Is it time for a new edition of the USALI? By Tanya Venegas A survey evaluates whether an 11th edition is warranted The Uniform System of Accounts for the Lodging Industry, better known as the USALI to financial managers, is the gold standard for developing financial statements for lodging properties. Many financial managers will even refer to the latest 10th edition as the Little Green Bible in reference to the green cover on the book. The most current edition was released back in November 2006 and is published by the American Hotel & Lodging Association Educational Institute. The USALI is designed to set accounting and financial standards for lodging properties such as account titles, financial statement formats, classification of revenues, classification of expenses and ratio definitions. By law properties are not required to use this publication, but in order to benchmark against their competitors, guidelines in this publication allow for more accurate comparability. Given the fact that the current edition is several years old and the industry is constantly changing, a committee was formed to evaluate the publication and determine if an updated version is warranted. The process started in the fall of 2010 and the committee determined that a survey would be the best way to gauge the usefulness of the 10th revised edition. With the assistance of the HFTP Research Institute, a survey was drafted addressing various points in the publication such as reporting formats, condominium revenues, service charges, occupancy, minor operating departments and conversion to International Financial Reporting Standards (IFRS). In February 2011, the online survey was distributed to the membership of several organizations including lodging financial members of HFTP and members of Hospitality Asset Managers Association. In addition, STR Global and Colliers PKF distributed the survey to their clients to receive their input. Clients of these organizations use the USALI to insure they are reporting their financials correctly in the benchmarking reports developed by these companies. In total, the survey remained open for four weeks and 484 responses were collected. Respondent Demographics For proper analysis of the survey results, demographic information of the respondents was requested in the survey such as type of organization, location, job title and department. In reference to type of organization, the largest group of responses came from those working at an independent property such as a hotel or resort (149 responses, 31 percent), followed by management company (120 responses, 25 percent), and owner company (67 responses, 14 percent). For a breakdown of the major categories please refer to the Type of Organization pie chart. The category includes those from appraisal firms, developers, franchise companies, lenders, membership companies and real estate investment trusts. In addition to type of organization, respondents were also asked to indicate Tanya Venegas is program director of the HFTP Research Institute at the University of Houston and frequent speaker at HFTP educational events. 14 August/September 2011
the types of properties that their organization operates. Respondents indicated that their employers operate a wide variety of property types including: luxury properties (195 responses, 41.1 percent), economy/limited service properties (176 properties, 37.1 percent), resorts (165 responses, 34.7 percent), airport properties (140 responses, 29.5 percent) and boutique properties (139 responses, 25.9 percent). types of properties included: all suite, casino, condominium hotel, conference center, full service, city center and suburban properties. Another important factor in analyzing data depends on the property location. Given the fact that many countries have different accounting standards it is important to have the opportunity to compare responses from different regions of the world. Respondents were asked to indicate the locations where their company operates properties and the majority operate properties in the United States (403, 85 percent). Respondents also provided information about their position and role within their company. Nearly half indicated that they work in the accounting/finance department at their property/company (215 responses, 48 percent), followed by those in general management (104 responses, 23 percent) and then those in asset management (27 responses, 6 percent). Those in the category held positions in acquisitions, consulting, development, human