AlbertK (Arizona)
Posts: 3
Posts: 3
Posted:
IN ARIZONA IS IT A LAW THAT HOA'S PERFORM AN AUDIT EACH YEAR AND IF SO SHOULD THAT AUDIT BE INTERNAL OR EXTERNAL ?
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HOA ANNUAL AUDIT
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WayneB3 (NV)
Posts: 51
Posts: 51
Posted:
I believe it's an annual
financial audit, review or compilation.
financial audit, review or compilation.
RobertR1 (South Carolina)
Posts: 5,164
Posts: 5,164
Posted:
Albert and Wayne,
Don't know specifically but it is a common qustion. And not a simple one.
Might help to check the search feature on the Discussion page and see what all you can bring up. I believe there was some discussion that touched on the size of the budget indicating what kind of audit should be done.
There is a world of difference between financial audit, review, and compilation.
We have 65 units with a budget of 250/year and I feel a review shopuld be done yearly by a CPA and sign and an audit done every 5-6 years.
This is probably one of those things that deciding association by association is a better way to do it than some State Guidelines.
Don't know specifically but it is a common qustion. And not a simple one.
Might help to check the search feature on the Discussion page and see what all you can bring up. I believe there was some discussion that touched on the size of the budget indicating what kind of audit should be done.
There is a world of difference between financial audit, review, and compilation.
We have 65 units with a budget of 250/year and I feel a review shopuld be done yearly by a CPA and sign and an audit done every 5-6 years.
This is probably one of those things that deciding association by association is a better way to do it than some State Guidelines.
JC3
Posts: 290
Posts: 290
Posted:
Search Arizona Revised statutes. I found these:
Audit 33-1810 and 33-1243
33-1810. Board of directors; annual audit
Unless any provision in the planned community documents requires an annual audit by a certified public accountant, the board of directors shall provide for an annual financial audit, review or compilation of the association. The audit, review or compilation shall be completed no later than one hundred eighty days after the end of the association's fiscal year and shall be made available upon request to the members within thirty days after its completion.
Below seems to be for condos rather than Single Family Homes, but read it carefully to be sure.
33-1243. Board of directors and officers; conflict; powers; limitations; removal; annual audit; applicability
There may be other sections of the code that apply, this was a quick search. You might start out here:
http://www.azleg.state.az.us/ArizonaRevisedStatutes.asp
Audit 33-1810 and 33-1243
33-1810. Board of directors; annual audit
Unless any provision in the planned community documents requires an annual audit by a certified public accountant, the board of directors shall provide for an annual financial audit, review or compilation of the association. The audit, review or compilation shall be completed no later than one hundred eighty days after the end of the association's fiscal year and shall be made available upon request to the members within thirty days after its completion.
Below seems to be for condos rather than Single Family Homes, but read it carefully to be sure.
33-1243. Board of directors and officers; conflict; powers; limitations; removal; annual audit; applicability
There may be other sections of the code that apply, this was a quick search. You might start out here:
http://www.azleg.state.az.us/ArizonaRevisedStatutes.asp
JanP1 (Arizona)
Posts: 76
Posts: 76
Posted:
Not an accountant... just sharing from that class I went to last weekend....
Review - an association may engage a CPA to perform a review of its financial statements and issue a report that provided limited assurance that material changes to the financial statements are not necessary. With respect to reliability and assurance, a review falls between a compliation, which provides no assurance and the mroe extensive assurance of an audit. Before a review, the CPA may have to compile the financial statements; however, in all cases the financial statements are management's statements, not the CPA's. Management must have a sufficient understanding of the financial statements to assume responsibility for them. Two other factors differentiate a review from a compilation - the CPA must remain independent of the client during a review, all appropriate disclosures must be included in the reviewed statements.
Audit - an association may engage a CPA to audit its financial statments and to issue a report that provides the highest level of assurance that the financial statements are presented fairly in conformity with generally accepted accounting principles (GAAP). In an audit, as in a review, the CPA must be independent of the client and the financial statements must contain all required disclosures.
To sum it up: Talk to your accountant about what each entails,and what assurances it provides.
Review - an association may engage a CPA to perform a review of its financial statements and issue a report that provided limited assurance that material changes to the financial statements are not necessary. With respect to reliability and assurance, a review falls between a compliation, which provides no assurance and the mroe extensive assurance of an audit. Before a review, the CPA may have to compile the financial statements; however, in all cases the financial statements are management's statements, not the CPA's. Management must have a sufficient understanding of the financial statements to assume responsibility for them. Two other factors differentiate a review from a compilation - the CPA must remain independent of the client during a review, all appropriate disclosures must be included in the reviewed statements.
