theexpenditure of funds with your BC Housing PropertyPortfolio Manager. This includes all shelter operating andcapital expenses that are not covered in the currentoperating budget.

Contingency for vacancy loss is a budgeting item used to helpthe society meet normal operating expenses in times ofmoderate vacancies. As vacancy should be reflected in theactual operating statements, no expenses can be charged tothis budget item. Unused contingency funds cannot becarried over to cover other expenses under all programs,except HOMES BC.

Replacement reserves are established to replace capital itemsover the life of the development. Each year the society isrequired to set aside an amount as per the approvedoperating budget. Reserve funds must be fully funded andplaced in a separate and secured interest-bearing account in

OperatingAgreement

ApprovedOperatingBudget

Contingency forVacancy Loss

ReplacementReserve

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the society’s name. Any interest earned on the funds is to beused to offset the effects of inflation.

These funds, along with the accumulated interest, must beheld in a separate bank account and/or invested only inaccounts or instrument insured by the Canada DepositInsurance Corporation, The Credit Union Deposit InsuranceCorporation, or investments as agreed upon withBC Housing.

BC Housing will annually review the use of replacementreserve funds.

The tenant rent contribution (TRC) represents the amountpayable by an eligible tenant or family group as acontribution towards the monthly economic rent on a unit.The TRC is based on a percentage of gross household incomeor the approved BC Rent Scale, and is adjusted for anyapplicable rebates or surcharges. All TRCs are reviewedannually to reflect any changes in household income and/orcomposition.

Note: Some programs do not require calculation of TRCs.

If a unit’s rent does not include heat, a tenant may be eligibleto obtain a monthly rebate to offset heating costs. The rebateamount is set by BC Housing and is based on unit size andlocation.

Economic rent is the estimated monthly operating cost foreach 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 thebeginning of each fiscal period and is used to calculatesubsidy.

Some programs have a market rent applied to each unit.Market rents reflect current private market rental rates fordifferent unit sizes in different areas. Even though a unit’seconomic rent may exceed the market rent, an individual’sTRC will not exceed the set market rent.

Tenant RentContribution(TRC)

Heat Rebates

Economic Rent

Market Rent


Economic Rent – TRC (net of rebates/surcharges) = Rent Subsidy

The difference between the economic rent and the TRCdetermines the monthly rent subsidy payment. Rent subsidyis estimated at the beginning of the fiscal year based on theapproved budget and adjusted accordingly for any under/overpayment upon review of the audited financialstatements.

For developments with mortgage assistance only,BC Housing calculates the rent subsidy based on thevariables relating to the mortgage.

Rent Subsidy

4

Financial Statement Review andSubsidy Reconciliation

Upon receiving the society’s annual financial statements,BC Housing reviews the operating results of eachdevelopment to verify rent subsidies paid, to determine if anyrent subsidy adjustment is required, and to evaluateadherence to the financial management terms of theoperating agreement.

Reporting RequirementsAll societies are required to provide audited financialstatements within three months of their fiscal year-end,except for groups with HOMES BC developments. For thesegroups, the required submission period is within four monthsof their fiscal year-end.

The appointed auditor shall meet one of the followingcriteria:

• be a member, or a partnership whose partners aremembers, in good standing of The Canadian Institute ofChartered Accountants or the Certified GeneralAccountants Association of BC

• be certified by the Auditor Certification Board under theCompany Act

• have prior approval from BC Housing to prepare andaudit financial statements.

The auditor must be independent of the society.


The audit, as described in the development operatingagreement, 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 financialstatements or a special report (section 5815, CICAHandbook) indicating the following:

• the society has or does not have on file verification for theincome and assets of all tenants and that Tenant RentContributions are or are not being correctly charged toRent-Geared-to-Income (RGI) tenants (this assessmentmay be done on a sample basis)

• the Replacement Reserve Fund is funded and maintained

in accordance with the operating agreement, and thatinterest accruing to the fund has been recorded

• For all HOMES BC developments, the Accumulated

Operating Surplus is being spent and accounted for asprovided in the HOMES BC agreement.

Statement PresentationFinancial statements should be prepared in accordance withGenerally Accepted Accounting Principles (GAAP), includingthe CICA Handbook recommendations for NFPs, effective forfiscal periods beginning on or after April 1, 1997.BC Housing has revised the financial reporting requirementsto incorporate the new recommendations, particularly in thearea of amortization of capital assets.

