Why HOA Financial Audits?

If you've attended your HOA's annual meeting or reviewed your Association's financial statements, you may have heard someone mention a financial audit.
 

For many homeowners, the word "audit" can sound intimidating. Some assume an audit means something went wrong or that money is missing. In reality, that's usually not the case.
 

A financial audit is often part of an Association's normal financial reporting process and provides an independent evaluation of its financial statements.
 

What many homeowners don't realize is that not every homeowners' association is required to have a financial audit. Depending on Florida law and your Association's annual revenues, your community may be required to obtain an audit, a review, compiled financial statements, or another type of financial report.
 

Let's take a closer look.

A financial audit is an independent examination of your Association's financial statements by a Certified Public Accountant (CPA). Its purpose is to provide reasonable assurance that the financial statements are fairly presented in accordance with generally accepted accounting principles (GAAP).
 

An audit does not guarantee that every error or every instance of fraud will be discovered. Instead, the CPA performs testing, sampling, and other auditing procedures to provide reasonable assurance.

No.
 

Many homeowners are surprised to learn that Florida law does not require every homeowners' association to obtain an annual financial audit.
 

Think of financial reporting as a ladder of independent financial oversight. From the highest level of CPA involvement to the lowest, Florida law may require:
 

1. Audited Financial Statements
2. Reviewed Financial Statements
3. Compiled Financial Statements
4. Report of Cash Receipts and Expenditures
 

Each provides a different level of CPA involvement and financial assurance.

• Audited Financial Statements – The highest level of financial reporting. The CPA performs extensive audit procedures and issues an independent opinion on the financial statements.
 

• Reviewed Financial Statements – The CPA performs analytical procedures and inquiries to provide a moderate level of assurance, but less testing than an audit.
 

• Compiled Financial Statements – A CPA prepares professional financial statements using information provided by the Association but does not independently verify the information or provide assurance regarding its accuracy. Accountants often refer to this process as a compilation.
 

• Report of Cash Receipts and Expenditures – The most basic level of financial reporting, summarizing the cash received and the cash paid during the year.

Many homeowners assume every association is required to obtain an annual financial audit. That's a common misconception.
 

In Florida, the type of annual financial report your Association must prepare generally depends on its total annual revenues. As an Association's annual revenues increase, Florida law generally requires a higher level of financial reporting.

Florida's Financial Reporting Requirements :

 1. Audited   Financial Statements - $500,000 or   more

 2. Reviewed   Financial Statements - $300,000 –  $499,999

 3. Compiled   Financial Statements - $150,000 –  $299,999

 4. Report of   Cash Receipts and Expenditures - Less than   $150,000

Note: These thresholds should be verified against the current version of Florida law before publication.

Your Association's annual financial report provides valuable insight into your community's financial health.
 

You don't need to be an accountant to benefit from reading it. Look for trends in revenues and expenses, reserve funding, operating cash, the CPA's opinion (when applicable), and notes explaining significant financial events.

Whether your Association is required to have an audit, a review, compiled financial statements, or a report of cash receipts and expenditures, each plays an important role in helping homeowners understand their community's financial health.
 

The more you understand your Association's financial reports, the better prepared you'll be to ask informed questions and participate confidently in your community.

You don't have to learn everything today.

Knowledge builds confident homeowners.

Engaged homeowners build stronger communities.

Let's keep the conversation going.

 Florida HOA Spotlight — Helping Homeowners Understand Their Communities... One Conversation at a Time.