Members of homeowners’ associations (HOA) rely on property managers and their own Board of Directors to manage their funds. As such, members may want assurance that the Board does not misapply or misappropriate their funds. Since the members do not participate in financial statement preparations, they can only rely on HOA audits for assurance that the financial records provide a fair view of their association.
At McNurlin Hitchcock & Associates, we provide different types of assurance to HOAs and offer an opinion about their financial statements. Read on to understand the different audit types and the benefits of hiring a CPA to examine financial statements.
What is an HOA Audit?
An HOA audit refers to the application of accounting procedures to review and examine financial records and statements. Audits play a critical role in ensuring the success of a community association since it examines financial statements and discusses internal control systems to ensure the organization complies with accounting standards and guidelines. In addition, audits generally identify weaknesses and issues in the association and address them before they become complex challenges.
In most cases, audits are performed by independent parties, such as CPA firms. The CPA applies audit techniques to assess financial statements and operation procedures before giving an opinion in an audit report.
In Colorado, board members determine when and how often HOA accounts should be audited. However, special audits may be requested by at least one-third of the total membership when annual expenditures or revenue exceed $250,000. Audits form an essential management tool and should be performed at least once per year.
What is an HOA Review?
A review is closely related to an audit, and some board members or managers may use the two terms interchangeably. However, the two terms are distinct, and it is essential to appreciate the distinction to apply reviews and audits effectively.
While both reviews and audits examine the current financial status of a HOA, a review is less thorough than an audit. When you request a financial review, a CPA examines specific statements and records such as income and expenditure statements, to aid decision-making. Reviews help HOA managers create budgets or apply budgetary control tools in their management. They are not designed to identify weaknesses in processes and procedures.
Benefits of Homeowners Association Audits
Audits have numerous benefits to a community association and its members. These benefits help maintain the association as a going concern while assuring the members and other stakeholders that financial statements represent the status of the association. An audit performed by our CPAs provides your association with the following specific benefits.
Members may not participate in the daily operations of the HOA and rely on managers to run the HOA. As such, the board and association members use audits to get a clear and accurate view of the association’s financial health. Audits assure the members that their fees are used appropriately, encouraging future contributions.
Audits examine financial statements and operations to ensure they adhere to regulations and accounting standards. The compliance tests help the association avoid non-compliance costs.
Detect Fraud and Strengthen Internal Controls
An audit can uncover irregularities and fraudulent activities. Independent auditors also help HOAs address the challenges before they become complex and costly. Associations also use audits to strengthen their internal control systems to prevent irregularities and misapplication of members’ funds.
Budgeting and budgetary controls are significant management tools that help the board forecast revenue and expenses to avoid financial shortfalls. An audit of the budgeted figures and the actual performance helps an organization improve its budgeting accuracy.
Enhance Credibility and Reliance
HOA financial statements have different users. Members, creditors, and other stakeholders use the financial statements to assess the financial health of the association. Since the members and creditors are not involved in the daily operations of the association, they rely on independent audits to give credibility to the financial statements.
Types of Audits for Community Associations
Several types of audits help associations meet specific objectives in their business. However, most CPAs perform audits under GAAP standards unless the client requests a specific type of audit. At McNurlin Hitchcock & Associates, we provide all audit types to homeowners’ associations. If you are not looking for a comprehensive independent audit from our CPAs, you can request any of the following:
Agreed-upon procedures: An agreed-upon procedure is a targeted examination focusing on specific records and financial statements of procedures. In this type of audit, you request our CPAs to examine specific areas of your organization’s operations or records to confirm pre-determined issues.
For instance, you may want to confirm whether your balance sheet complies with the generally accepted accounting principles (GAAP). You may also request our CPAs to examine specific accounts for suspected fraud or irregularities. Developer transition audits may also fall into this type of audit. Under the agreed-upon procedures, the CPA limits themselves to the terms set before the audit begins.
Financial Statement Review: Reviews assure that the statements follow a consistent trend and comply with accounting standards and principles adopted by your association.
Financial Statement Compilation: A compilation is the simplest type of attestation service. When you request a compilation, the CPA will simply prepare your financial statements in a format recognized by accounting standards.
Why Hire A CPA Firm for HOA Audits?
Hiring a certified public accountant CPA to perform an audit for your HOA has several benefits. Besides their experience, professionalism, and expertise, CPAs are independent of your association and its management and not influenced by the board.
CPAs provide independent and professional audit reports that give credibility to your audited financial statements. Since they are independent and professional, CPAs also help you uncover irregularities and accounting weaknesses that may hurt your organization. Moreover, CPAs help your organization strengthen internal controls or enhance budgetary techniques.
Contact McNurlin Hitchcock & Associates for HOA Audits
Independent opinions from a CPA are the highest assurance of whether financial statements represent a fair view of your organization. Do not wait for accounting weaknesses to create complex and costly financial problems in your organization. Contact us for an HOA audit today.