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To facilitate the presentation of operating results forfinancial review and rent subsidy reconciliation, BC Housingrequires the use of fund accounting and separate shelterschedules for each development under agreement withBC Housing. The use of fund accounting enables the societyto adapt the recommendations in the CICA Handbook forasset capitalization and amortization, and still provideBC Housing and other funding agencies with information onannual rent subsidy surplus or deficit.

Under GAAP, the two methods of NFP accounting forcontributions are the Restricted Fund Method and theDeferral Method.

Restricted Fund Method

To ensure that information is consistent and comparable forall NFPs involved in managing subsidized group homes andhousing developments, BC Housing recommends therestricted fund method.

A set of sample financial statements adopting the restrictedfund accounting method is included in the Appendix.Schedules and Notes to Financial Statements, also in theAppendix, includes the additional information thatBC Housing needs to reconcile the excess of revenue overexpenses of operations determined in accordance withBC Housing’s reporting policies.

Deferral Method

The deferral with fund accounting method is also an optionfor NFPs. Contact Program Operations, BC Housing, at(604) 433-1711 for copies of sample financial statements forthe deferral method.


Significant Accounting Policies

Fund AccountingThe following restricted funds should be used to reflect all ofthe related activities pertaining to BC Housing rentsubsidies.

Housing Fund – Reports the shelter operations andactivities of the development under agreement withBC Housing and Canada Mortgage and Housing Corporation(CMHC).

Capital Asset Fund – Reports the ownership and equityrelated to the NFP’s capital assets.

Replacement Reserve Fund – Reports the assets,liabilities, revenues, and expenses related to a NFP’s capitalasset replacement activities.

A NFP can designate additional restricted and unrestrictedfunds.

Society Fund – Reports the financial activities of a NFP’snon-shelter activities, including fundraising and membershipactivities.

Revenue and ExpensesRevenue and expenses should be recorded according to theaccrual basis of accounting.

Revenue Recognition – RestrictedFund Method

Under the restricted fund method, contributions should berecognized as follows:

• Initially recognize contributions for annual operationsfrom BC Housing and CMHC as revenues in the HousingFund, and allocate them to restricted funds by way ofinterfund transfers.

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• Recognize contributions received from BC Housing toacquire capital assets as revenues in the Capital AssetFund.

• Recognize contributions received for replacement reservefunding as revenues in the Housing Fund, and allocatethem to the Replacement Reserve Fund by way ofinterfund transfers.

• Recognize interest earned on replacement reserve fundsas revenue in the Replacement Reserve Fund in theperiod in which the income is earned.

• Recognize interest earned on operating funds as revenuein the Housing Fund in the period the income is earned.

• Recognize interest earned on funds in trust held to repaythe mortgage principal as revenue in the Capital AssetFund in the period in which the income is earned.

Revenue Recognition – Deferral withFund Accounting

Under the deferral method, contributions received fromBC Housing should be recognized as follows:

• Recognize contributions to acquire capital assets asrevenues in the Capital Asset Fund.

• Report contributions received for replacement reservefunding as revenues in the Operating Fund, and allocatethem to the Replacement Reserve Fund by way ofinterfund transfers.

• Recognize interest earned on replacement reserve fundsas revenue in the Replacement Reserve Fund.

• Recognize income earned on funds in trust held to repaythe mortgage principal as revenue in the Capital AssetFund in the period in which the income is earned.


Repayable Assistance (HOMES BC)

For HOMES BC developments, a portion of the rent subsidyprovided is classified as repayable assistance. For rentsubsidy reconciliation, all contributions should be reported asrevenue for the period in the Housing Fund. The repayableassistance is reported as a contingent liability in the Notes tothe Financial Statements.

Reporting Capital AssetsUnder GAAP, capital assets and their replacements arerecorded at their original cost. Capital assets retired shouldbe eliminated from the books and the disposal gains or lossesdetermined. Capital assets include buildings, equipmentpurchases, land held under long-term leases, as well ascapital assets associated with modernization andimprovement projects.

Organizations may expense all capital assets if the averageof all annual revenues recognized in the statement ofoperations for the current and preceding period of theorganization and any entities it controls is less than$500,000. Societies may consider this exemption whenaccounting for their capital assets. Organizations may fall inand out of this exemption, but it is expected that after fallingout once, the organization will continue to apply the CICAHandbook recommendations.

