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Wednesday, January 23, 2013 3:00-4:00 PM ET Presenters: Gayle Harrold, CFO, Madison Park Development Corp Dave Conway, Partner, Novogradac & Company LLP.

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Presentation on theme: "Wednesday, January 23, 2013 3:00-4:00 PM ET Presenters: Gayle Harrold, CFO, Madison Park Development Corp Dave Conway, Partner, Novogradac & Company LLP."— Presentation transcript:

1 Wednesday, January 23, :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 Info  Call-in #:  Passcode: Audio Conference Info  Call-in #:  Passcode: Consolidated Financial Statements 101: Session 1 - The How and Why of Consolidation

2 Next Webinar Tuesday, February 12, :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 and look for the registration link on the right side of the page.www.strengthmatters.net

3 About STRENGTH MATTERS A 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

4 Website Info   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.

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6 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.

7 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.

8 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.

9 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.

10 Meet the Presenters  David Conway, CPA  Partner, Novogradac & Company LLP  Gayle Harrold, CPA  Chief Financial Officer, Madison Park Development Corporation

11 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

12 Preparation Carefully 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 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

13 Preparation Obtain 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.

14 Preparation Why 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.

15 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.

16 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.

17 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

18 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

19 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

20  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

21 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).

22 ABC Residential LP, a wholly owned subsidiary of Madison Park  See sample workbook Note: Available to download on strengthmatters.net

23 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.

24 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?

25 Implementation Issues 2. 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

26 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

27 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

28 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.

29 Contact Information  Gayle Harrold: ,  Dave Conway: ,  Frances Ferguson: ,  Lindsay Wells, ,

30 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 to view recorded Webinars and download presentations.www.strengthmatters.net

31 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!


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