Small, yet impactful, changes in the 11th edition of the Uniform System of Accounts for the lodging industry
By Robert Mandelbaum, Director of Research Information Services at CBRE Hotels and Ralph Miller, President at Inntegrated Hospitality Management Ltd.
Implementation of the11th Revised Edition of theUniform System of Accounts for the Lodging Industry
Throughout the implementation process, the FMC has received several questions from the worldwide lodging industry. To answer these questions, the FMC has created a Frequently Asked Questions (FAQ) document on the USALI resource portal page of the AH&LA Education Institute's (AHLEI) website (www.ahlei.org/usali).
In an effort to assist hotel owners and operators with their implementation, the FMC is presenting a series of monthly articles that address some of the most frequently asked questions. Some of the topics to be discussed include the expanded labor cost reporting, gross versus net revenue reporting, service charges, the change from cover to customer counts, mixed-ownership facilities, and operating metrics.
For this month we discuss some of the more subtle, yet impactful, changes incorporated into the 11th Revised Edition. The article was prepared by FMC committee members Ralph Miller and Robert Mandelbaum.
* * * * * * * * * * *
Small, yet impactful, changes in the 11th edition of the Uniform System of Accounts for the lodging industry | By Ralph Miller and Robert Mandelbaum
The 11th Revised Edition of the USALI contains some significant changes that are very obvious to readers. Examples include the addition of a new Undistributed Department (Information and Telecommunications Systems), or the movement of Non-Operating Income out of Total Revenue.
Other changes, however, are much more subtle in nature. They include a simple change in wording, or the inclusion of an additional sentence in the paragraph describing a revenue or expense. In the following paragraphs we describe some of these smaller subtle changes made in the 11th Revised Edition of the USALI, the rationale behind their inclusion, and the potential impact on revenue and expense reporting.
- Customer: The term Customer has replaced Cover as the common measure of business volume within the food and beverage department. Customer is defined as, "One person served in a food and beverage venue or function space." The change intentionally includes all food and beverage patrons, and makes no distinction between adults versus children, beverage-only patrons versus a full meal, or guests for a cocktail reception versus a sit-down banquet. The use of Customer is consistent with current trends in the food and beverage industry and the new standards published by the AH&LA Food and Beverage Committee.
- Miscellaneous Income: The term Miscellaneous Income has replaced Rental and Other Income as the fourth line for reporting revenue on the Summary Operating Statement. This income category continues to include just revenue classifications that are reported on a net basis. Throughout the 11th Revised Edition of the USALI, enhanced guidance for reporting revenue on a gross versus net basis is referenced in every operated department. As a result, there is a greater likelihood for more diversity in the sources of net revenue reported in this category. At resort hotels, the change to reporting Resort Fees as Miscellaneous Income may significantly increase this income category, while also impacting ADR and RevPAR.
- Website: In the 10th Revised Edition of the USALI, E-Commerce was listed as an expense classification within the Sales and Marketing Department. It included the costs associated with the development and maintenance of a hotel's website. As the impact of the internet on hotel operations has evolved, so has the amount, and purpose, of time spent to maintain the on-line presence of a hotel. In the 11th Revised Edition, the term Website has replaced E-Commerce as an expense classification and includes an expanded list of internet-related sales and marketing functions.
- Labor Costs: The term Labor Costs has replaced Payroll Costs in all operated and undistributed departments to recognize the increased use of outside personnel not directly compensated through the hotel's payroll system. These additional personnel are frequently contracted, leased, or outsourced from an external vendor.
- Departmental Profits: The term Department Profits is now being used to describe the net income derived after subtracting Departmental Expenses from Operating Revenue in the Summary Operating Statement. Throughout the 11th Revised Edition of the USALI, "Departmental Profit" replaces "Departmental Income". Within each operated department, "Departmental Profit" replaces "Departmental Income (Loss)". The change was made to emphasize the profit motivation of most Operated Departments.
- EDITDA: EBITDA stands for Earnings Before Interest, Taxes, Depreciation, and Amortization. The term EBITDA has replaced Net Operating Income in the 11th Revised Edition of USALI. Notwithstanding that EBITDA is non-GAAP terminology, the change was made to be consistent with terminology used to describe "the bottom-line" on the operating statements of most other forms of real estate.
