Liquidation Basis of Accounting

Question: We are currently working on an audit where the property will be sold to a new entity sometime in the next month or so. Since we know that the property will be sold, we would normally report on a liquidation basis to conform to U.S. GAAP.

In your experience, does HUD prefer that we report on a liquidation basis? Or do they prefer that we keep the property on accrual basis but have a qualified opinion that we should have reported on a liquidation basis?


Answer: HUD does not want the liquidation basis of accounting in these financial statements. Your (Seller’s) statements will be for the period from the beginning of the year through the day before the sale. The purchaser’s statements will be for the period from the date of the transaction through the end of year.

Here is the actual guidance:

Submission Requirements Memo – page 13
B. Change in Ownership – Transfer of Physical Assets (TPA) and Assumptions of HAP Contract
Burdens and benefits of ownership are legally transferred from the old owner to the new owner on the date the deed is signed. In no instance should a field office approve a TPA where the proposed new owner will not or cannot meet or exceed all HUD requirements at or shortly after HUD approval.

For a TPA, the seller must file an AFS covering the period from the beginning of their fiscal year through the day before the deed is signed. The date the deed is signed marks the beginning of the buyer’s (new owner’s) financial reporting responsibilities. The buyer (new owner) must file an AFS from the date the deed was signed until the end of its fiscal year. The PM must require a copy of the signed deed when the owner submits preliminary TPA documents. Once the signed deed is received, the PM must update REMS with the buyer’s profile information and tax identification number (TIN) on the Ownership screen, and enter the “Date Owner Assumed Financial Responsibility (FASS).”

The PM must also input the date the deed was recorded in the “Date Ownership Assumed (Date Deed Recorded)” field on the Ownership screen. This date may differ from the date that the deed was signed, which is entered in the “Date Owner Assumed Financial Responsibility (FASS)” field per the instructions above.

On the Multifamily Housing – News page it states:

Transfers of Ownership – Financial Reporting:

In a transfer of ownership, the old owner’s (seller’s) audit should cover the period from the beginning of the fiscal year through the day before the transfer. In most states ownership is legally transferred on the date the deed is signed. The new owner (buyer) is responsible for reporting from the date of the transfer through the end of the new owner’s fiscal year.

Under no circumstances should the seller’s audit ‘zero out’ fixed assets, cash, or reserve accounts because the seller is responsible for reporting up to the day before the transfer. For additional information, please refer to the Office of Asset Management Memorandum dated 6/22/04.

~ Les Sparks

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