Audit
An audit report provides
the highest level of assurance.
An unmodified audit opinion provides reasonable assurance (a high, but not absolute, level of assurance) a set of financial statements is fairly stated in all material respects in accordance with Generally Accepted Accounting Principles.
We have provided assurance and tax services to thousands of associations and hundreds of management companies, resulting in extensive experience and knowledge which enables us to provide top quality, efficient service to our clients.
We are 100% focused on the common interest realty association industry. Year round, our team performs audits and prepares financial statements for association.
From single-family homes, townhomes, condominiums to mixed-use, high-rise and large-scale communities, our audit staff are trained to understand the differences, identify similarities and to perform the same efficient, competent audit approach to all of our audit clients.
Our responsibility is to express an opinion on the association’s financial statements based on our audit, which is conducted in accordance with Generally Accepted Auditing Standards. We are required to plan and perform audit procedures to obtain reasonable assurance about whether the financial statements are free from material misstatement.
An audit is not designed to consider an association’s internal controls for the purpose of expressing an opinion of the effectiveness of an association’s internal controls.
An audit is also not intended to audit the association’s reserve study. The auditor’s report disclaims an opinion on the reserve study, some data from which is presented as supplementary information of future repairs and replacements. We are also unable to opine regarding the sufficiency of funds designated for major repairs and replacements (reserves).
An audit is the highest level of attest service certified public accountants perform. An audit requires the auditor to plan an audit by obtaining an understanding of the association, performing risk assessments, and other preliminary procedures.
Based on the results of the planning phase, the auditor determines substantive audit procedures including obtaining supporting evidence for account balances and selecting sample items for further testing.
What items does an auditor need?
- Signed engagement letter
- Financial statements
- Bank/investment reconciliations and bank/investment statements
- Aged receivables report
- General ledger for the year
- Post-year end reports
- Access to all vendor invoices for the audit period
- Reserve study
- Board meeting minutes
- Articles of incorporation
- Bylaws
- Declaration/Covenants, Conditions and Restrictions (CC&Rs)
- Prior year audit report and auditor’s adjustments
Other areas include:
- Special assessments
- Loans
- Litigation
- Shared cost arrangements
Upon completion of the audit procedures, we prepare the association’s audited financial statements in accordance with Generally Accepted Accounting Principles (GAAP) which include the following:
- Auditors opinion
- Balance sheet
- Statement of Revenues and Expenses and Changes in Fund Balances
- Statement of Cash Flows
- Footnotes to the Financial Statements
- Supplemental Information on Major Repairs and Replacements (unaudited)
We provide the board of directors with the following for review and approval:
- Draft audited financial statements
- Proposed audit adjustments (adjusting journal entries)
- Representation letter
- Management letter
- Internal control report (as applicable)
- Management memorandum (as applicable)
What is a Representation Letter?
Auditors are required to obtain written representations from client management, including boards of directors, as part of an audit. The client representation letter confirms oral representations made or implied during the audit. It supplements other audit procedures. It is not a substitute for other evidence-gathering procedures considered necessary in the circumstances.
Written representations are a form of audit evidence. If management refuses to provide the requested representations or modifies them, it might indicate the existence of significant issues the auditor needs to consider. Client representation letters are generally useful in providing information about matters that cannot be objectively tested because they depend on management’s knowledge, such as the board's intentions and the completeness of information provided to the auditor. Audit evidence obtained during the audit that management has fulfilled its responsibilities is not sufficient unless the auditor also obtains management's confirmation that it believes it has fulfilled its responsibilities. The auditor is not able to judge solely based on other audit evidence whether management has prepared and fairly presented the financial statements and provided information to the auditor.
The representation letter is provided to management and the board of directors with the draft financial statements. Upon approval of the draft audited financial statements and reading the representation letter, the management company and board representatives should sign the representation letter and return it to us. We will then provide the final version of the audited financial statements.
Causes of audit hold ups include:
- Incomplete accounting and supporting documentation
- Missing bank/investment statements
- Significant insurance claims with insufficient supporting records and improper/incomplete accounting
- Slow provision of reports and supporting documents by the client
- Missing board meeting minutes
Accounting Controls
Some examples of actions board members can perform
to strengthen understanding and controls include:
- Review financial reports including balance sheet and income statement each month. Ask questions. Obtain satisfactory responses.
- Check bank account reconciliations. Independently obtain bank statements and compare to reconciliations.
- Board approvals for contracts, reserve expenditures
- Two board signatures for reserve disbursements
- Review of per use and fee-based revenues such as move in/out fees, clubhouse fees, parking, storage fees, including comparing underlying logs and activity logs to accounting records.
- Comparison of actual results to budgets, with explanations for variances
- Review of receivables aging reports, assessing delinquent accounts for collectability, verifying accounting reports including balance sheet and general ledger balances agree to the aging report.
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