Audits are Expensive and Should Be Done Selectively.
An audit is an extensive and methodical examination of all of the books, records and accounts that support the financial statements. In most circumstances, they are costly and time consuming. However, it is often prudent to audit the HOA books and records whenever a developer turns over a community to the homeowners to verify that the developer has fulfilled its obligations to the association, and won’t leave unit owners holding the bag for any unpaid fees. Or an audit may be need if misappropriation of funds by an association or management company is suspected or a community is transtioning from self-management to a management company and experiencing extreme financial hardship. In those case, a forensic audit must be performed to determine exactly where the money has been going.
A Review is a Less Expensive Alternative to an Audit.
A review is a report of limited assurance stating that the accountant is not aware of any material modifications that need to be made to the financial statements in order for them to conform with Generally Accepted Accounting Principles (GAAP). The accountant must perform sufficient inquiry and procedures to give a reasonable basis for that conclusion. A review is a more affordable alternative for most associations and should be sufficient in most cases.
When governing documents talk about “audit,” it generally refers to some level of independent review of the books by a CPA. Depending on the size and complexity of your HOA, an audit may be overkill and may not be warranted. Rather than perform an annual audit, the Board may elect to perform an annual review.
Whether your HOA decides to do a review, a compilation, or a full blown audit, we think it is a good idea to do on an annual basis. Some HOA governing documents require it, others are silent on this point.
There are a variety of qualified CPA‘s in the Atlanta area that can do this work for your Atlanta HOA. Why is this a good idea? The easiest answer is a simple one: it’s smart, prudent policy. Even if you are confident in your Atlanta HOA management company, it is a good idea to do this as it shows the membership that you are being thorough in your desire to ensure the HOA’s funds are tended to in an appropriate manner. Regardless of whether you do an audit, make sure you review the financial reports you get from your property management company each month.
We are happy to provide financial report training to any of our clients. We’ll explain what the GAAP rules are and why we adhere to them in your financial reporting. We’ll also explain the rules of double entry and much more. If you are interested in getting more information on our financial report training webinars please contact us by going to our website at http://www.riversidepropertymgt.com.