Cost for financial review

Hi, I recently became a new BD of a 80 units HOA in CA (as in my another thread: "independent accountant"). The HOA has a budget of about total income $270k (70k for reserve exp and 200k for opr exp). An accounting exp of $1975 is included for the review of financial statement. Is this amount appropriate for the compensation of a CPA's work on this matter?

The CPA was chosen by the MC (MC does bookkeeping and financial report) and how do we (HOA) know if the CPA works on our case "independently"?

This year's review is done by a different CPA from previous years, but I found the review report is almost exactly the same as previous year's review except of course the names of the CPA are different. Is this normal or not?

Appreciate all helps and advice.

Thanks, Mary.


So, it's the matter that the Board would have to work on finding the CPAs (getting quotations etc) and let MC negotiate a best deal. Yes, the figure ($1975) does include the cost for tax returns. Still, would like to hear if the figure is appropriate/normal or too high or too low?


Ok, I am not sure if I use the right phrase that MC chooses a CPA to perform the task, but I am pretty sure that there is absolutely no instant in the board meetings that MC asked board to approve using any certain/recommended CPA to review financials like any other contractors MC would ask for approval.


Now I understand this, thanks.

Now this is exactly the problem that "let MC obtain the bids for the board to decide" is mathematically equal to "let MC choose"! (hope you see it)


How do we know whether MC is recommending a CPA that is used by the MC or involved in financial interest with the MC?

Pardon me for trying to learn rapidly a great deal of serving my HOA in a professional manner, but with little knowledge before jumping into this unchartered dark water.

From Google:

Audit vs. Review
There are significant differences between the objectives of an audit of financial statements in accordance with generally accepted auditing standards and the objectives of a review in accordance with statements on standards for accounting and review services. The objective of an audit is to provide a reasonable basis for expressing an opinion regarding the financial statements taken as a whole. A review does not provide a basis for the expression of such an opinion because a review does not contemplate obtaining an understanding of the internal control structure or assess control risk, tests of accounting records and of responses to inquiries by obtaining corroborating evidential matter through inspection, observation or confirmation, and certain other procedures ordinarily performed during an audit. A review may bring to the accountant’s attention significant matters affecting the financial statements, but it does not provide assurance that the accountant will become aware of all significant matters that would be disclosed in an audit.

Susan,

FYI

There is no such thing as an "audit review". It's either an audit or a review -- two different animals.

Our association is considerably larger - $2M annual budget. In recent years the audit has cost between $3500 and $4000. Given how small your association is, $1950 seems pretty high to me.

KW,

Are you saying the BOD did not vote on the CPA who would review the accounting records of the assn? If this is the case then the BOD is remiss in not doing their duty. As I stated earlier, it's OK for the MC to provide bids, however it's a board decision as to who shall perform the review. I would think the mgmt co would have an audit or at least a review performed yearly and what I'm saying is that CPA should not be the same one who would perform the review for your assn, or any assn that the mgmt co contracts with for that matter. All you need to do is to ask the CPA if the mgmt co is a client of his. BTW if the mgmt co employs a CPA he would NOT perform a review or audit of the mgmt co financial record -- that would definitely be a conflict of interest as he would be auditing or reviewing his own work!

Copied below is the pertinent statute regarding the review. As you can see it must be provided w/i 120 days of the close of the fiscal year. It appears your board was remiss in not providing this info to the members by the end of April. This is just another example of your board not performing their duties. However, like most states, when there is no governing agency for HOAs, boards tend to get away with breaking the law unless a member chooses to file a lawsuit which is very costly. But that doesn't mean the members cannot let the board know they have broken the law, perhaps by calling for a recall election.

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Davis Stirling 1365(c) A review of the financial statement of the association shall be prepared in accordance with generally accepted accounting principles by a licensee of the California Board of Accountancy for any fiscal year in which the gross income to the association exceeds seventy-five thousand dollars ($75,000). A copy of the review of the financial statement shall be distributed within 120 days after the close of each fiscal year.

KW,

It's not unusual for the BOD to allow the MC to take care of small, routine maint projects w/o first obtaining a majority vote of the BOD. The manager of my assn does this. However anytime a contract is entered into the BOD must (should) review the bids and decide who will get the job -- no matter the cost. The same goes with hiring a CPA to perform a review or an audit. It sounds to me like your BOD allows the MC to run the assn. This happens in many HOAs, but it is not proper. The BOD should be managing the assn with the "assistance" of the MC. The MC acts on the orders of the BOD -- not the other way around.

BTW, have you read it in your bylaws that the MC may issue the work order w/o approval from the BOD if the project is under a certain dollar amount? I would be surprised if it was! I haven't seen anything regarding this issue in the Davis-Stirling Act.