Service charges and owners' association funds

Whether service charges are shown gross or net swings reported revenue by material amounts for property managers, and where funds legally belong to an owners' association rather than the manager, recording them as the manager's own revenue or cash overstates both the income statement and the balance sheet and can breach the legal segregation required under GCC owners'-association regulation.

For each service line (cleaning, security, utilities), does the manager control the service before transfer, or merely arrange it and pass through cost? Are funds collected for an owners' association legally the association's money held in a fiduciary capacity, rather than the manager's own revenue or cash? Is the manager's own management/agency fee recognized as revenue separately from any pass-through or fiduciary fund balances? Are owners'-association collections reconciled against actual spend to confirm no shortfall or misapplication of owner funds?

1) Identify each distinct service line (cleaning, security, utilities, maintenance, admin fee) within the arrangement. 2) For each line, determine who controls the service before it is transferred to the tenant/owner - who selects the supplier, bears inventory/credit risk, and has discretion over pricing. 3) If the manager controls the service, it is principal: recognize gross service revenue and the related cost as its own. 4) If the manager merely arranges the service on the owner's/tenant's behalf and passes through the cost, it is agent: recognize only its management/agency fee as revenue, not the pass-through amount. 5) Separately confirm the legal status of amounts collected for an owners' association: if local regulation (e.g., an owners'-association or 'Mollak'-style framework) makes these legally the association's funds held by the manager in a fiduciary capacity, they are not the manager's revenue, asset or cash at all - recognize only a fiduciary/custodial liability equal to the amount held, or keep them entirely off-balance-sheet with disclosure, per the applicable framework. 6) Do not net the manager's own management fee against the fiduciary fund balances.

Principal service revenue is measured at the gross transaction price charged to tenants/owners, with the related third-party cost recognized as an expense (not netted). Agency/management fee revenue is measured at the fee or commission earned only. Owners'-association fiduciary funds are measured (and reconciled) at the cash actually collected, spent and held on the association's behalf, tracked in a separate ledger/bank account distinct from the manager's own working capital; any manager cash shortfall against the fiduciary obligation should be recognized as a liability of the manager, not netted against corporate cash.

Disclose the gross/net (principal/agent) judgment and the basis applied per major service line; present management/agency fee revenue separately from any pass-through costs; segregate and separately disclose owners'-association or other fiduciary fund balances and activity from corporate assets and liabilities; disclose the legal/regulatory framework governing the funds (e.g., local owners'-association regulation).

• 1) Grossing up pure cost pass-through utilities or maintenance charges as the manager'
• s own revenue when the manager bears no pricing discretion or risk. 2) Commingling owners'
• -association cash with the manager'
• s corporate operating bank accounts. 3) Recognizing unspent community/association fund balances as the manager'
• s income at year end instead of carrying them as a liability to the association. 4) Applying a single blanket principal/agent conclusion to the whole contract instead of assessing each service line separately. 5) Failing to reconcile association fund collections against actual spend, masking shortfalls or misapplication of owner funds.