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Wednesday, January 23, 20133:00-4:00 PM ET
Presenters:
Gayle Harrold, CFO, Madison Park Development Corp
Dave Conway, Partner, Novogradac & Company LLP
STRENGTH MATTERS® Best Practices in Financial Reporting Webinar Series Made possible by the generous support of
The John D. and Catherine T. MacArthur Foundation
Audio Conference InfoCall-in #: 866-363-6079Passcode: 851 497 0973
Audio Conference InfoCall-in #: 866-363-6079Passcode: 851 497 0973
Consolidated Financial Statements 101: Session 1 - The How and Why of Consolidation
Next Webinar
Tuesday, February 12, 2013
3:00-4:00 PM ET
Consolidated Financial Statements 101:
Session 2 - Consolidation of Controlled but not Wholly Owned Entities
Presenters: Gayle Harrold and Scott Seamands
To register, visit www.strengthmatters.net and look for the registration link on the right side of the page.
About STRENGTH MATTERSA national collaborative sponsored by NeighborWorks® America, Housing
Partnership Network (HPN), and Stewards of Affordable Housing for the Future (SAHF), with ongoing support from The John D. and Catherine T. MacArthur
Foundation.
Our partners also include:
Calvert Foundation
Enterprise Community Loan Fund
F.B. Heron Foundation
Ford Foundation
Housing Assistance Council
Housing Partnership Fund
Local Initiatives Support Corporation
Low Income Investment Fund
Mercy Loan Fund
NeighborWorks® Capital
Website Info www.strengthmatters.net Please register if you have not already. Site provides access to over 20 financial
reporting best practices papers and other resources.
Upcoming Webinars and recordings of past sessions are posted.
www.strengthmatters.net
Getting Started All participant lines will now be muted. Have a question? Please use the Chat
feature and send the Presenter (Gayle Harrold) or the Host (Francie Ferguson) your question.
To ask via phone, please wait for a pause in the presentation and un-mute your phone to speak: #6.
Quick Poll
Please take a minute to complete the Poll in the Polling panel on the right side of your screen.
Be sure to click Submit when you’ve finished.
Questions or Concerns? Any Questions before we begin?
Please use #6 to unmute your phone to ask a question, or use the Chat function via WebEx.
Use *6 to place your line on mute when finished speaking.
Learning Objectives
• Discuss the pros and cons of preparing consolidated financial statements.
• Identify the fundamental steps to be taken in your first year and then thereafter.
• List the key common eliminating entries that are required each year.
Meet the Presenters
David Conway, CPA Partner, Novogradac &
Company LLP
Gayle Harrold, CPA Chief Financial Officer,
Madison Park Development Corporation
Why Consolidate ?
Industry Expectations –• Investors, Lenders, Grantors & Other external
stakeholders
• To avoid an “except for” opinion in your audited financials – a red flag for some of the stakeholders listed above
• To control the company message that you want to convey
PreparationCarefully review all entities that your company is involved
with. After your review, you should be able to document: Which entities are wholly owned Which entities are controlled, in accordance with the
definition provided in EITF 04-05 or CFO Working Group white papers (#3B) Look to your partnership/operating agreement. – Next webinar will address accounting for controlled but not wholly owned investments
Which entities you are involved with but do not control, regardless of % of ownership interest – equity method of accounting
PreparationObtain financial statements of each controlled entity that now requires consolidation, from inception, if possible.
Historical financials should contain information about your equity interest in the deal – Does your investment balance equal your partner’s capital account in the deal?
If not, you will need to account for the difference in consolidation.
Historical footnotes should disclose development fees paid to you that were capitalized into the cost of the projects building costs.
Prior year financials should have most info about asset/liability & revenue/expense items to be eliminated.
PreparationWhy do you need this information?
To ensure that:
• intercompany assets/liabilities are eliminated
• Intercompany revenue/expense items are eliminated
• investment accounts and equity are eliminated
• project development fees paid by a subsidiary to the parent sponsor are eliminated.
Quick Poll
Please take a minute to complete the Poll in the Polling panel on the right side of your screen.
Be sure to click Submit when you’ve finished.
Questions?