Capitalize as capital assets all purchases that are financedby contributions, including furniture, fixtures, andmodernizations and improvements to buildings.

Recognize acquired capital assets in the Capital Asset Fund.

Replacement assets are funded by BC Housing rent subsidythrough an annual provision in the operating budget.Periodic allocations to the Replacement Reserve Fund shouldbe accounted for as interfund transfers.

Sample Journal Entries for Capital Asset Reporting

When modernizations and improvements (M & I) are made:

10

Capital Asset FundDr. Cash XXX

Cr. Capital Asset Revenue – BCH M & I Payment XXX

Dr. Capital Assets XXXCr. Cash XXX

When money is set aside for replacing assets:

Replacement Reserve FundDr. Cash XXX

Cr. Interfund transfer from Housing Fund XXX

Housing FundDr. Interfund transfer to Replacement Reserve Fund XXX

Cr. Cash XXX

When replacement assets are purchased:

Utilization of replacement reserve funds should be accountedfor as interfund transfers from the Replacement ReserveFund to the Capital Asset Fund. The actual purchase ofreplacement assets is then accounted for in the Capital AssetFund.

Replacement Reserve FundDr. Interfund transfer to Capital Asset Fund XXX

Cr. Cash XXX

Capital Asset FundDr. Cash XXX

Cr. Interfund transfer from Replacement Reserve Fund XXX

Dr. Capital Assets XXXCr. Cash XXX


Sample Journal Entries for Mortgage PrincipalReduction

Housing FundDr. Interfund transfer to Capital Asset Fund XXX

Cr. Cash XXX

Capital Asset FundDr. Mortgage Payable XXX

Cr. Interfund transfer from Operating Fund XXX

The amount of mortgage principal repayment pertaining tothe housing developments under agreement with BCHousing, should be reported in the Capital Fund.

Transitional Provisions

The accounting policies required under GAAP as describedearlier should be applied retroactively, except incircumstances in which the necessary financial informationis not reasonably determinable.

For financial reporting purposes, BC Housing does notrecommend the retroactive restatement of Capital Assetsthat were purchased through the Replacement ReserveFund. The collection of such information is unduly onerousand is not reasonably determinable.

Please note that the sample financial statements in theAppendix do not include the necessary adjustments ordisclosures required under GAAP for the changes inaccounting policy. Please consult your auditor, the CanadianInstitute of Chartered Accountants or the Certified GeneralAccountants Association for guidance in this area.

Amortization of Capital Assets

Under GAAP, capital assets, including long-term prepaidland leases, are amortized over the economic life of the assetsin a rational and systematic manner.

For BC Housing financial reporting requirements,amortization should be reported in the Capital Asset Fund.

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All revenue and expenses relating to the ownership of capitalassets should be reflected in the Capital Asset Fund.

The useful life of a capital asset is the estimate of the periodover which an organization is expected to use the asset. Thelife of a capital asset may extend beyond its useful life to anorganization. Based on BC Housing’s experience, thefollowing ranges may be useful as guidelines for theestimated useful life of the assets listed below:

• buildings – 35 to 50 years• equipment – 10 to 20 years

Sample Journal Entry for Capital AssetAmortization

Capital Asset FundDr. Amortization expense XXX

Cr. Accumulated Amortization XXX

Separate ReportingMany societies operate more than one housing developmentor have several activities and sources of funding.

For rent subsidy review purposes, BC Housing requires asociety to submit a separate schedule of shelter revenues andexpenses for each housing development. These schedulesshould be included as part of the financial statement packagesubmitted by the society. In each schedule, outline shelter-related income and expenses for operating the development.Identify these separately from other activities such asfundraising or providing care for residents.

Shelter Revenues

Shelter revenues include the approved TRCs, rent subsidyreceived for the period, interest on housing funds, specialpayments, and other building income such as laundry andparking.


Shelter Expenses

The approved operating budget outlines the acceptableshelter expenses. These include building related expensessuch as property taxes, utilities, maintenance, mortgageinterest, as well as reasonable amounts for audit, legal, andadministration. Chapter 4 of the Financial ResponsibilitiesGuide provides detailed information on eligible shelterexpenses. To obtain copies of this guide, contact ProgramOperations, BC Housing, at (604) 433-1711.

Some expenses are not eligible for rent subsidy, includingspace that is based on or used for staff sleeping quarters,child care, a nursing station, community projects, or retailoutlets.

