ASC 606 impact on CIRAs

We continue our revenue recognition series on implementation issues from FASB Accounting Standards Codification (FASB ASC) 606, Revenue from Contracts with Customers, by examining the effect of FASB ASC 606 on certain aspects of financial reporting by common interest realty associations (CIRAs). FASB ASC 606 was created by FASB Accounting Standards Update (ASU) 2014-09, Revenue from Contracts with Customers, and subsequently amended by other ASUs.

A CIRA is an association of owners which is responsible for providing certain services and maintaining certain property that all the owners share or own in common. Homeowners' associations (HOAs) and condominium associations are two examples of CIRAs.

Prior to the issuance of ASU 2014-09, revenue recognition rules for CIRAs resided in FASB ASC 972-605, Real Estate ̶ Common Interest Realty Associations: Revenue Recognition, and FASB ASC 972-430, Real Estate ̶ Common Interest Realty Associations: Deferred Revenue. ASU 2014-09 superseded those ASC sections along with most industry-specific and transaction-specific revenue recognition guidance and created FASB ASC 606, which provides a principles-based revenue standard across industries and transactions.

Diversity in thought exists within the CIRA sector as to whether FASB ASC 606 applies to CIRAs. As of the issuance of this report, the FASB has not commented or issued any specific guidance related to the applicability of FASB ASC 606 to the revenue producing activities of CIRAs. The CPEA’s position is that FASB ASC 606 does apply to CIRAs, which is covered in detail in this report along with the key impacts of each step of the revenue recognition model.