Brian M. Antman CPA, CA Adams & Miles LLP, CPA
Condominium Finances
Financial Transparency in Condominiums
At Annual General Meetings (AGM’s) recently, a couple of owners raised concerns about the “transparency” of the annual audited financial statements. They felt that the statements should, but did not, provide all the detailed information they wanted. While their requests for additional information were legitimate, the annual financial statements alone do not (and cannot) achieve that level of transparency. Complete financial transparency is obtained only when two very different types of information needs are met: a) information that meets needs common to all owners and b) information that meets needs of individual owners. Both are discussed below. Only common information needs can be met by the annual audited financial statements. The accounting profession defines these statements as “General Purpose Financial Statements (GPFS)” and they are specifically designed to meet only common (and not individual) information needs. GPFS, by their very nature, are summaries; that is, they summarize transactions of a similar nature into
groupings and disclose only material abnormal transactions separately. Information in these financial statements cover topics of general interest such as; a) In the Balance Sheet under Assets; how much cash and reserve investments does the condominium have; how much do owners and others owe to the condominium; what is the amount and nature of any other assets b) In the Balance Sheet under Liabilities; how much is owed to vendors/supplies for contract and services incurred to the date of the financial statements, mortgage debt and any other liabilities. c) In Fund Statements. The Statement of Reserve Fund sets out the annual allocation, interest earned on reserve investments, other income (if any) and a list of the costs of reserve projects undertaken during the year. The same types of information are presented in the Operating and other fund statements, as applicable to each condominium. d) In the Statement of Revenue and Ex-
penditures which presents budget, actual and prior year amounts of: common element assessments, other income, allocations to reserve and other funds (if any), the categories of expenditures incurred to operate the condominium and the excess or deficiency of revenues over expenditures for the year. Also typically included are schedules that provide the significant components of expenditure categories such as utilities, contracts, on site personnel, repair and maintenance and administrative costs. e) In the footnotes to the financial statements, notably are the accounting policies followed, a comparison of reserve fund information with that contained in the latest reserve fund study (including future increases in reserve contributions), explanations where required of information included in the financial statements, commitments for contracts, long-term utility purchases, lawsuits, shared facility information and other significant events that may affect future operations. CONDOVOICE SPRING 2020
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ILLUSTRATION BY JASON SCHNEIDER
Complete Financial Transparency is Obtained Only When Two Very Different Types of Information Needs are Met