Classification

BC Housing recognizes that operations may vary fromdevelopment to development. However, for ease ofcomparison, BC Housing encourages all societies to classifythe shelter revenue and expenses according to the approvedoperating budget categories. Standardized classification willhelp identify approved shelter expenses and assist societieswith annual budgeting.

Tenant Information

A statement in the Notes to the Financial Statements or aspecial report (section 5815, CICA Handbook) is required,indicating that the society has or does not have on fileverification for the income and assets of all tenants, and thatthe Tenant Rent Contributions are or are not being correctlycharged to the Rent-Geared-to-Income tenants (thisassessment may be done on a sample basis).

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Accumulated Operating Surplus

A statement in the notes to the financial statements or aspecial report (section 5815, CICA Handbook) is required,indicating that for all HOMES BC developments, theAccumulated Operating Surplus is being spent andaccounted for as provided in the HOMES BC operatingagreement.

DisclosureDisclosure required under GAAP should be presented in thefinancial statements. Specific disclosures required forBC Housing financial reporting requirements are identifiedbelow.

Administration

When a society operates many developments, or hasagreements with more than one sponsor, overhead and othercommon expenses should be allocated on a reasonable basis(i.e., pro-rate them based on number of units, actual timespent, or percentages). The basis of allocation used should bedisclosed in the Notes to the Financial Statements.

Mortgage

The statements must disclose the mortgage information, asrequired by GAAP, for each development.

Repayable Assistance

For HOMES BC developments, the repayable assistanceshould be treated as a contingent liability. The amount,terms, and date of repayment is determined by a set ofcircumstances in the future. The amount of repayableassistance, as confirmed by BC Housing, should be disclosedin the Notes to the Financial Statements.


Subsidy Adjustments

After completing a financial review and/or rent subsidyreconciliation, BC Housing determines the operatingexpenditures that are eligible for rent subsidy.

Based on the accepted expenses, BC Housing may eithermake up a deficit or request repayment of a rent subsidysurplus for all developments except HOMES BCdevelopments, where the society manages the deficit orsurplus.

The amount of the reconciled rent subsidy surplus or deficitmay differ from the surplus or deficit shown on the financialstatements. The adjustments from prior years should beshown separately on the Schedule of Shelter Operations(Housing Fund) and disclosed in the notes. It is not necessaryto restate prior years’ financial statements to account forBC Housing rent subsidy adjustments.

Identification of Funding Sources

Financial statements for all housing programs exceptHOMES BC, should disclose that the rent subsidy receivedrepresents the financial contribution shared jointly byCanada Mortgage and Housing Corporation on behalf of thefederal government and BC Housing on behalf of theprovincial government. The rent subsidy received byHOMES BC programs is fully funded by BC Housing onbehalf of the provincial government.

Special Payments

When an extraordinary expenditure has been approved by aBC Housing Property Portfolio Manager, a special paymentmay have been issued in addition to regular rent subsidypayments. A special payment should be reported as aseparate revenue item apart from regular rent subsidies.

A special payment for a non-capital item(s) recognized intorevenue should be matched by an approved expenditure of anequal amount, and an appropriate comment made in theNotes to the Financial Statements.

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A special payment for a capital or modernization andimprovement item(s) is recognized as revenue in the CapitalFund, and an appropriate comment made in the Notes to theFinancial Statements.

Replacement Reserve

All activities relating to the revenue and expenses of theReplacement Reserve should be disclosed on a separatestatement as part of the financial statements (see theAppendix).

The Notes to the Financial Statements should also include astatement indicating that the society has funded the reservesat least annually, and has deposited and kept the reserveand accumulated interest in a separate bank account or inone of the following accounts or instruments:

• in an account insured by the Canadian Deposit InsuranceCorporation or by the Credit Union Deposit InsuranceCorporation

• 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, anappropriate comment should be made in the Notes to theFinancial Statements.

Note: The operating agreements and/or development landleases contain clauses limiting society changes.

Operating Surplus/Deficit

The Schedule of Shelter Operations should clearly identify, bydevelopment, the shelter operating surplus or deficit for theyear.


The statements should also identify the rent subsidyadjustments and the accumulated shelter operating surplusor deficit for each development. This information may bedisclosed on the Statement of Operations and Changes inFund Balances, in the Notes to the Financial Statements, oron a separate schedule (see Schedule B of the Appendix).

