Small words, great effects

11th Revised Edition of USALI: MRP hotels explains important changes

Vienna/New York (July 25, 2014). After 8 years, it’s time again: The American Hotel & Lodging Association has presented a revised edition of the „Uniform System of Acounts for the Lodging Industry“ (USALI). It is the 11th update since it first appeared in 1926. Whilst at first glance, there are no major changes to the P&L rules and to standard reporting, the many minor amendments are considerable and take good account of the changes experienced by the hotel industry over the past decade. „Globalisation“ is the buzz word here. Michael Regner, partner to the consultancy MRP hotels in Vienna, explains the current system in today’s guest contribution.

„What was added and improved in the USALI System for reporting, cost accounting, benchmarking and bookkeeping? In the opinion of the American Hotel Association, six issues were relevant with regard to the new version of USALI: Globalization, Technology, Cluster Service, Distribution Channels, Ratio Analysis and New Terminology.

Since a comprehensive discussion of all changes would go far beyond the scope of what’s possible in this article, we have taken just one example from each field:

1. Globalization

USALI was and is still the accounting and reporting standard for the US. Consequently, USALI always came with the note that the standards described in the system should be checked for compatibility with the applicable Accounting standards in the respective country and, where necessarly, should be changed in line with those standards. This is and remains a problem as far as comparing ratios within the international hotel industry is concerned (e.g. sales split for packages, treatment of discounts and commissions etc.). Here in Europe, local Accounting standards and VAT rules allow less creativity in the allocation of revenues as is possible in the US and Asia.

In the 11th Revised Edition, changes are made which make it more easier to implement USALI in various national accounting standards (local GAAP) and which also take account of IFRS (e.g. renaming „net income“ as EBITDA).

What does this mean in detail? Areas presenting opportunities to cheat a little by favourable interpretation of data in the support of operating benchmarks such as the Average Daily Rate (ADR) are now to be definitively cleared up. A discount is a discount and is to be deducated from room revenues. In the US, under USALI, the room rate can still be booked gross (=without VAT, but before discount) and the discount is then classified as commission expense. High ADRs, which this practice then led to, will then necessarily be no more! Revenues-realted management and frenchise fees are also calculated on a lower calculation basis – certain to make the owner happy. Difficult to believe, but the US moves closer to Europe here – USALI is indeed turning global.

2. Technology

After the removal of „Telephone“ as operating department, it has now been replaced with „Information and Telecommunication“ as new cost item in „undistributed operating expenses“ (overhead costs).

Revenues from telecommunications are included as „minor operating department“ and reported in the section „Miscellaneous Income“ (replaces „Other Operating Departments“).

3. Cluster Service

Finally, the invoicing of costs incurred for cluster services has been regulated so that hotel benchmarks are no longer distorted by cluster and area positions. Up to now, costs from area and cluster positions were mostly booked in the department and further offsetting of cost shares included in „Rentals & Other Income“ or in the section after GOP. Now, for each department, a revenue account „cluster service“ has been introduced. Revenues can be directly booked to the respective cost head in this case. Costs are therefore reduced in the respective department and benchmarks correctly and uniformly reported.

4. Distribution Channels

In the market segments, the focus is now on distribution channels and on Revenue management. Instead of motive for travel (corporate / leisure / government/ packages etc.), the segments are now adjusted to the rate structures for modern pricing (e.g. retail, discount, negotiated, qualified, wholesale). Revenue managers obviously won out against the Sales department here. Changes in groups are marginal.

5. Ratio Analysis

The general trend in the 11th Revised Edition of USALI appears to be an attempt to standardise operating ratios and prevent varying interpretations. Some were identified such as the various treatment of discounts on rooms or the change of payroll cost to labour cost. In particular in the field of Ratio analysis, further changes have been made which deserve mention.

Resort fees:

It is generally the case that in resorts so-called resort fees (e.g. for all-inclusive packages) are offset. The 11th version now makes expressly clear that these revenues are not to be allocated to room revenues. We can assume that the reported average room rates of these hotels will fall significantly as a result.


The average room rate is now based on rooms sold and not on room occupied.

Food & Beverage:

The mistake made in the past to include „Ffod“ and „beverage“ as seperate departments has been reversed. Now there’s simply the „Food & Beverage Department“ – itemisation of the department is optional. The question as to what a „couvert“ is has also been dealt with by the removal of this item. As of immediately, the term is „customers served“ as new ratio – irrespective of whether the customer eats or not. Supplementary changes such as, for instance room service delivery charge, banquet service charge etc. may not be allocated to F&B revenues but must be booked under F&B Other Revenue.

Revenue Managers:

It is clarified that costs for revenues manager are to be included in „Sales & Marketing“ and not under „Rooms“.

6. New Terminology

Labour Cost: 

Under the harmless sounding „New Terminology“ head, some massive changes have taken place. For instance „payroll cost“ has been renamed „labour cost“. This change in terminology takes account of the current trend towards outsourcing. Whereas, up to now, it was easy to reduce staff other expenses increased. This state of Affairs has now been rectified. Staff expenses as well as outsourced services are now covered together under „labour cost“. Yet another change seeking to ensure „no cheating allowed!“

Fixed charges:

„Fixed Charges“ has  now been changed to „Non-Operating Income and Expenses“. This change reflects the need of many owners to record revenues and costs aside from GOP where these are not directly linked to hotel operations. Since more and more owners have their hotels managed by asset and performence managers, the account Asset Manager Fees has been included in „Non-Operating Income and Expenses“. A revenues account was also added to this department in order to be able to book revenues incurred outside hotel operations.

Overall, there several dozen changes and it is certainly worthwile ordering the 11th Revised Edition. But who’s interested? International and US hotel chains will, as always, be the first to implement the changes into their reporting standards.

This is the right time though for owners and asset managers to taker their management contracts and review these. In all likelihood, USALI will be the reporting standard used to calculate various Business ratios (e.g. management fees, marketing fees, revenues-based lease fees etc.). But what version applies? Does the contract stipulate that the currently applicable version of USALI is to be used or does it specify a certain version? In the worst case, the contract is totally silent – and not all hotel chains and operators use the currently applicable Version.

USALI is today the leading reporting standard and the one most commonly used by banks and hotel rankings as basis. It pays off then to take a look. The changes will apply from January 1, 2015. There is therefore still enough time to prepare for the changes and to adjust accounting and reporting accordingly. Judging from the past, we will then have another 8 to 10 years to get used to the new standards before the 12th Revised Edition is released.


Article from HospitalityInside 

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