What is an audit?
The objective of an audit is to provide an opinion about whether the financial statements present information fairly, in all material respects, and in conformity with applicable reporting standards, e.g., Generally Accepted Accounting Principles (“GAAP”), or other accounting frameworks such as the cash basis.
Auditors opine on whether financial statements are free of material misstatement, or materially correct. Auditors provide a high level of assurance but not an absolute level of assurance.
Generally Accepted Auditing Standards (“GAAS”) requires auditors to corroborate amounts and disclosures in the financial statements to sufficient audit evidence, which may include inquiry, physical inspection, observation, third-party confirmation, examination, analytical review.
Does the law require associations to obtain an audit?
This depends on the body of Washington law (RCW) that governs the association, and the size of the association:
- “New Act” Condominiums: (Formed after 7/1/90 – RCW 64.34.372) Condominiums with 50 or more units must be audited annually. Condominiums with less than 50 units have an annual audit requirement, however, there are annual waiver provisions.
- “Old Act” Condominiums: (Formed before 7/1/90) Generally, the requirements default to the New Act Condominiums provisions, however, if the governing documents require an annual audit, then an audit is required, regardless of the number of units.
- Homeowners Associations: (RCW 64.38.045) Associations with annual assessments of $50,000 or more must be audited annually, however, there are annual waiver provisions.
- WUCIOA: (Formed from July 1, 2018) RCW 64.90.530. Audits required if annual assessments are at least $50,000 (no waiver). Audits are also required for associations with annual assessments less than $50,000, however the membership can vote for a waiver.
When is an audit performed?
Boards should consider an audit annually. Audits are typically conducted using year-end financial statements between three and nine months after year end.
Other reasons to consider an audit:
Change in management company; little of no internal control functions; boards not receiving regular financial reports; board lack of confidence in accounting functions; large dollar value transactions, including legal settlements, insurance claims, defect settlements; special assessments and loans; suspected fraud or embezzlement; declarant/developer turn over to homeowner-controlled board; financial difficulties.
Jeremy Newman CPA | Newman Certified Public Accountant, PC