Please use #6 to unmute your phone to ask a question, or use the Chat function via WebEx.
Use *6 to place your line on mute when finished speaking.
• Notes Receivable/Payable• Development Fees Receivable/Payable• Interest Receivable/Payable• Asset Management Fee/Incentive Fees
Receivable/Payable• Operating Deficit Loans Receivable/Payable• Due to/from accounts• Development Fees capitalized in Building Costs*• Investment Accounts/Partnership Capital
Accounts
Balance Sheet Eliminations
Income Statement Eliminations• Interest Income/Expense• Asset Management Fee/Incentive Fee Income
(Expense)• Resident Services Fee Income/Expense• Other fees between entities• Development Fee Income• Depreciation Expense for capitalized
development fees• Distributions to partners
Removing your development fees from the project’s building costs.
Accounts potentially affected:
Property’s Books Building Costs Accumulated Depreciation Depreciation Expense Partners’ capital
Sponsor’s Books Development Fee Revenue Net Assets Deferred Development Fees
Development Fees
Remove cost from building Remove accumulated depreciation Remove current year depreciation expense Remove un-depreciated value of development
fee from net assets
Remove current year development fee revenue
Elimination of Development Fees
Elimination of Development Fees
Can you consider the margin on development fees received?
If you have a history of tracking your overhead costs and have a means of determining what your profit on development fees are then you can consider eliminating only the profit, not the entire development fee.
If you can consider the margin, then only the profit is eliminated, not the cost of development fees (actual overhead incurred by the sponsor).
ABC Residential LP, a wholly owned subsidiary of
Madison Park
See sample workbookNote: Available to download on
strengthmatters.net
Questions?
Please use #6 to unmute your phone to ask a question, or use the Chat function via WebEx.
Use *6 to place your line on mute when finished speaking.
Implementation Issues
1. Overall presentation
Will you present consolidated financials ( a single column with everything, including eliminating entries all combined) or consolidating statements that reflect your major lines of business?
If consolidating statements, how will you group your lines of business, including the consolidated properties?
Will you restate the prior year to present comparative financials or will you engage your stakeholders to accept a single year presentation?
Implementation Issues2. Classification
Property financials classify items differently than a non-profit
Restricted cash sits between current & long term assets – operating reserves should be a current restricted asset and replacement reserves a long term restricted asset
Payroll often imbedded in property financial line items, like maintenance. This will need to be reclassified to a payroll line item in your consolidated non-profit financials
Implementation Issues
3. Eliminations that do not balance
Investment account does not equal equity
Notes receivable on sponsor’s books fully reserved
Incentive fees recorded on a cash basis by sponsor but on an accrual basis by the residential partnership
See advanced consolidations webinar
Conclusion Consolidated/Consolidating Financials require a fair amount
of upfront planning to obtain information and then determine what format your financials will take
If you are going to consolidate for the first time, consider going through a dry run using last year’s information to identify any stumbling blocks early
You will need to engage thoughtfully with senior management, your auditors, and potentially certain external stakeholders to produce meaningful, transparent financial reporting
Questions? Please use #6 to unmute your phone to ask a
question, or use the Chat function via WebEx.
**Evaluation Poll**Please complete the Evaluation in the Polling panel on the right side of your screen before you exit the WebEx meeting.
Be sure to click Submit when finished.
Contact InformationGayle Harrold: 617-849-6224,
Dave Conway: 330-365-5404, [email protected]
Frances Ferguson: 512-441-5441, [email protected]
Lindsay Wells, 617-821-0463, [email protected]
Stay Tuned!Upcoming Webinars: Final Session in the Issues With Consolidated Financial Statements Series!
•Consolidated Financial Statements 101: Consolidation of Controlled but not Wholly Owned Entities
– Tuesday, February 12, 2013, 3:00-4:00 PM ET
– Presenters: Gayle Harrold and Scott Seamands
More Webinars to be announced in 2013!
Visit www.strengthmatters.net to view recorded Webinars and download presentations.
Evaluation
Please help us improve future sessions!
Complete the Evaluation in the Polling panel on the right side of your screen before you exit the WebEx meeting.
Thank you!