Clarification and Emphasis
Sales and Marketing – Combined: In the 10th Revised Edition of the USALI, Sales and Marketing department expense were separated into three distinct categories: Payroll and Related, Sales Expenses, and Marketing Expenses. In the 11th Revised Edition of USALI, hotels are no longer required to report non-labor related Sales and Marketing expenses on a discrete basis. Based on feedback from the industry, the FMC recognized that it was unrealistic to consistently make the distinction between a Sales Expense and a Marketing Expense.
Revenue Management: The 10th Revised Edition of the USALI stated that the Payroll and Related Expenses for the Director of Revenue Management and Revenue Manager positions be reported in the Rooms Department. No guidance was provided for any other revenue management related expenses. In the 11th Revised Edition of the USALI, the labor related costs associated with the revenue management function are included within the Sales and Marketing Department. In addition, greater detail is provided within the Sales and Marketing Department for other revenue management related expenditures.
Catering Managers: For a long time the hotel industry has debated whether Catering Managers should be included in the Food and Beverage Department, or the Sales and Marketing Department. In the 11th Revised Edition of the USALI, additional guidance is provided to enables users to assign Catering Managers based on their primary function. If the Catering Manager spends the majority of their time selling banquets and catering functions, then they should be designated as a Catering Sales Manager and report to the Sales and Marketing Department. However, if the Catering Manager spends the majority of their time servicing events, then they should be categorized as Convention Services Manager and reported in the Food and Beverage Department. Based on feedback obtained from the industry, the Director of Catering (or Banquets) is more often than not responsible for selling food and beverage events. Therefore, personnel with that title have been assigned to the Sales and Marketing Department.
Ordering of the 11th Revised Edition of the USALI: One of the more subtle, yet meaningful, changes was in the ordering of the sections of the 11th Revised Edition of the USALI. In the 11th Revised Edition of the USALI, the presentation of the Operating Statements precedes the presentation of the Financial Statements. The change was intended to recognize the importance of the USALI as a management reporting tool and not as a ``how to`` financial statement manual.
Many of the smaller changes made in the 11th Revised Edition of the USALI were made to provide clarity, emphasis, or simply keep up with contemporary language. However, some of the small changes could have a big impact on reporting in certain operations.
To purchase a copy of the 11th edition of the USALI, and access the nearly 100 questions and answers on the FAQ, or submit your own question for the FMC, please visit www.ahlei.org/usali. This article was published in September 2015 by the American Hotel & Lodging Educational Institute (AHLEI). For detail information visit www.ahlei.org/usali.
Labor costs and related expense reporting in the 11th edition of the uniform system of accounts For the lodging industry | By Ralph Miller and Robert Mandelbaum
The Acceptance And Implementation Of The 11th Edition Of The Uniform System Of Accounts For The Lodging Industry | By Christopher Garland and Robert Mandelbaum
Implementation of the11th Revised Edition of the Uniform System of Accounts for the Lodging Industry | By Agnes L. DeFranco and Raymond S. Schmidgall
Guidance on Financial Ratios and Operating Metrics in the Uniform System of Accounts for the Lodging Industry, 11th Revised Edition | By Agnes L. DeFranco
Treatment of Service Charge for Revenue and Expense Reporting In the Hospitality Industry | By Christopher Garland
Uniform System Of Accounts For The Lodging Industry - A Historical Perspective | By W. Peter Temling
Robert Mandelbaum is the Director of Research Information Services for CBRE Hotels Americas Research. He is based in the firm’s Atlanta office, where he is in charge of Research Information Services. Research Information Services produces the annual Trends® in the Hotel Industry statistical report, along with customized financial and operational analyses for client projects.More from Robert Mandelbaum
Ralph is a Chartered Accountant, Chartered Business Valuator, Certified Hotel Administrator, and Certified Hospitality Accounting Executive with over 25 years of operations and consulting experience in the hospitality industry. A 1982 graduate of the Sauder School of Business at the University of British Columbia with a Bachelor of Commerce Degree in Accounting and Management Information Systems, Ralph joined Coopers & Lybrand, where after he obtained his designation as a Chartered Accountant, went on to lead the Western Canada Hospitality Industry Practice at PricewaterhouseCoopers.More from Ralph Miller