WHAT IS AN AUDIT?
A financial audit is the verification of the financial statement of a legal entity with a view to express an audit opinion. The audit opinion is intended to provide reasonable assurances that the financial statements are presented fairly and in accordance with the financial reporting framework. Financial audits are performed by CPA firms which preferably specialize in homeowner or condominium associations.
WHY DO HOAS HAVE AUDITS?
In some states, it is a state requirement to have an annual audit completed. Different requirements are depending on the state the association is located. Some Associations specify in their bylaws if an audit is required. An HOA audit is recommended to ensure the accuracies and compliance of the financial statements for the Association.
WHAT LEVEL OF SERVICES CAN A CPA PROVIDE?
There are three types of services provided by a CPA. Depending on the requirements of the state or bylaws of the association, the three forms of are:
COMPILATION: This is the least degree of an audit. A compilation is limited to presenting the form of financial statements and supplementary schedules information that is the representation of management. There is no assurance or opinion stated from the CPA in a Compilation.
REVIEW: This is a mid-level degree of an audit. A review consists of providing limited assurances that the financial statements are in accordance with generally accepted accounting principles (GAAP). A review consists of inquiries of company personnel and analytical procedures applied to financial data.
AUDIT: This is the highest level of assurance. An audit includes an examination of a test based, evidence supporting the amounts and disclosures in the financial statements. An audit includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.
When thinking about an audit a couple of questions to ask yourself is, does your community require an annual audit? Were there significant changes to the community to warrant an audit?