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Subject: Financial Audits, Reviews or Compilation Which do you use?
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Author Messages
TimB4
(Virginia)

Posts:16811


08/12/2011 10:26 AM  
All,

In trying to locate a CPA to perform an audit (mandated by our bylaws) for our Association, I've been learning the differences between an Audit, Review and a Compilation. I've also discovered that there is a huge difference between the cost of each one. For those who are unaware of the differences between them, here is a link to an article that briefly explains it.


After learning more then I ever wanted to know, I believe that our Association only requires a financial review vs. a full audit. I also believe that the "audit" that was performed previously was not an actual audit but a review passed off as an audit (but that's another issue).

I was wondering what other Associations required and/or were doing and why one process over the other?

Tim
PetunkaM
(Florida)

Posts:1000


08/12/2011 10:37 AM  
Tim,
You are not kidding. An ‘audit’ can run $8K if you even find anyone who will do it, while ‘financial review’ can be only $2-3K. We do ‘compilation’ by appointing an independent committee at the annual meeting which cost $0.
All states may have different regulations governing what is required. It is budget based.
RichardP13


Posts:0


08/12/2011 11:08 AM  
In California:

Audit, Review, Compilation

Levels of Financial Review. There are three levels of review for financial statements.

1.Audit. If an association's governing documents require an audit, a licensee of the California State Board of Accountancy (a Certified Public Accountant) performs an extensive examination of the association's financial records and issues a statement as to their compliance with generally accepted accounting principles (GAAP). An audit provides a "reasonable level of assurance" that the financial statements are materially correct. As a result, audits are more expensive than reviews and compilations.
2.
Review. If an association's governing documents are silent regarding an audit, the Davis-Stirling Act requires a "review" of the finances for any fiscal year in which the association's gross income exceeds $75,000. Civil Code §1365(c). In a review, a CPA performs limited inquiries but does so in accordance with GAAP. The report is done with accrual accounting and the CPA gives "limited assurance" that the financial statement is materially correct.

3.Compilation. A compilation is the lowest level of review in which a CPA assembles information provided by an association. The CPA need not be independent and is required to perform very few procedures. Further, the CPA takes little responsibility for the financial statement and gives no assurance as to compliance with GAAP.

NOTE: Neither audits nor reviews guarantee that embezzlement will be detected by the CPA.

DavidW5
(North Carolina)

Posts:565


08/12/2011 11:55 AM  
Tim,

As stated in the past, we are an 801 home Virginia HOA with an annual budget of $2.3M and a reserve inventory of nearly $7M. We have an annual audit (not a review) conducted by a CPA firm that specializes in HOA's/Condos. Our auditor charged $6700 for the 2010 audit and the 2011 audit is slated to cost $6900. The same firm prepares our federal and state tax returns for a $500 fee. They have also provided advice via email on unusual issues that have come up (e.g how to book depreciation for a maintenance vehicle we purchased, how to handle funds received from the developer in settlement of transition issues, etc.) at no extra charge. We have been pleased with their services and consider the fees money well spent.

If you post a temporary email address here I can email you the contact information for the CPA firm.

Dave
TimB4
(Virginia)

Posts:16811


12/29/2014 2:56 PM  
In referencing this thread, I discovered that an earlier link within the thread is no longer valid. Therefore, I offer the following:

What Is the Difference Between a Compilation, a Review and an Audit? A Brochure provided by American Institute of CPAs

difference between a financial statement compilation, review and an audit article by a CPA firm

Understanding Compilation, Review and Audit Article by a CPA

Guide to Review Engagements by the International Federation of Accountants (very dry and very confusing if you don't understand accounting)
TimB4
(Virginia)

Posts:16811


02/03/2015 2:23 AM  
Posted By TimB4 on 08/12/2011 10:26 AM

For those who are unaware of the differences between them, here is a link to an article that briefly explains it.




That link is broken. Here is the new link to the article:

http://www.nonprofitaccountingbasics.org/audit/audit-vs-review-vs-compilation
RogerB
(Colorado)

Posts:5067


02/03/2015 9:26 AM  
The Colorado Common Interest Ownership Act (CCIOA), those HOAs which fall under that act, require an audit by a CPA when a) >$250,000 in annual income or expenses; and b)1/3 of owners request it. To my knowledge, the type of audit required is not defined. I believe HOAs "audits by a CPA" which I have seen are not an audit but rather a financial review done by a CPA.

CCIOA requires a financial review when 1/3 of the owenrs request it. A financial review does not require a CPA; it may be done by a person considered to have sufficient knowledge to do the review.

IMO, the better process is to monitor financials by providing all Board members monthly financial reports and quarterly bank statements via email.
RM5
(Florida)

Posts:41


02/03/2015 9:49 AM  
The following, pertains to condos pursuant to F.S. 718, although applies to HOA's as well.

In Florida, As of July, 2013:

Association operating more than 50 units and having annual revenues of more than $150,000 but less than $300,000 compiled, $300,000 but less than $500,000 reviewed, and $500,000 or more audited.

1) Compilation - No analytical- Put in form of financial statements
2) Review - analytical review, match accounts to support schedules
3) Audit - confirm with third parties, internal control/risk factors, match to original source documents.
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