Audit - an association may engage a CPA to audit its financial statments and to issue a report that provides the highest level of assurance that the financial statements are presented fairly in conformity with generally accepted accounting principles (GAAP). In an audit, as in a review, the CPA must be independent of the client and the financial statements must contain all required disclosures.
To sum it up: Talk to your accountant about what each entails,and what assurances it provides.
WayneB3 (NV)
Posts: 51
Posts: 51
Posted:
Quote:
Posted By JC3 on 01/14/2008 11:41 AM
Search Arizona Revised statutes. I found these:
Audit 33-1810 and 33-1243
Search Arizona Revised statutes. I found these:
Audit 33-1810 and 33-1243
I provided a link to 1810 in my post.
RH (California)
Posts: 11
Posts: 11
Posted:
Condos in Northern California: We feel our mgt. co. of 6 years is mismanaging our funds but the board of directors is aligned with the mgt. co. and is satifsified with assurance from mgt co.(who is also the HOA treasurer!!!). Can an individual owner hire an acredited agency or firm to perform an external audit of the mgt. co.?
GlenL (Ohio)
Posts: 5,491
Posts: 5,491
Posted:
RH, you could but it would be an expensive process which would not guarantee that you find any evidence of wrongdoing. You has a member have a right to inspect the books and have copies, so you would need to be there with the CPA and the MC has a right to charge you for all copies and they are only required to provide the current year and two previous years records. Even then there are certain records they can prevent you from seeing:
Records Subject to Inspection
Most of an association's books and records are subject to inspection and copying by members. Civil Code §1365.2(a). Except for minutes which are permanently available, associations need only produce records for the current fiscal year and two previous fiscal years. Civil Code §1365.2(i)(1). Older records may be disposed of in accordance with a duly adopted records disposal policy. Following is a list of records subject to membership review:
*financial documents required by Civil Code 1365 (budget, reserves, lien policies, insurance, financial statements, etc.);
*documents required by Civil Code 1368 between buyer and seller such as governing documents, assessments, violation notices (the general membership does not have the right to other members' violation notices), construction defects, etc.;
*interim financial statements, including (i) balance sheet, (ii) income and expense statement, (iii) budget comparison, and (iv) general ledger;
*salaries paid to employees, vendors, or contractors (except as provided by attorney-client privilege) which shall be set forth by job classification or title, not by the employee's name, social security number, or other personal information;
*contracts;
*labor union contracts;
*state and federal tax returns;
*reserve account balances and payments from reserve accounts;
*board, committee and membership meeting agendas and minutes (except for
executive sessions);
*membership lists;
*invoices, receipts, canceled checks, purchase orders approved by the association, credit card statements for credit cards issued in the name of the association, statements for services rendered, and reimbursement requests submitted to the association; and
*insurance policies;
*non-privileged reports; and
*architectural plans.
Electronic Records. Members who request records have the option of receiving them in electronic form if the records can be transmitted in a redacted format that does not allow the records to be altered. Civil Code §1365.2(h). The association may charge a reasonable fee for this service based upon the association's actual cost to procure, redact, prepare, and reproduce the requested items. Civil Code §1368(b). The cost of duplication shall be limited to the direct cost of producing the copy of a record in that electronic format. Civil Code §1365.2(h).
Written Request. Requests to inspect records should be in writing. The request must be sufficiently detailed so there is no confusion over what is being requested from the association. The other benefit to a written request is that is sets a clear start date for the applicable time period for the association to produce the records.
Creating Documents. The right to review documents does not give owners the right to demand that documents be created for them.
from Davis-Stirling.com by Adams Kessler PLC
Records Subject to Inspection
Most of an association's books and records are subject to inspection and copying by members. Civil Code §1365.2(a). Except for minutes which are permanently available, associations need only produce records for the current fiscal year and two previous fiscal years. Civil Code §1365.2(i)(1). Older records may be disposed of in accordance with a duly adopted records disposal policy. Following is a list of records subject to membership review:
*financial documents required by Civil Code 1365 (budget, reserves, lien policies, insurance, financial statements, etc.);
*documents required by Civil Code 1368 between buyer and seller such as governing documents, assessments, violation notices (the general membership does not have the right to other members' violation notices), construction defects, etc.;
*interim financial statements, including (i) balance sheet, (ii) income and expense statement, (iii) budget comparison, and (iv) general ledger;
*salaries paid to employees, vendors, or contractors (except as provided by attorney-client privilege) which shall be set forth by job classification or title, not by the employee's name, social security number, or other personal information;
*contracts;
*labor union contracts;
*state and federal tax returns;
*reserve account balances and payments from reserve accounts;
*board, committee and membership meeting agendas and minutes (except for
executive sessions);
*membership lists;
*invoices, receipts, canceled checks, purchase orders approved by the association, credit card statements for credit cards issued in the name of the association, statements for services rendered, and reimbursement requests submitted to the association; and
*insurance policies;
*non-privileged reports; and
*architectural plans.