Appendix:Sample FinancialStatements

The accompanying notes are an integral part of these financial statements.

AUDITORS' REPORT

To the Members of ABC Society:

Auditors should prepare an appropriate Auditor’s Report as per the recommendations insection 5400-CICA Handbook.

City, Province (signed) AUDITORDate


ABC SOCIETYSTATEMENT OF FINANCIAL POSITION

AS AT DATE

19x8 19x7SocietyFund

HousingFund

CapitalAsset Fund

ReplacementReserve Fund Total Total

Current assetsCash and term deposits

$23,500

$68,500

$ $ $92,000

$81,700

Accounts receivable 500 7,200 7,700 6,700Other 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 liabilitiesAccounts payable and accrued liabilities

$200

$24,000

$ $ $24,200

$23,600

Security deposits 6,500 6,500 5,900Deferred revenue 16,500 16,500 19,800Current portion of long term debt 26,400 26,400 25,300Other (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 balancesInvested in capital assets 101,000 101,000 126,100Externally restricted (Note 6) 38,000 68,000 214,100 320,100 254,500Internally restrictedUnrestricted 24,000 24,000 20,500


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


ABC HOUSING SOCIETYSTATEMENT OF OPERATIONS AND CHANGES IN FUND BALANCES

FOR THE YEAR ENDED ______________, _______

Operating Funds Restricted Funds Capital Replacement

Society HousingAssetFund

Reserve Fund

Total19x8

Total19x7

RevenuesDonations

$4,000

$ $ $ $4,000

$1,000

Fundraising 2,000 2,000 1,000Tenant rent contributions 142,000 142,000 134,900Rent 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 10,000Interest 1,000 1,300 3,400 9,700 15,400 13,600Sundry 800 800 800

7,000 512,100 13,400 9,700 542,200 516,100ExpensesProperty taxes/licenses 20,000 20,000 19,000Land lease (if applicable)Insurance 7,000 7,000 6,700Utilities- 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 5,200Maintenance- 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 7,900Administration- salaries, wages and benefits 1,000 35,000 36,000 34,300- office overhead 1,500 3,500 5,000 4,700- accounting feesAudit and legal fees 500 3,000 3,500 3,400Mortgage interest 227,600 227,600 229,500Amortization of capital assets 65,400 65,400 52,600Miscellaneous 500 500Other - Security (Note 10 ) 4,000 4,000

3,500 418,400 65,400 487,300 482,300

Excess (deficiency) of revenueover 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 revenueover expenses from operations 3,500 82,800 (52,000) 9,700 44,000 29,200

Fund balances, beginning 20,500 28,000 190,700 161,900 401,100 371,900Interfund transfers: Mortgage principal repayments Replacement reserve provision Capital assets acquired

(25,300)(47,500)

25,300

5,00047,500(5,000)

Fund balances, ending 24,000 38,000 169,000 214,100 445,100 401,100


Operating Funds Restricted Funds$ $ $ $ $ $


ABC SOCIETYSTATEMENT OF CASH FLOWS


Operating Activities Financing and Investing Activities

SocietyFund

HousingFund

Total 19x8

Total 19x7

CapitalAsset Fund

Replacement

ReserveFund

Total 19x8

Total19x7

Sources of cashCMHC contributions

$$ 60,000 $ 60,000

$63,000

$ $ $$

BC Housing contributions 304,700 304,700 303,300 10,000 10,000Interest income 1,000 1,300 2,300 2,300 3,400 9,700 13,100 11,600Rental revenue 141,100 141,100 133,700Security deposit interest 600 600 200Other receipts 5,900 800 6,700 2,700

Uses of cashPayments 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 termdeposits 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 64,600 161,900 226,500 187,900Cash and term deposits,Ending 23,500 $ 75,000 $ 98,500 87,600 68,000 214,100 282,100 $ 226,500


$ $ $ $ $

ABC SOCIETY

STATEMENT OF CHANGES IN REPLACEMENT RESERVE FUNDFOR THE YEAR ENDED _____________, __________

19X8 19X7Building 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 34,000Interest income 2,400 2,700 4,600 9,700 8,400Other (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 yearconsisting of:

Appliances $ 700 $ $ 700 $ 1,500Flooring 4,300 4,300 5,500

$ 700 $ 4,300 $ 5,000 $ 7,000

SCHEDULE A


ABC SOCIETYSCHEDULE OF SHELTER OPERATIONS (HOUSING FUND)


