Why Have an Audit?

Why Have an Audit?

Board Duty
The board has a duty to the Association members. The board is accountable to the membership for the use of the members’ assessment monies. Also, the management and care of the assets of the Association, including the buildings, common areas and investments are entrusted to board members. As part of this duty, they are charged with making objective decisions. Having impartial advisors, such as CPA, is a good fiduciary practice.

Run as a Business
The Association may be a nonprofit and/or mutual benefit organization; however, courts have upheld that it must be run like a business. Business leaders use professionals to guide them in the various areas of need. There are complex accounting, tax, and finance issues in an Association.

A year end audit supplies independent oversight of the financial transactions that occurred during the prior year. The CPA is independent of all parties and will give an unbiased opinion of the actions of the board and management company.

Internal Controls
An audit tests internal controls to ensure less chance of error or fraud. Most misstated financial statements are due to human error; however, there is always the chance that fraud can occur. While audits do not guarantee that all mistakes or fraud will be found, procedures are in place to assist in this process.

Complete and Accurate Financial Statements
CPAs are trained to present financial statements in accordance with generally accepted accounting principles (GAAP). This allows consistency when read by others, such as bankers, potential buyers, etc.

Disclosure to Owners and Potential Owners
Completion of the year end audit with accompanying financial statements and footnotes allows all current, as well as future, or potential, owners a complete, independent summary of the financial status of the Association. If those individuals choose not to read or understand those statements, that is their choice. The information has been made available to them.

Compliance with State, Tax and Accounting Laws and Regulations
There is a maze of laws and regulations which require compliance by an Association. With regards to financial and tax matters, the auditor can assist and guide the board of directors into compliance.

So, why would you have an audit?