Electronic Records. Members who request records have the option of receiving them in electronic form if the records can be transmitted in a redacted format that does not allow the records to be altered. Civil Code §1365.2(h). The association may charge a reasonable fee for this service based upon the association's actual cost to procure, redact, prepare, and reproduce the requested items. Civil Code §1368(b). The cost of duplication shall be limited to the direct cost of producing the copy of a record in that electronic format. Civil Code §1365.2(h).
Written Request. Requests to inspect records should be in writing. The request must be sufficiently detailed so there is no confusion over what is being requested from the association. The other benefit to a written request is that is sets a clear start date for the applicable time period for the association to produce the records.
Creating Documents. The right to review documents does not give owners the right to demand that documents be created for them.
from Davis-Stirling.com by Adams Kessler PLC
Studies show that 5 out of 4 people have problems with fractions
GlenL (Ohio)
Posts: 5,491
Posts: 5,491
Posted:
If your HOA doesn't require an annual audit, D-S requires an annual review if your gross income is over $75,000.00 per year along with certain documents the Board must prepare and give to each homeowner annually.
Davis-Stirling Act
Civil Code §1365. Financial Records and Reporting.
Unless the governing documents impose more stringent standards, the association shall prepare and distribute to all of its members the following documents:
(a) A pro forma operating budget, which shall include all of the following:
(1) The estimated revenue and expenses on an accrual basis.
(2) A summary of the association's reserves based upon the most recent review or study conducted pursuant to Section 1365.5, based only on assets held in cash or cash equivalents, which shall be printed in boldface type and include all of the following:
(A) The current estimated replacement cost, estimated remaining life, and estimated useful life of each major component.
(B) As of the end of the fiscal year for which the study is prepared:
(i) The current estimate of the amount of cash reserves necessary to repair, replace, restore, or maintain the major components.
(ii) The current amount of accumulated cash reserves actually set aside to repair, replace, restore, or maintain major components.
(iii) If applicable, the amount of funds received from either a compensatory damage award or settlement to an association from any person or entity for injuries to property, real or personal, arising out of any construction or design defects, and the expenditure or disposition of funds, including the amounts expended for the direct and indirect costs of repair of construction or design defects. These amounts shall be reported at the end of the fiscal year for which the study is prepared as separate line items under cash reserves pursuant to clause (ii). Instead of complying with the requirements set forth in this clause, an association that is obligated to issue a review of their financial statement pursuant to subdivision (b) may include in the review a statement containing all of the information required by this clause.
(C) The percentage that the amount determined for purposes of clause (ii) of subparagraph (B) equals the amount determined for purposes of clause (i) of subparagraph (B).
(D) The current deficiency in reserve funding expressed on a per unit basis. The figure shall be calculated by subtracting the amount determined for purposes of clause (ii) of subparagraph (B) from the amount determined for purposes of clause (i) of subparagraph (B) and then dividing the result by the number of separate interests within the association, except that if assessments vary by the size or type of ownership interest, then the association shall calculate the current deficiency in a manner that reflects the variation.
(3) A statement as to all of the following:
(A) Whether the board of directors of the association has determined to defer or not undertake repairs or replacement of any major component with a remaining life of 30 years or less, including a justification for the deferral or decision not to undertake the repairs or replacement.
(B) Whether the board of directors of the association, consistent with the reserve funding plan adopted pursuant to subdivision (e) of Section 1365.5, has determined or anticipates that the levy of one or more special assessments will be required to repair, replace, or restore any major component or to provide adequate reserves therefor. If so, the statement shall also set out the estimated amount, commencement date, and duration of the assessment.
(C) The mechanism or mechanisms by which the board of directors will fund reserves to repair or replace major components, including assessments, borrowing, use of other assets, deferral of selected replacements or repairs, or alternative mechanisms.