Building 1 Building 2 Building 3Total19X8

Total19X7

RevenuesTenant rent contributions $ 35,000 $ 22,000

$85,000

$142,000

$134,900

Rent subsidiesCMHC 60,000 60,000 63,000BC Housing 110,000 194,000 304,000 298,000BCH Special Payment (Note 10) 4,000 4,000 3,800

Interest 400 500 400 1,300 1,200Sundry 500 100 200 800 800

95,900 136,600 279,600 512,100 501,700

ExpensesProperty taxes/Licenses 4,000 6,000 10,000 20,000 19,000Land lease (if applicable)Insurance 1,400 2,100 3,500 7,000 6,700Utilities- 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 5,200Maintenance- 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 7,900Administration- 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 feesAudit and legal fees 600 900 1,500 3,000 2,900Mortgage interest 30,900 46,400 150,300 227,600 229,500RentOther - Security expense ( Note 10) 4,000 4,000

67,860 108,740 241,800 418,400 426,800Excess of revenues over expenses 28,040 27,860 37,800 93,700 74,900Interfund transfers

Mortgage principal repaymentsReplacement reserve provision

(6,100)(4,600)

(11,900)(17,900)

(7,300)(25,000)

(25,300)(47,500)

(23,400)(34,000)

Rent subsidy surplus (deficit) fromoperations 17,340 (1,940) 5,500 20,900 17,500

Rent subsidy adjustments (Note 8) Payment (to) from BC HousingRent subsidy adjustments

(8,500)500

(1,400)(1,500)

(9,900)(1,000)

(4,600)

Rent subsidy surplus (deficit) for the year $ 9,340 $ (3,340)

$4,000

$10,000

$12,900

SCHEDULE B


ABC SOCIETYSCHEDULE OF HOUSING FUND SURPLUS ACCOUNTS

FOR THE YEAR ENDED _____________, __________

Building 1 Building 2 Building 3 Total19X8

Total19X7

Surplus beginning$

9,000$

1,400$

17,600$

28,000$

15,100

Excess of revenue over expenses28,040 27,860 37,800 93,700 74,900

Interfund transfers

Mortgage principal repaymentsReplacement reserve provision

(6,100)(4,600)

(11,900)(17,900)

(7,300)(25,000)

(25,300)(47,500)

(23,400)(34,000)

Rent subsidy adjustments (Note 8) Payment (to) from BC Housing Rent subsidy adjustments

(8,500)500

(1,400)(1,500)

(9,900)(1,000)

(4,600)

Surplus (deficit), end of year$

18,340$

(1,940)$

21,600$

38,000$

28,000

–2–

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 asa not-for-profit organization and is a registered charity under the Income Tax Act. The Societyprovides low cost specialized housing to seniors and people with disabilities in British Columbia. Ithas 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’shousing 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 tocapital asset replacement activities.

Revenue Recognition

Contributions from BC Housing

Contributions received from BC Housing for the replacement reserve fund have been reported asinterfund transfers from the Housing Fund to the Replacement Reserve Fund.

Contributions received from BC Housing for the acquisition of capital assets have been recognizedas revenue in the Capital Fund.

Other Contributions

All other contributions are recognized as revenue of the appropriate fund in the year in which therelated expenses are incurred.

Investment Income

Interest Income earned on replacement reserve funds is recognized as revenue in the ReplacementReserve Fund in the period the investment income is earned.

Interest Income earned on funds held in trust for repayment of the mortgage principal is recognizedas revenue in the Capital Fund in the period in which the income is earned.

–3–

Capital Assets

Purchased capital assets are recorded at cost. Amortization is provided on a straight-line basis overthe assets’ estimated useful lives, which for buildings is xx years and for furniture and equipment arexx years. Prepaid land lease is amortized on a straight-line basis over the remaining term of thelease. Amortization expense is reported in the Capital Asset Fund.

Deferred Revenue

The deferred revenue reported in the Housing Fund represents restricted operating funds received inthe current year that is related to the subsequent period.

