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Associated Reserve Planners USA is proud to serve in its role as a key component organization serving the reserve study profession.

Associated Reserve Planners provides education and enforcement activities for ICBI (International Capital Budgeting Institute) and BPCB (Budgeting Professionals Credentialing Board).  ICBI has established Generally Accepted Reserve Study Principles and Generally Accepted Reserve Study Standards www.capitalbudgeting.org which govern the reserve study process for ICBI members.  BPCB established the RRC (Registered Reserve Consultant) credential, the requirements for education and testing necessary to earn this credential, and continuing education, peer review and ethics rules for all credential holders.  The RRC is the ONLY credential for reserve preparers that requires testing of knowledge to qualify for the credential.  This testing is based on education courses regarding reserve study fundamentals, financial calculations and reporting standards, and a number of technical courses relating to most commonly encountered physical components.

Reinventing the Reserve Study Process and the 2020 Vision for Reserve Studies

ICBI undertook the process in 2014 to create a set of professional level standards that would reflect the needs of all users. ICBI recruited sixteen individuals representing all industry stakeholders with a view to also expanding the discussion outside the community association industry to gain a broader perspective.  Individuals known to have opposing views were purposely included in the group to ensure a robust discussion.  The result was a committee of  individuals from six countries,all of whom performed, used, or relied on reserve studies from some perspective. 

This committee started by identifying the challenges and decided on the approach of ignoring what presently existed and looking at the reserve study process anew, with no preconceived positions.  This committee re-imagined the reserve study from the ground up to fully address the reserve study process to create a robust set of standards addressing ALL aspects of the process. 

The challenges facing the committee were to:

• Clearly define the nature of a reserve study
• Identify the fundamental elements of the reserve study process
• Identify what skills were necessary to accomplish the reserve study process
• Identify what mathematical calculations are necessary to create a financial projection
• Identify what information was necessary to include in a reserve study report
• Identify the process necessary to meet the above challenges

With respect to the first item discussed above the group realized that there is no clearly agreed upon definition of what a reserve study is.  This group agreed that a reserve study is not an appraisal, a property condition assessment, an engineering study or a maintenance plan.  The reserve study is a budget which should be the financial reflection OF a maintenance plan.  The reserve study report is a financial projection, a financial statement.

In identifying the fundamental elements of the reserve study process, this group determined that the reserve study process actually consists of three separate disciplines and that reserve preparers must have knowledge or skills in all three disciplines in order to meet minimum qualifications to perform reserve studies.  The reserve study process is a multi-disciplinary process requiring skills in each of these disciplines:

1. Facilities Maintenance – This broad discipline encompasses the process of being able to identify, quantify, and evaluate the condition of physical components. The committee believed that knowledge of maintenance was more important than engineering, architectural, or construction knowledge, as understanding a maintenance plan is far more directly applicable to determining both the useful and remaining life of a physical component.  Another aspect of facilities maintenance training is that it also addresses maintenance expenditures for items other than physical components, and those that don’t have a predictable useful life.  This reflects the fact that the ONLY purpose of a reserve study is to establish a budget.
2. Valuation – Valuation is an established discipline and is a broad term that includes pricing of maintenance expenditures. The majority of pricing challenges encountered in a reserve study are relatively simple because they represent either contractor bids, known common components for which pricing information is readily available, or product costs with added installation costs that can be reasonably estimated.  The real challenge on pricing comes in two separate areas in which most reserve preparers have little if any training. (a) Certain major repair of replacement projects may require construction knowledge and construction cost estimating skills, (b) Self-constructed projects by an association, encountered primarily in larger associations with significant maintenance staff requires that the reserve preparer have at least a basic knowledge of the accounting issues inherent in analyzing projects that may raise questions of which fund should bear the cost, and how cost is calculated for interfund reimbursement – direct costs only, direct cost plus allocated indirect costs, or the application of overhead in addition to direct and indirect costs.
3. Financial Skills – This actually consists of three subsets; (a) financial calculations knowledge, (b) financial modeling knowledge, and (c) financial reporting knowledge. This basic knowledge is necessary to assure that the correct calculations are made, that they are properly made, and that resulting information is properly reported in accordance with long-established guidelines.

Reserve Study Reporting - As established above, the reserve study is a budget and the reserve study report is a financial projection, a financial statement.  Accordingly, the ICBI group turned to the AICPA, the experts on financial reporting for possible guidance.  The AICPA established reporting standards for financial projections more than a century ago.  Those standards have been tested over time to meet the needs of the consuming public.  But, those standards were also designed to be relatively generic in nature and were designed specifically to apply to licensed CPAs. 

