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Subject: CA Auditor Report - Board Review and Approval
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KerryF2
(California)

Posts:4


05/09/2019 4:07 PM  
Hello,

I have a question for any CA board members here. I am a newer board member in my community and we just got our 2018 audit back. My main question is, what should I be looking for as I read this report? I see the auditor's opinion statement, but beyond that, are there things that I should be aware of and ask for as I am reading?

For example, I see that the auditor doesn't clearly state that we are behind on our reserve funding. In fact, he includes how much we "should" have in our reserve account according to our reserve study, but doesn't ever mention how much we actually have. Seems like it should be clear for the owners that we are behind. Or am I wrong?

Any additional input you have would be appreciated. We have to approve the report so it can be sent out to the members, but I don't want to just blindly approve it if there are things I should be asking for.

Thanks!

RichardP13
(California)

Posts:3534


05/09/2019 5:26 PM  
Most likely what you have is a review, not an audit. For any association with income of $75K or more, that is the legal standard.

It is really not different than looking at your year-end financials, but in ways, more condensed. It will show how much was spent on reserve items. It will also tell you if there were legal expenditures, what they might be for.

Been there, Done that
SteveM9
(Massachusetts)

Posts:3231


05/09/2019 8:26 PM  
In fact, he includes how much we "should" have in our reserve account according to our reserve study, but doesn't ever mention how much we actually have. Seems like it should be clear for the owners that we are behind. Or am I wrong?


No reason to not approve it. But the board can include a letter explaining the financials such as reserve account amounts, bank accounts...... very basic items. At a bare minimum, the homeowners will want to know how much money is they have.
RichardP13
(California)

Posts:3534


05/09/2019 10:24 PM  
I regards to the data, it is based on 2018 and the final numbers will be from December 2018. What you should have is in a document that should have been sent with your budget 30 days prior to the close of your fiscal year.

If you have a property management company, you should be asking them these questions and they can show you the documents from which I am talking about.

Been there, Done that
NpS
(Pennsylvania)

Posts:3247


05/10/2019 4:54 AM  
A clean audit opinion will state: "In my opinion, the financial statements referred to above present fairly, in all material respects, the financial position of XYZ Association as of DATE and the results of its operations and its cash flows for the year then ended in conformity with accounting principles generally accepted in the United States."

This means that the Auditor has reviewed your books and found that there are no material misstatements in the Balance Sheet, Statement of Revenues & Expenses, Statement of Cash Flows, and Notes to Financial Statements.

The auditor's opinion letter will also include a "Disclaimer of Opinion on Required Supplementary Information." Here, the auditor will summarize the information from your reserve study but won't express an opinion because that would require blindly accepting the opinions of the Reserve Study provider.

Similarly, a Budget vs Actual (BVA) will be included as supplemental information. The Budget will be "unaudited" but the Actual will match the information in the Statement of Revenues and Expenses.

Note that the Auditor follows Generally Accepted Auditing Standards (GAAS) to determine if the HOA follows Generally Accepted Accounting Principles (GAAP) and must explain any circumstance where the HOA's books deviate from GAAP. The Financial Accounting Standards Board (FASB) sets these various standards. No such restrictions on Reserve Studies.

Also note that an Audit is generally backward-looking while a Reserve Study is mostly forward-looking. The Audit relies on what's happened already. The RS is one person's (not the auditor's) projection of what's going to happen in the future.

Best recommendation I can offer is to read and make sure you understand the contents of the Notes to the Financial Statements. If you don't understand something in the Notes, ask.

Je publie un degagement de toutes responsabilite. Read all posts at your own risk.
RichardP13
(California)

Posts:3534


05/10/2019 12:27 PM  
What's required in California are reviews, not audits. I have had reviews done and have had audits done. The same information is asked by the CPA firm, except they change about $500.00 more.

Below is boilerplate language used in the review as it pertains to Reserves

Industry standards and guidelines require the association to establish a funding program for the future replacement of selected common areas,such as roofs, siding, pools, etc. These funds are to be held in separate savings accounts and used for the replacement of the common areas.

The Association engaged an independent engineer who conducted a reserve study update "without-site-visit" on July 19,2017 to estimate the remaining useful lives and replacement costs of the common property components for the period beginning January 1, 2018 and end in December 31, 2018. The Association is funding for such major repairs and replacements over the estimated useful lives of the components based on the study's estimates of current replacement costs, considering amounts previously accumulated in the replacement fund. Actual expenditures, however, may vary and the variations may be material. Therefore, amounts accumulated in the replacement fund may not be adequate to meet future needs. If additional funds are needed, however, the Association has the right, subject to member approval, to increase regular assessments or levy special assessments, or it may delay major repairs and replacements until funds are available.

The study recommends a monthly contribution of $9,980.00 with a fully funded reserve balance of $1,486,529 for the year ended December 31, 2018. As of December 31, 2016 there was $352,036.00 in the replacement fund.

Been there, Done that
NpS
(Pennsylvania)

Posts:3247


05/10/2019 3:55 PM  
Distinction between Audit & Review described here.

https://www.nonprofitaccountingbasics.org/audit/audit-vs-review-vs-compilation

Je publie un degagement de toutes responsabilite. Read all posts at your own risk.
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