Efficient Association Audits by Jeremy Newman, CPA
Associations with December 31st year ends make up a large share of annual audits. There is often intense pressure on managers, accounting departments and audit firms to complete accurate and complete audits in a timely fashion. Completing an efficient audit requires strong communication and sharing of information. SIGNED ENGAGEMENT LETTER
CPA audit engagement letters should be approved by the Board for all audits. Signing the contract well before the association’s year end will provide more time for the CPA to plan and prepare for the audit, and more time for the client to assemble supporting reports and documents.
DOCUMENTS AND REPORTS NEEDED FOR AN AUDIT
A lot of documents and reports are common for most associations; however additional information will be needed as circumstances dictate. Typical information and documents include: 1. Governing documents 2. Prior year audit and tax return 3. Communication with the previous auditor as applicable 4. Reserve study 5. Budget 6. Board meeting minutes 7. Correspondence with the Association’s legal counsel 8. Shared cost agreements 9. Cost center details 10. Correspondence with governmental agencies 11. Special assessment information 12. Loan agreements.
28 • CONTACT | SUMMER 2021
An association’s accounting department generally provide the following reports, and access to information: 1. Year-end financial reports a. Balance sheet b. Statement of revenue and expenses (often referred to as budget ariance reports) c. Bank statements and bank account reconciliations d. Aged receivables and prepaid assessments report 2. General ledger 3. Check register 4. Financial reports for the periods after the year end date. 5. Access to paid and unpaid invoices
ACCRUAL VERSUS NON-ACCRUAL
Presenting audited financial statements in accordance with U.S. Generally Accepted Accounting Principles often requires auditors to record certain adjustments to the financial reports prepared by a management company. Management companies prepare monthly financial reports using the cash basis of accounting, modified accrual basis, or the accrual basis. Under the cash basis of accounting, income reflects money received and expenses represent money spent. Assessments receivable and accounts payable are not presented on the balance sheet. As part of the audit, the CPA proposes adjusting journal entries including recording a bad debt allowance and any amounts payable to vendors for unpaid invoices.
