NAHP Financial Management & Reporting Standards 2 — Questions and Answers
Question 1: Under HUD requirements, what is the standard deadline for submitting audited financial statements for a Section 8 project?
- 60 days after fiscal year end
- 90 days after fiscal year end
- 6 months after fiscal year end (Correct answer)
- 120 days after fiscal year end
Correct answer: 6 months after fiscal year end
HUD generally requires audited financial statements for Section 8 projects to be submitted within 6 months (180 days) after the project's fiscal year end.
Question 2: In affordable housing accounting, what does the term 'HAP contract' refer to in the context of revenue recognition?
- Housing Assistance Payments contract funding rental subsidies (Correct answer)
- Home Affordability Program covering maintenance costs
- HUD Annual Plan defining occupancy standards
- Housing Assistance Protocol for utility allowances
Correct answer: Housing Assistance Payments contract funding rental subsidies
A Housing Assistance Payments (HAP) contract is the agreement between HUD and a property owner through which rental subsidies are paid on behalf of eligible tenants.
Question 3: Which financial ratio is most commonly used to assess a LIHTC property's ability to service its debt?
- Current ratio
- Debt coverage ratio (DCR) (Correct answer)
- Equity multiplier
- Return on assets
Correct answer: Debt coverage ratio (DCR)
The Debt Coverage Ratio (DCR), also called Debt Service Coverage Ratio (DSCR), measures net operating income relative to annual debt service and is the primary metric lenders use for affordable housing.
Question 4: A LIHTC property must maintain its affordable units for a minimum of how many years under the extended use period?
- 15 years
- 20 years
- 30 years (Correct answer)
- 50 years
Correct answer: 30 years
LIHTC properties are subject to a 30-year extended use period (15-year compliance period plus a 15-year extended use period) during which affordability restrictions must be maintained.
Question 5: What financial document summarizes a property's revenues, expenses, and net income over a reporting period?
- Balance sheet
- Cash flow statement
- Income statement (profit & loss) (Correct answer)
- Statement of changes in equity
Correct answer: Income statement (profit & loss)
The income statement (also called the profit and loss or P&L statement) reports revenues and expenses over a specific period, showing net income or loss.
Question 6: Under GAAP, how should restricted grant funds received by an affordable housing organization be initially recorded?
- As unrestricted revenue when received
- As a liability until conditions are met
- As deferred revenue and recognized when conditions are satisfied (Correct answer)
- As an asset offset against related expenses
Correct answer: As deferred revenue and recognized when conditions are satisfied
Restricted grants are recorded as deferred revenue and recognized as revenue only when the conditions or restrictions attached to the grant have been satisfied.
Question 7: Which of the following best describes 'vacancy loss' on a residential rental property income statement?
- The cost of advertising vacant units
- The difference between gross potential rent and actual collected rent due to unoccupied units (Correct answer)
- Expenses incurred to prepare units between tenants
- The write-off of uncollectible tenant accounts
Correct answer: The difference between gross potential rent and actual collected rent due to unoccupied units
Vacancy loss represents the revenue foregone due to unoccupied units, calculated as the difference between gross potential rent (100% occupancy) and actual rent collected.
NAHP Financial Management & Reporting Standards 2
Under HUD requirements, what is the standard deadline for submitting audited financial statements for a Section 8 project?