Members of a condominium or co-op homeowners’ association (HOA) have a fiduciary responsibility to manage their community’s funds wisely, and to protect the financial interests of all owner/shareholders. Breaching this duty carries the real probability of penalties and legal action against the HOA, and potentially against individual board members themselves.
Despite the gravity of this responsibility, many HOA boards rely solely on the numbers on their financial statements to measure and define their success. What they don’t realize is that even more valuable information can be uncovered through the audit process – including hidden risks and cost-savings opportunities – that can help them uphold their fiduciary role.
Before, during and after the audit, it’s important to know what steps to take to get the most out of the numbers on a financial statement. Here are some useful tips:
Choose the Right Financial Statement
Most HOAs accept the standard U.S. Financial Accounting Standards Board’s Generally Acepted Accounting Principles (GAAP) financial statements without a question. After all, it is the most commonly used basis for the presentation of financial statements, offering detailed view of a company’s financial conditions. Aside from publicly traded companies and certain highly regulated industries however, organizations typically do have a choice in which type of financial statements they receive from their CPA at the end of an audit.
Depending on the financing and lending needs of the HOA, a special purpose financial statement may be more appropriate than U.S. GAAP. Generally speaking, special purpose financial statements are easier to understand and are more comparable to the corporation’s income tax return.