Administration Costs

Administration costs are allocated among shelter and non-shelter components based on the numberof 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 $ 64,600of 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 19X7Cost Accumulated

DepreciationNet Book

ValueNet Book

Value

Land $ 100,000 $ $ 100,000 $ 100,000Land – Lease 720,000 (81,600) 638,400 650,400Buildings 2,230,000 (291,000) 1,939,000 1,976,000Furniture & fixtures 57,000 (21,200) 35,800 35,800Equipment 21,000 (12,700) 8,300 9,700

$ 3,128,000 $ (406,500) $ 2,721,500 $ 2,771,900

–4–

5. MORTGAGES PAYABLE

19X8 19X7

Mortgage - Canada Mortgage Housing CorporationThis mortgage relates to Building 1 and is repayable inmonthly installments of $3,090, which include interest at 8%.The mortgage matures December 1, 2002.

$ 383,200 $ 389,400

Mortgage - Canada Mortgage Housing Corporation

This mortgage relates to Building 2 and is repayable inmonthly installments of $4,860, which include interest at 7%.The mortgage matures February 1, 1999.

708,000 719,900

Mortgage - XYZ BankThis mortgage relates to Building 3 and is repayable inmonthly installments of $13,126, which include interest at9.8% The mortgage matures April 1, 2000.

1,529,300

__________

1,536,500

__________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 fireinsurance proceeds on the respective property.

Principal payments due on the long-term debt in each of the next five years are as follows:

19x9 $ 26,40020x0 27,60020x1 29,60020x2 32,00020x3 34,600Subsequent 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 itemsRestricted for payment of mortgage principal at maturityContributions, restricted for housing operations, as approved byBC Housing

$ 214,10068,000

38,000

$ 161,90064,600

28,000

$ 320,100 $ 254,500

–5–

7. CONTINGENT LIABILITY

The cumulative non-Rent-Geared-to-Income (non-RGI) assistance of $50,193 as at 19x8 iscontingently repayable to BCHMC in the event that the total non-RGI tenant rent contribution in anyyear exceeds the economic rent of the suites occupied by non-RGI tenants. The society is requiredto commence repayment of the cumulative non-RGI assistance on the first day of the fiscal yearfollowing 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 thesesuites in the prior year.

Repayable Assistance: 19X8 19X7

Balance, beginning of year $ 25,630 $ 0Addition in current year 24,563 25,630Balance, end of year $ 50,193 $ 25,630

8. SUBSIDY ADJUSTMENTS

BC Housing conducts an annual review of the Financial Statements and may adjust for anyoperating surplus or deficit. Prior years funding adjustments are recognized in the fiscal year theyare 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 behalfof the Federal Government and the BC Housing on behalf of the Provincial Government to providehousing for families, seniors and people with disabilities. The amount of assistance recorded for theyear ended 19X8 was $368,000 (19X7 - $364,800), with respect to the eligible residentialcomponent.

10. SPECIAL PAYMENTS

During the year, $4,000 additional subsidy was provided by BC Housing for the services of a securitycompany with respect to Building 2.

During the year, a Modernization and Improvement payment of $10,000 was provided by BCHousing 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 becredited in the amount determined by the budget provision per annum plus interest earned. Thesefunds along with the accumulated interest must be held in a separate bank account and/or investedonly in accounts or instruments insured by the Canada Deposit Insurance Corporation or the CreditUnion Deposit Insurance Corporation; in investments guaranteed by a Canadian government; or inother investment instruments as agreed upon with BC Housing.

–6–

The reserve funds may only be used for capital repairs and replacements in accordance with theoperating agreement.

The funds in reserve consist of the following: 19X8 19X7

Cash $ 34,100 $ 61,900Term 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 withthe 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 theoperating 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 HOMESBC Operating Agreement.

–7–

This example is provided for illustrative purposes only. Auditors will need to review the CICAHandbook sections 5800 and 5815, the relevant BC Housing Operating Agreements and otherappropriate 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 inSections 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 theresponsibility of the management of ___________ Society. My responsibility is to express an opinion onthis compliance based on my audit.

I conducted my audit in accordance with generally accepted auditing standards. These standards requirethat I plan and perform an audit to obtain reasonable assurance whether ____________ Societycomplied 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 theoverall compliance with the agreement ,and where applicable, assessing the accounting principles usedand significant estimates made by management.

In my opinion, _____________ Society is in compliance, in all material respects, with the criteria set outin Sections X, XX, XXX, XXXX of the Society’s Operating Agreement(s) with BC Housing dated_________, 19______.

City, Province ____________________Date (signed) AUDITOR

financial reporting requirements

Documents

sample journal entries

replacement reserve fund

year ended

capital asset reporting

recognize contributions received

capital asset fund

capital asset fund

replacement reserve provision