The ICBI financial reporting standards borrow certain concepts from the AICPA standards, but ignore others.  The committee recognized that with rare exception, reserve study preparers are not licensed CPAs.  However, core financial reporting concepts were incorporated and rules modified for the purpose of reporting on reserve studies.  Reserve study reports must be consistent and comparable to be recognized as having high value.  The ICBI standards accomplish this by requiring only a small number of summary level reports accompanied by a “preparer’s report” and narrative disclosures that provide information about the financial exhibits.  Preparers have the option of adding virtually any supplemental schedules they desire as long as the required information is produced, in the proper format, and issued in the correct (mandated) order.

Many existing reserve preparers may find these reporting requirements challenging, because it will cause them to remove much extraneous data and marketing information from their reports that they are used to including, and to add disclosure information that they have never previously considered.

Steps necessary to transition from an industry to a profession – The first step is to recognize that a reserve profession must meet the basic characteristics of a profession as outlined below.

ICBI – International Capital Budgeting Institute

BPCB – Budgeting Professionals Credentialing Board

ARP – Associated Reserve Planners

ICBI was formed in 2014 as the first step of creating a profession for preserve preparers.  The ICBI standards create a common understanding of the fundamentals of reserve studies, consistent calculations, disclosures, and financial reporting formats.  The goal of the ICBI standards was to create clarity, consistency, and comparability.  This required creation of a new structure to accommodate the various aspects of supporting a profession.   The characteristics of a profession were identified and are listed in the table above.  Also listed in this table are the three organizations, the new structure, necessary to accomplish creating the reserve study profession.  ICBI is an independent scholarly organization created to establish standards for capital budgeting.  ICBI published Generally Accepted Reserve Study Principles and Generally Accepted Reserve Study Standards in 2015.  These are the only professional level standards for the reserve study profession.  ICBI website is at www.capitalbudgeting.org

ARP formed in Canada in 2011 and in the USA in 2016 as a trade organization for reserve professionals to provide education, a forum for discussion, sharing of ideas and resources, creation of a “reserve activities” (components) database with standardized numbering structure for consistency, and an online resource library of reserve information. Membership in ARP requires members to comply with ICBI standards and share updated information for the reserve activities database. 

BPCB – Budgeting Professionals Credentialing Board was created in 2018 to provide credentialing services for reserve preparers.  BPCB was formed in accordance with the NCCA (National Commission for Certifying Agencies) standards for credentialing organizations and will be applying for certification from NCCA as soon as the BPCB credentialing process is fully developed.  BPCB has already applied for a unique “Credential Mark” - RRC™ – Registered Reserve Consultant™ with the US Patent and Trademark Office which requires:

1. meeting minimum academic requirements
2. comprehensive testing of knowledge
3. continuing education requirements
4. peer review requirements
5. agreement to be subject to the disciplinary framework established by BPCB

The educational courses and the testing for the RRC credential are in development now and are anticipated to be completed in 2020 so that testing and issuing the new credentials may begin in late 2020.  This is the culmination of a process started in 2014.  The first year was devoted entirely to the development of standards, which set the stage for all that follows.  During the last few years ICBI members, still a small group, created ARP and BPCB, the other two organizations necessary in the framework for a profession.

While the basic process of performing a reserve study for ICBI members is similar those preparers who are not ICBI members the difference in standards results in reserve studies that are completely different – consistent and comparable formats and reports.  Becoming an ICBI member requires understanding the standards, using an ICBI certified software product to assure accurate calculations, and reporting in proper format with appropriate disclosures.  It generally takes a short time for each reserve study company to modify internal procedures to comply with ICBI standards.

We are now entering the final stage of evolving into a profession.  The vision for the future is:

• The first class of RRC applicants will have already earned their credentials in 2020
• The second class of RRC applicants will be starting on their educational courses and testing that are the proof of knowledge required to earn the RRC credential
• Educational material regarding RRC credential and professional standards will reach a much larger portion of the community association industry
• Alliances with other organizations outside the community association industry will widen the interest groups involved
• Educating legislators to the benefits of a well-established set of professional standards will provides states with a uniform approach to state statutes regarding reserves and stop the spread of ill-informed laws that presently exist in every state that has so far adopted reserve study statutes.