Legislature(1993 - 1994)
03/26/1994 08:00 AM House STA
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
CSHB 353: "An Act amending the requirement of an annual audit of the receipts and expenditures applicable to certain property managed under the Horizontal Property Regimes Act to one that permits the making of an audit, and providing, in place of the audit requirement, that condominium associations subject to that Act maintain their financial records to the standards for financial statements required by the Uniform Common Interest Ownership Act." CHAIRMAN VEZEY opened HB 353 for discussion. He noted the committee had before them CSHB 353(L&C). He believed both the original HB 353 and the committee substitute accomplish the same thing; therefore, the committee should examine both and decide which one they feel is more appropriate. Number 163 REPRESENTATIVE JEANNETTE JAMES, prime sponsor of HB 353, gave a brief statement. She stated when the condominium regulations were changed in 1986 it meant an audit was no longer required of the condominium association. Previously, when an audit was required of condominium associations each year it was very expensive and had little purpose. She stated the purpose of HB 353 was to not require condominium associations to have an annual audit. Labor & Commerce amended HB 353 to make the bookkeeping requirements for those condominium associations before and after 1987 the same. She noted there had been opposition to the amendments. REPRESENTATIVE JAMES stated the condominium associations can still have as audit if they choose to put it in their regulations. She noted, for their own protection, if their finance person wanted to require an audit they could do so. She did not believe the state should require that condominium associations have an annual audit. Number 200 CHAIRMAN VEZEY inquired if the committee substitute was a better version than the original HB 353. Number 202 REPRESENTATIVE JAMES replied she was happy with the original HB 353, which only excluded the audit. She stated she did not have a problem with the amendment but, there was no need for it. Number 210 CHAIRMAN VEZEY asked what REPRESENTATIVE JAMES felt the committee substitute accomplished. Number 211 REPRESENTATIVE JAMES answered presently, the list of accounting requirements, AS 34.08.490, only applies to the condominiums that were built after 1987. Rather than excluding out of AS 34.07.280, "that all books and records kept in accordance with good accounting procedure shall be audited at least once a year by an outside auditor, outside of the organization," the committee substitute tied into the requirement that the associations must do the record keeping outlined in AS 34.08.490. Number 248 CHAIRMAN VEZEY clarified the only change proposed by the original HB 353 was in AS 34.07.280(b), by deleting one sentence. Number 251 REPRESENTATIVE JAMES stated CHAIRMAN VEZEY was correct. She believed the Labor & Commerce Committee (L&C) was installing a "feel good" amendment. Some people who managed condominiums opposed HB 353 because they wanted to be sure there was an annual audit requirement. She commented that L&C therefore felt they would be more comfortable if the bookkeeping requirements were to tie into the law which became effective in 1987. She noted if the amendment was not made, the list under AS 34.08.490 would only apply to those condominiums after 1987. Number 271 CHAIRMAN VEZEY stated he believed CSHB 353 was more detailed than HB 353, but it still said the same thing. REPRESENTATIVE JAMES agreed with CHAIRMAN VEZEY. She believed that not having specific wording in statute, in reference to those condominiums before 1987, was not a problem. She felt the condominium association and the financial institution would determine their needs. She noted HB 353 did include provisions for condominiums formed after 1987. Number 291 CHAIRMAN VEZEY asked 1987 or 1985. REPRESENTATIVE JAMES stated she thought 1987. There would be two levels of rules. Number 296 CHAIRMAN VEZEY clarified the condominium association sections REPRESENTATIVE JAMES was referring to were enacted in 1985, and became effective in 1986. He questioned if prior to 1986, the associations only had to comply with whatever the commercial market required. Number 300 REPRESENTATIVE JAMES stated she was under the assumption that the changes made in 1985 did not take out the requirement for the associations to have an annual audit. Number 305 CHAIRMAN VEZEY asked if the associations were required to have an annual audit prior to 1985 or 1987. REPRESENTATIVE JAMES clarified they were prior to the changes, but not after. She stated HB 353 would make a level playing field between the two levels. She mentioned L&C feared that if the audit requirement was taken out, there would be no specific accounting guidelines for those associations prior to 1987. Therefore, they tied the newer records into everyone. CHAIRMAN VEZEY stated the requirement for an audit dates back to 1963. REPRESENTATIVE G. DAVIS clarified an annual audit. Number 321 CHAIRMAN VEZEY affirmed REPRESENTATIVE G. DAVIS. He noted the 1985 Session Laws of Alaska required different standards. He believed in the committee substitute, AS 34.08.490 and AS 34.08.590 addressed the resale of a condominium. Number 344 REPRESENTATIVE JAMES stated CHAIRMAN VEZEY was correct. Number 345 CHAIRMAN VEZEY commented he failed to see how those statutes related to the association's accounting standards in situations other than resale. Number 347 REPRESENTATIVE JAMES said CHAIRMAN VEZEY's comments were true. However, she understood the current required information must be available for those condominiums prior to 1987. Number 355 CHAIRMAN VEZEY stated subsection 6 of AS 34.08.590, "the most recent regularly prepared balance sheet and income and expense statement, if any, of the association," appeared to be the financial statement requirement for a resale. REPRESENTATIVE JAMES commented that subsection was "pretty loose." CHAIRMAN VEZEY agreed. He asked REPRESENTATIVE JAMES's recommendation to the committee. Number 362 REPRESENTATIVE JAMES answered she would prefer the original HB 353. Number 363 CHAIRMAN VEZEY inquired