resources, appraisals and education. When analyzed by job title, the largest group of responses came from those with the title director of finance/accounting or controller (158 responses, 35 percent). Most of the respondents also indicated that they worked at their companies corporate office (280 responses, 59 percent) followed by those at the property level (134 responses, 28 percent). USALI Knowledge and Usage In order to solicit responses from those familiar with the USALI respondents were asked to indicate whether their company uses the USALI and if they had working knowledge of the guidelines presented in the text. Eightythree percent (369 responses) came from individuals whose company/property uses the USALI in its financial reporting. RESPONDENT DEMOGRAPHICS Workplace Level Type of Organization Owner Co., 14%, 17% Local Office, 4% On-site at a Hotel/Resort, 28%, 5% Management Co., 25% Asset Manager, 7% Regional Office, 4% Hotel, Resort or Independent Property, 31% Consulting Firm, 6% Corporate Office, 59% Type of Operation No. of Responses Percent Airport Hotel 140 29.5 All Suite 123 25.9 Boutique 139 29.3 Casino 31 6.5 Condo Hotel 68 14.3 Conference Center 122 25.7 Economy/Limited Service 176 37.1 Luxury 195 41.1 Resort which may include Golf/Spa/Ski, etc. 165 34.7 Not Applicable 35 7.4 (please specify) 64 13.5 TOTAL 475 100.0 Location No. of Responses Percent Africa 21 4 Australia 2 0 East Asia and Pacific 44 9 Europe and Central Asia 75 16 Global 1 0 Middle East & North Africa 39 8 North America: Outside U.S. 68 14 North America: U.S. 403 85 South America 31 7 South Asia 30 6 TOTAL 475 150 The Bottomline 15
That indicates that just over 17 percent of responses came from companies/properties that do not use the currently accepted financial reporting standards for the lodging industry. In addition, the majority of respondents stated they have a detailed working knowledge of the current 10th edition of the USALI (302 responses, 68 percent). Based on the response to this question, individuals were directed to two separate questionnaires. Those who responded positively and indicated they have a detailed working knowledge were asked to answer more in-depth questions and those not as familiar were provided more generic questions presented at the end of this report (see page 19). Financial Statements and Reporting. One of the key components of the USALI is to set standards for financial statements and reporting. These standards include providing basic examples for the income statement, balance sheet, cash flow statement and statement of owner s equity. The text not only provides an example, but an explanation also accompanies each financial statement. Respondents to the survey were asked to provide their opinions pertaining to the reporting of departmental expenses and profit on the statement of income, reporting formats for owners and whether the USALI should provide guidance in the preparation of operating and financial statements. Rooms Department. When it comes to the Rooms Department, many questions arise pertaining to financial reporting. The questions addressed various topics such as condominium revenues, gross attrition, cancellation fees, no show revenue, resort fees, wholesalers and night auditor expenses. Several questions in this section had mixed responses with no definite clear answers. For example, in the case of night auditor salaries, wages, bonuses and payroll related expenses; half of the respondents indicated that these expenses should be recorded as administrative and general (108 responses, 47 percent) and the other half wanted to record the expenses in the rooms department (108 responses, 47 percent). A small percentage indicated stating that it depended upon whether the night auditor worked primarily for the front office or the accounting department. Food and Beverage Department. The most pertinent topics emerging in the food and beverage department include service charges and definition of a cover. The latest edition dictates that the entire service charge must be recorded as revenue. This guideline was met with a fair amount of disdain and many properties have indicated that they do not follow this rule. The reasoning behind the change is that many jurisdictions require the entire service charge to be recorded as revenue, so the USALI set it as the overall standard to cover these jurisdictions. Over half of the respondents (130 responses, 57 percent) stated that only the portion of the service charges not used for payroll should be recorded as