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Audit vs Review

Started by SusanB41 • 11 replies • 270 views

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SusanB41 (Virginia)
Posts: 3
Posted:
I searched the old blogs and this topic was discussed years ago (2006-2015) but none of the article links work today. I am looking for articles explaining the difference and why you do not want to change the governing documents from an annual audit to an annual review. Their primary reason is the cost savings.

Thanks
JohnT38 (South Carolina)
Posts: 1,631
Posted:
https://www.geeksforgeeks.org/difference-between-audit-and-review/
SheliaH (Indiana)
Posts: 6,964
Posted:
In reading John's article, note there are more issues a stake than the cost. There will be times when an audit will be more appropriate, so be sure you think about this carefully. Here's another article that can give you information to consider: https://www.fmlcpas.com/audit-vs-review/
If it is not right do not do it; if it is not true do not say it. Marcus Aurelius
MelissaP1 (Alabama)
Posts: 13,836
Posted:
Your in a corporation. Be it a non profit but not charitable one. It is best to do an audit at least every 2 years minimal. I would line it up around timeline new board takes office. That way can review any past mistakes to not repeat them.
Former HOA President
LoriM15 (Florida)
Posts: 1,009
Posted:
You don't say how big your budget is. That can make a real difference in whether a full audit is necessary or just a review is sufficient. Also, who is filing the tax return?

As a board member, I would not be on a board for an association that only did a review. I was going to say "especially if there's a management company" but I think I'd be more concerned if the association was self-managed. I feel it's my fiduciary duty to be fully informed on the finances - and the only way I can feel comfortable is if the books are audited. Maybe I would feel different if it was a really small association.

There's places you can save money - but reviewing the books for a corporation, non-profit or not, is not a good place to save money.
CathyA3 (Ohio)
Posts: 6,299
Posted:
Suggestion: change the bylaws to require an annual audit *or* review. That allows the board to balance cost savings with functionality. I've seen recommendations of having a full audit every five years, with a review in between as long as the full audit didn't turn up anything worrisome.

As others have noted, the best solution will depend on things like the size of your budget, if you're hiring professionals to handle the books or they're being handled by volunteers, if the board has spotted something that concerns them, and the like.

CathyA3 (Ohio)
Posts: 6,299
Posted:
Quote:
Posted By CathyA3 on 01/27/2023 11:58 AM
Suggestion: change the bylaws to require an annual audit *or* review. That allows the board to balance cost savings with functionality. I've seen recommendations of having a full audit every five years, with a review in between as long as the full audits don't turn up anything worrisome.

As others have noted, the best solution will depend on things like the size of your budget, if you're hiring professionals to handle the books or they're being handled by volunteers, if the board has spotted something that concerns them, and the like.


Correction to the part in bold: with annual reviews in between...
ElleN (Idaho)
Posts: 4,420
Posted:
As has been noted, an audit is a huge deal. An annual audit seems excessive, but maybe I am outdated.

I think this forum has seen covenants that require an audit annually. Maybe this is the trend for newer subdivisions and condos. From the standpoint of reducing the 'financial pain and other suffering' of litigation, forcing owners to pay for an annual audit might make sense. Perhaps it is also another sign that HOAs being run by unpaid, unskilled, amateur boards is dumb. Right up there with trying to get seven states to agree on how much water they should each get from the Colorado River.
LoriM15 (Florida)
Posts: 1,009
Posted:
Florida has strict requirements. FS 720 for HOAs has this:

An HOA with annual revenues over $500,000.00 is required to have audited financial statements.
An HOA with revenues of between $300,000 and $500,000 is required to have reviewed financial statements.
HOAs with annual revenues of between $150,000 and $300,000 is required to have compiled financial statements.
Associations with revenues less than $150,000 are required to prepare a report of cash receipts (revenues) and expenditures.

You can vote with a quorum (based on your documents) to lower to a review if audit is required, or you can upgrade to an audit if only a review is required.
KerryL1 (California)
Posts: 14,550
Posted:
CA requires an annual review for HOAs with revenues over $75,000.

Can you cite the doc name & verbiage requiring an annual audit for us, Susan?
SusanB41 (Virginia)
Posts: 3
Posted:
Both the declaration and bylaws currently refer to an annual audit, Answering the other questions ~$300k assets, taxes done by CPA, 107 units mixed (Condos , house, townhouses etc) and manager is sole employee and does everything. Unlike CA and FL as far as I have researched ,VA law does not require an audit.
KerryL1 (California)
Posts: 14,550
Posted:
Please note that CA requires an annual review, not audit.

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