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Co-ops coming to grips with accounting change.

Managers, accountants and attorneys of cooperatives and condominiums are grappling with the requirements of new accounting rules for financial statements set up by the American Institute of Certified Public Accountants.

The AICPA has prepared a guide applicable to 1992 financial statements that requires disclosure of information regarding future major repairs and replacements along with the cost and expected means of providing funds for the projects.

Co-op and condo experts are interpreting the requirements differently and are still discussing exactly how to proceed.

"Everyone is talking about it," said Mary Ann Rothman, president of the Council of New York Cooperatives which discussed the matter at a conference last Sunday.

Rothman said: "This is a set of guidelines established by accountants for their own prudence and protection. The boards have to listen to all of their advisors -- their lawyers, accountants and managing agents -- whether to choose to do a study."

If they do not conduct a study, she added, they can use one of a whole variety of footnotes that have been developed by accountants and organizations.

Richard B. Montanye, a partner in Marin & Montanye, has sent his boards various footnotes and worksheets and was one of the scheduled speakers at the CNYC's conference. He explained the information is not certified by the accountant but is merely supplementary to the annual report.

Paul Gottsegen, president of Soren Management, said they have also designed a worksheet for their East Side Manhattan buildings.

"They just want basic information on the systems of the buildings and the long-term planning, which everyone should be doing anyway," he added, likening this to planning for the expiration of J-15 benefits.

"We don't think it's necessary to put aside reserves if they have an adequate reserve fund," Gottsegen noted. "This is just identifying what the reserve fund is going to be used for over the next five years."

He believes most buildings will have an adequate reserve for the projects they anticipate undertaking.

Manhattan co-op attorney Alvin I. Apfelberg said, "This is a very good concept and it forces buildings to put aside reserves for repairs."

In this way, he said, they can avoid unforeseen repairs and assessments, Several states have this as part of their statutory requirements, he added.

Montanye has found most boards interested in obtaining the information as a planning tool even though gathering it is somewhat burdensome.

Judy Speight, vice president of management at AKAM's Westchester Division, said, "What's upsetting to property managers is that now the accountants are telling property managers how to do their jobs."

She is concerned that every year the board will have to go through the expense of hiring an engineer to furnish the report. "The year is ending and I'm preparing expenses and is this going to be another $2,500 to $7,500?" she wondered.

Mark LiCalzi, P.E., vice president of Luke LiCalzi, P.E. P.C., licensed engineers who normally provide these kinds of surveys for including cost and useful life estimates lenders and HUD, said the cost of such a survey would depend on the size of the building, its age and type of construction. He estimated that a survey conducted by his firm for a smaller building could cost $2,000 and for a larger one could cost $12,000.

One 40-story building on the East Side has already had a proposal by another firm for $16,000, sources said.

Many vendors, however, are providing the surveys in their area of expertise as a free or inexpensive service but that is causing some concern as well.

"The economy is such they feel maybe they have a better shot at getting the work later," Montanye noted.

Rothman believes having a contractor make the estimate "is inviting the fox into the chicken coop." While not all contractors would be unethical in their assessment of the system, it does present a dilemma.

"What qualifies the contractor to estimate the life of a system?." Rothman asked. "The risk of mistakes and lawsuits and aggravation is enormous." Rothman said the Council is still evolving a position on how to handle the requirements and it is "fraught with debate."

Irwin Gumley, president of Gumley Haft, criticized the survey as being merely an estimated judgment call, a position to which Montanye agreed. Since the information is not audited, anybody can conduct the surveys, Gumley observed, including board members. His accountants said the boards do not have to plan for this or put money aside.

There are hysterical managers who don't understand the rule, Gumley said, as well as engineers who believe this will provide a bonanza.

Based on his knowledge and experience, engineer LiCalzi, said he is able to make predictions of useful life.

"Everything is going to have to replaced at some point; nothing lasts forever," he added.

While a contractor might have expertise in any one area, LiCalzi said, what the AICPA is looking for is a single report. "A licensed professional can do that," he said. "Their signature and seal affixed to a report can be used in any legal situation," pointing to the lack of state certification to prove the competence of any one contractor.

LiCalzi noted that pre-conversion reports, unless requested specifically by the Attorney General, did not include cost estimates.

"Every black book has a nice report in it saying how the systems are but doesn't say how much it would cost," he said.

Accountants and lawyers are providing boards with footnotes for various contingencies. One such a footnote might include wording that the corporation has not conducted the survey and when funds are needed for repairs, the corporation can obtain the money or delay repairs. The professionals can provide the correct wording for each building's particular situation.

Martin Astrof, chief financial officer of the Greenthal Group, said his firm organized a seminar for their client boards and managing agents led by Montanye. Astrof said, while he expects to see a lot of disclaimers on this year's reports, there will be more surveys conducted next year.

The problem for condos, Montanye noted, is that they do not have the ability to borrow money to make repairs and must generally make special assessments.

One co-op expert said, "I'm hoping the New York accountants will wake up and say this is good for condos, scattered sites and buildings of a younger vintage but is a total nightmare for New York City buildings of a certain age and go back to their association and tell them to forget it."
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Title Annotation:cooperative apartment buildings and condominiums face new accounting rules for financial statements set up by American Institute of Certified Public Accountants
Author:Weiss, Lois
Publication:Real Estate Weekly
Date:Nov 18, 1992
Words:1081
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