revenues. In addition, there were mixed responses when it came to the definition of a cover. Most indicated that it should be either a person who orders either food or beverage (99 responses, 43 percent) or a person who orders food (84 responses, 37 percent). USALI KNOWLEDGE AND USAGE Are you aware if your company/property uses the USALI in its financial reporting? Yes, 83% No, 17% Financial Statements and Reporting: On the Statement of Income Report, below the Revenue section, individual departments should be reported as?, 4% Should reporting formats be presented in the USALI for reporting to owners? Would you prefer that the USALI provide guidance in the preparation of an Operating Statement or a Financial Statement?, 5% Departmental Expenses, 68% Departmental Profit, 28% Yes, 90% Operating Statement, 55% Financial Statement, 40% No, 10% 16 August/September 2011
Rooms Department: The following revenue should be recorded as? Income Rooms Revenue Gross Attrition Cancellation Fees No Show Revenue Resort Fees No. of Responses 11 3 1 17 Percent 5 1 0 8 No. of Responses 138 154 56 143 Percent 66 68 25 69 No. of Responses 59 71 170 46 Percent 28 31 75 22 How should the condo owners portion of the revenue be recorded? In a Separate Department, 45% Cost of Sales Rooms, 17% Below EBIDA, 25%, 8% Rooms Expense, 5% In which segment should Wholesaler be classified? Wholesaler (new segment), 55% Group, 16% Transient, 25%, 4% What method should be used to account for the significant, discounts given to 3% wholesalers for selling large blocks of rooms? Rooms Commissions, 34% Net Against Rooms Revenue, 56% Charged to Cost of Sales: Rooms, 7% In which department should the salary, wages, bonuses, and payroll related expenses for night auditors be assigned? A&G, 47% Rooms, 47%, 6% Food and Beverage Department: How should the Food and Beverage Department be presented in your financial statements? Combined F&B Dept., 62% Separate Food/ Separate Beverage Depts., 31%, 7% Only the portion of service charges not used for payroll should be recorded as revenues, 57% How should service charges be recorded?, 4% All service charges should be recorded as revenues, 39% A person who orders both food and beverage, 1% A person who occupies a seat, 16%, 3% How should a cover be defined? A person who orders food, 37% A person who orders either food or beverage, 43% The Bottomline 17
Recording of Expenses. The majority of questions regarding the USALI pertain to the correct recording of expenses in the financial statements. For example, one of the questions from this section pertains to the recording of expenses for non-room reservations such as dining, golf and other ticketed events. Respondents to the survey indicated that these expenses should either be recorded in multiple departments pertaining to the type of transaction (91 responses, 47 percent) or in the rooms department (63 responses, 32 percent). questions in this section related to the recording of third party revenues, Internet access, employee meals and food cost for the employee cafeteria. Ratios and Statistics. Another important section of the USALI deals with the computing of ratios and statistics. Many disputes can arise when trying to determine what exactly should be included in occupancy, RevPAR and Average Room Rate. General Questions The final section of the survey asked respondents to provide information on general issues regarding the current edition of the USALI. These questions addressed issues such as use of a minor operating department, telecommunications and inclusion of IFRS standards. One of the burning questions is whether financial managers should start educating themselves on the IFRS. For this reason, respondents to the survey were asked to indicate if the next edition of the USALI should address the IFRS. Nearly half (68 responses, 46 percent) indicated that the USALI should address the IFRS in some way. Most of those requesting inclusion of IFRS stated that they would like to see a section which describes where the USALI differs from IFRS. This article provides a brief look at the 2011 USALI Survey. Complete results are on the HFTP Research Institute page on the HFTP web site or can be sent by contacting the HFTP Research Institute at hftp@hrm.uh.edu. Recording of Expenses: How should the following third party revenues be recorded? AV In-room Entertainment Conference Related Revenues Vending Internet In-room Fax Guest Room Safes Mini-bars Net Revenue and Expenses Responses 74 84 59 101 67 82 86 47 78 Percent 37 43 30 52 34 