Property costs paid on behalf of owners and advances to be reimbursed: receivable vs cost; recoverability and ECL

Servicers that manage portfolios and repossessed properties routinely pay maintenance, utilities, owners' association fees, insurance, legal and enforcement costs before the owner reimburses them; whether these payments are the servicer's own costs (recovered through its fee) or advances that create a receivable from the owner determines revenue, gross margin and assets, and amounts spent outside approved limits or disputed by the owner can quietly turn into unrecoverable balances.

Does the mandate make the owner responsible for property costs, with the servicer paying only as a convenience and recovering at cost, or does the servicer bear them within an all-inclusive fee? Is reimbursement at cost or with a handling margin, and who selects and contracts with suppliers? What approval limits apply, and which payments exceeded them or lack owner approval? How old are unreimbursed advances, are any disputed, and does the mandate allow the servicer to deduct advances from collections before remittance?

1. Read the mandate to determine who is responsible for each cost category and whether the servicer is principal for the related goods or services (controls them before transfer, primarily responsible, sets the price) or merely pays on the owner's behalf.
2. Where the servicer pays on the owner's behalf and is reimbursed at cost, recognise a receivable from the owner (a financial asset) rather than an expense and revenue.
3. Where the servicer is principal, for example it contracts the supplier and re-bills with a margin as part of its service, recognise the cost as cost of services and the re-billed amount as revenue.
4. Where costs are included in an all-inclusive fee, recognise them as the servicer's own expenses.
5. Expense immediately any payment that is not recoverable under the mandate, such as works above approval limits without owner consent.
6. Apply the expected credit loss model to reimbursement receivables (the simplified approach where they arise from revenue, otherwise the general approach), considering ageing, disputes, the owner's credit standing and any right to deduct from collections, and write off amounts with no reasonable expectation of recovery.

Measure reimbursement receivables at the amount recoverable under the mandate less a loss allowance. Receivables that arise from the servicer's own revenue (a handling fee or a re-billing as principal) are trade receivables to which the simplified approach (lifetime expected credit losses) is required where there is no significant financing component; pure advances made on the owner's behalf are not revenue receivables, so the general approach applies, although for balances due within twelve months the 12-month and lifetime measures are effectively the same. Amounts the owner has rejected or that fall outside the mandate are not receivables. Where the servicer adds a handling fee, the fee is revenue when the related service is provided, separate from the reimbursement of the underlying cost.

Disclose: (1) the policy for costs paid on behalf of owners and the basis for gross or net presentation; (2) the carrying amount of reimbursement receivables and their ageing; (3) the expected credit loss allowance and its movement; (4) significant disputes with owners over recoverability; (5) concentration of advances with particular owners where material.

• Booking all property costs paid as expenses and the reimbursements as revenue, inflating both, when the servicer is only paying on the owner'
• s behalf
• carrying advances spent without owner approval as receivables
• ignoring ageing and disputes when assessing expected credit losses on reimbursement balances
• netting unreimbursed advances against client money held for a different owner
• treating a handling margin as reimbursement rather than revenue.