about the debate in L&C. Number 364 REPRESENTATIVE JAMES responded L&C debate was centered on fears the condominium associations would not act properly with the money; thereby the owners would be "ripped off." She believed the owners have a right and a responsibility to require the accounting provisions in their association bylaws. REPRESENTATIVE JAMES added L&C also examined the example of a real estate person who had taken over the management of condominiums and the records were in bad shape. She said the testifier stated she required an audit before the takeover. She noted an audit already is standard procedure when records are taken over. She emphasized this requirement did not need to be in statute. Number 380 CHAIRMAN VEZEY commented the statement, "all books and records shall be kept in accordance with good accounting procedures," was a strong statement. REPRESENTATIVE JAMES agreed. Number 384 REPRESENTATIVE G. DAVIS clarified prior to 1986 an annual audit was required, then changes in statute did not require an audit for those associations after 1987. He clarified that HB 353 would make a level playing field, whereby an annual audit would not be required of anyone. REPRESENTATIVE JAMES stated REPRESENTATIVE G. DAVIS was correct. Number 392 REPRESENTATIVE G. DAVIS questioned the rationale for the changes made in 1986. Number 397 REPRESENTATIVE JAMES stated she could not respond to his question. She commented there had been an entire rewrite of the condominium association methods of handling property. REPRESENTATIVE G. DAVIS agreed that "comply with standard accounting procedures" should satisfy a property owner or association member. Number 409 CHAIRMAN VEZEY stated he believed the intent of the 1985 Session Law was to more clearly define the requirements for a resale of a condominium and to relax the accounting standards to meet the requirements, without leaving them higher. He noted a series of resale requirements also became effective January 1, 1986. January 1, 1986, was the cut off date REPRESENTATIVE JAMES was referring to. (Copies of the statutes, pre-1986, were handed out.) Number 434 REPRESENTATIVE JAMES mentioned the actual protection was in AS 37.07.290 whereby the owners are able to examine the books and look at the receipts and expenditures. Number 443 CHAIRMAN VEZEY clarified HB 353 eliminates the standard for an audit. The compilation would be up to the owners, and the association would have to comply with bylaws. The bylaws would have to be approved by any financing institution. He repeated, "all books and records shall be kept in accordance with good accounting procedures," was strong wording. Number 459 REPRESENTATIVE KOTT asked if the term "good accounting procedures" was accepted by the accounting community. CHAIRMAN VEZEY replied it was, however, he would use the phrase "in accordance with generally accepted accounting principles." The language was interchangeable. Number 469 REPRESENTATIVE KOTT clarified the original HB 353 eliminates the requirement for an annual audit. Number 470 CHAIRMAN VEZEY affirmed REPRESENTATIVE KOTT. Number 471 REPRESENTATIVE KOTT continued the CSHB 353 also would, plus more. He referenced the memorandum from Jack Chenoweth. He questioned if REPRESENTATIVE JAMES has examined it. He cited Jack Chenoweth on page 3, "The draft committee substitute makes changes only to AS 34.07.280(b). It (1) eliminates the requirement for an annual audit, (2) substitutes a directive that for the purpose of keeping financial records, in the `association of apartment owners' (using the words of AS 34.07) is subject to AS 34.08, the performance standard be exactly the same as set out in AS 34.08.490..." Number 500 REPRESENTATIVE JAMES pointed out the memorandum was in support of the first committee substitute, version E draft by L&C, which still required audits at intervals of at least every 3-5 years. She noted the committee substitute before the committee was version J and the memorandum did not refer to it. Number 507 REPRESENTATIVE KOTT clarified the memorandum referred to draft work order 8-LS1474\J. Number 511 REPRESENTATIVE JAMES said REPRESENTATIVE KOTT was correct. She stated the concerns made in L&C created a compromise effort. Number 513 CHAIRMAN VEZEY stated he understood; however, he was reluctant to favor the L&C version. He believed the bill was being left vague enough that a person could take the position that an audit was required. CSHB 353 could be interpreted as the status quo. He noticed the difference between the statement "keep accurate records" and "good accounting procedures." He felt CSHB 353, stating audits would be allowed, would be superfluous. He noted CSHB 353 was cautioning that an associations' records must comply with AS 34.08.590(a)(6), which specifically states, "records if any." Number 544 REPRESENTATIVE G. DAVIS commented the committee should work with the original HB 353, because it was much more clear. He noted CSHB 353 was complicating the issue. Number 551 CHAIRMAN VEZEY stated he understood REPRESENTATIVE G. DAVIS' statement to be a motion to adopt the HB 353, version A. Number 552 REPRESENTATIVE G. DAVIS affirmed CHAIRMAN VEZEY. Number 563 REPRESENTATIVE KOTT objected. He preferred the committee substitute. He asked how many votes were required for the committee to adopt. Number 565 CHAIRMAN VEZEY answered he required four votes to move a bill out of committee, and a majority of the quorum present was required for everything else. He asked the committee secretary to call the roll. IN FAVOR: REPRESENTATIVES VEZEY, B. DAVIS, G. DAVIS OPPOSED: REPRESENTATIVE KOTT ABSENT: REPRESENTATIVES ULMER, OLBERG (REPRESENTATIVE SANDERS indicated he was in favor via Anchorage teleconference.) MOTION PASSED Number 574 REPRESENTATIVE G. DAVIS moved to pass HB 353, version A, out of committee with individual recommendations and accompanying fiscal notes. Number 577 CHAIRMAN VEZEY asked the committee secretary to call the roll. IN FAVOR: REPRESENTATIVES VEZEY, KOTT, B. DAVIS, G. DAVIS ABSENT: REPRESENTATIVES ULMER, OLBERG (REPRESENTATIVE SANDERS indicated he was in favor via Anchorage teleconference.) MOTION PASSED
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