43 46 24 43 Responses 4 5 3 6 7 8 7 4 12 Percent 2 3 2 3 4 4 4 2 7 Responses 121 108 136 89 126 102 93 146 92 Percent 61 55 69 45 63 53 50 74 51 How should expenses from reservations (or call centers) be distributed when significant volumes of calls include non-room reservations transactions (i.e., dining, golf, ticketed events)? Where should search engine optimization expenses be recorded? How should expenses paid in the current year that relate to prior years be accounted for? Multiple depts., 47% Marketing dept., 18% Rooms dept., 32%, 3% Sales and Marketing, 97% A&G, 3%, 12% Equity, 12% Charged to an acct. included in the GOP, 36% Charged to an acct. below GOP, 41% 18 August/September 2011
Recording of Expenses: Revenues and Expenses for the following should be accounted for in the department indicated: Internet Access Guest Rooms Internet Access Group Meetings Internet Access Complimentary Internet Access Internal/ Administrative Use In-room Fax Guest Room Safes Information Systems Operated Departments Rentals and Income Rooms Telecommunications Responses 8 9 12 47 4 3 Percent 4 5 6 24 2 2 Responses 4 11 8 22 3 5 Percent 2 6 4 11 2 3 Responses 20 37 16 43 10 29 Percent 10 19 8 22 5 16 Responses 46 63 37 23 40 72 Percent 23 32 19 12 21 39 Responses 41 8 47 6 54 73 Percent 21 4 24 3 28 39 Responses 78 66 75 53 80 3 Percent 40 34 38 27 42 2 The cost of employee meals (labor, food and other) should be recorded as? Costs posted directly to an Employee Cafeteria that is allocated to other depts., 69%, 5% Costs allocated from individual expense items in the G/L to meal costs in other depts., 26% How should food cost in the employee cafeteria be computed? Dollar amt. per employee (head count), 26% Actual Requisitions, 49% Dollar amt. per employee hour worked, 16%, 5% Percentage of food revenue, 4% Ratios and Statistics Charts on the following pages The Bottomline 19
Ratios and Statistics: For the purposes of calculating Occupancy, which of the following items should be included in Rooms Occupied? Complimentary Rooms Group Complimentary Component of Contracts Non-occupied Paid Rooms Paid Rooms Rooms for Permanenet House Use Rooms under Renovation/ Repair Included Not Included Responses 129 151 89 184 23 16 Percent 69 80 47 98 12 9 Responses 57 36 98 4 161 165 Percent 30 19 52 2 86 89 Responses 2 2 1 0 3 5 Percent 1 1 1 0 2 3 For the purpose of calculating Occupancy, which of the following items should be deducted from the Total Room Inventory to establish Rooms Available? Complimentary Rooms Group Complimentary Component of Contracts Non -occupied Paid Rooms Out of Order Rooms Rooms for Permanent House Use Rooms Under Renovation/ Repair Rooms Closed due to Seasonality or Business Fluctuations Deduct Do Not Deduct Responses 20 14 27 88 139 113 93 Percent 11 8 15 47 75 60 50 Responses 166 169 155 97 46 72 90 Percent 89 92 85 52 25 38 49 Responses 0 0 0 2 1 3 2 Percent 0 0 0 1 1 2 1 For the calculation of Average Room Rate, the following revenues should be: Transient No-show Group Attrition/ Guarantee Group Cancellation Resort Fee Early/ Late Departure Fee Day Rates Refrigerator Rental Roll Away Bed/ Crib Charges Adjustments and Allowances Sales Rebates and Commissions Non-room Revenue Component of Package Rates Included Not Included Responses 122 53 25 26 118 158 18 46 149 44 8 Percent 65 28 13 14 63 84 10 25 79 23 4 Responses 66 134 162 152 68 29 163 136 37 138 176 Percent 35 71 86 83 36 16 88 73 20 73 94 Responses 1 2 2 6 2 0 5 4 2 6 3 Percent 1 1 1 3 1 0 3 2 1 3 2 20 August/September 2011
Ratios and Statistics: For the calculation of RevPar, the following revenues should be: Transient No-Show Group Attrition/ Guarantee Group Cancellation Resort Fee Early/ Late Departure Fee Day Rates Refrigerator Rental Roll Away Bed/ Crib Charges Adjustments and Allowances Sales Rebates and Commissions Non-room Revenue Component of Package Rates Included Not Included Responses 131 66 43 41 126 156 33 60 143 44 19 Percent 70 35 23 23 68 85 18 33 78 24 10 Responses 55 119 142 136 59 28 143 121 39 136 162 Percent 30 64 76 75 32 15 79 66 21 74 88 Responses 0 1 1 4 1 0 4 3 1 5 3 Percent 0 1 1 2 1 0 2 2 1 3 2 General Questions: When should a minor operating department be used? Should Telecommunications continue to be considered an Operated Department? Do you think the USALI should address issues pertaining to the IFRS?, 9% Only when significant revenues exist, 39% Only when payroll and significant revenues exist, 44% Only when payroll exists, 8% Yes, 62% No, 38% Yes, 46% No, 54% The Bottomline 21