(D) Whether the association has any outstanding loans with an original term of more than one year, including the payee, interest rate, amount outstanding, annual payment, and when the loan is scheduled to be retired.
(4) A general statement addressing the procedures used for the calculation and establishment of those reserves to defray the future repair, replacement, or additions to those major components that the association is obligated to maintain. The report shall include, but need not be limited to, reserve calculations made using the formula described in paragraph (4) of subdivision (b) of Section 1365.2.5, and may not assume a rate of return on cash reserves in excess of 2 percent above the discount rate published by the Federal Reserve Bank of San Francisco at the time the calculation was made. The summary of the association's reserves disclosed pursuant to paragraph (2) shall not be admissible in evidence to show improper financial management of an association, provided that other relevant and competent evidence of the financial condition of the association is not made inadmissible by this provision. Notwithstanding a contrary provision in the governing documents, a copy of the operating budget shall be annually distributed not less than 30 days nor more than 90 days prior to the beginning of the association's fiscal year.
(b) Commencing January 1, 2009, a summary of the reserve funding plan adopted by the board of directors of the association, as specified in paragraph (4) of subdivision (e) of Section 1365.5. The summary shall include notice to members that the full reserve study plan is available upon request, and the association shall provide the full reserve plan to any member upon request.
(c) A review of the financial statement of the association shall be prepared in accordance with generally accepted accounting principles by a licensee of the California Board of Accountancy for any fiscal year in which the gross income to the association exceeds seventy-five thousand dollars ($75,000). A copy of the review of the financial statement shall be distributed within 120 days after the close of each fiscal year.
(d) Instead of the distribution of the pro forma operating budget required by subdivision (a), the board of directors may elect to distribute a summary of the pro forma operating budget to all of its members with a written notice that the pro forma operating budget is available at the business office of the association or at another suitable location within the boundaries of the development, and that copies will be provided upon request and at the expense of the association. If any member requests that a copy of the pro forma operating budget required by subdivision (a) be mailed to the member, the association shall provide the copy to the member by first-class United States mail at the expense of the association and delivered within five days. The written notice that is distributed to each of the association members shall be in at least 10-point boldface type on the front page of the summary of the budget.
(e) A statement describing the association's policies and practices in enforcing lien rights or other legal remedies for default in payment of its assessments against its members shall be annually delivered to the members not less than 30 days nor more than 90 days immediately preceding the beginning of the association's fiscal year.
(f)
(1) A summary of the association's property, general liability, earthquake, flood, and fidelity insurance policies, which shall be distributed not less than 30 days nor more than 90 days preceding the beginning of the association's fiscal year, that includes all of the following information about each policy:
(A) The name of the insurer.
(B) The type of insurance.
(C) The policy limits of the insurance.
(D) The amount of deductibles, if any.
(2) The association shall, as soon as reasonably practicable, notify its members by first-class mail if any of the policies described in paragraph (1) have lapsed, been canceled, and are not immediately renewed, restored, or replaced, or if there is a significant change, such as a reduction in coverage or limits or an increase in the deductible, as to any of those policies. If the association receives any notice of nonrenewal of a policy described in paragraph (1), the association shall immediately notify its members if replacement coverage will not be in effect by the date the existing coverage will lapse.
(3) To the extent that any of the information required to be disclosed pursuant to paragraph (1) is specified in the insurance policy declaration page, the association may meet its obligation to disclose that information by making copies of that page and distributing it to all of its members.
(4) The summary distributed pursuant to paragraph (1) shall contain, in at least 10-point boldface type, the following statement:
"This summary of the association's policies of insurance provides only certain information, as required by subdivision (f) of Section 1365 of the Civil Code, and should not be considered a substitute for the complete policy terms and conditions contained in the actual policies of insurance. Any association member may, upon request and provision of reasonable notice, review the association's insurance policies and, upon request and payment of reasonable duplication charges, obtain copies of those policies. Although the association maintains the policies of insurance specified in this summary, the association's policies of insurance may not cover your property, including personal property or, real property improvements to or around your dwelling, or personal injuries or other losses that occur within or around your dwelling. Even if a loss is covered, you may nevertheless be responsible for paying all or a portion of any deductible that applies. Association members should consult with their individual insurance broker or agent for appropriate additional coverage."
Davis-Stirling Act
Civil Code §1365. Financial Records and Reporting.
Unless the governing documents impose more stringent standards, the association shall prepare and distribute to all of its members the following documents:
(a) A pro forma operating budget, which shall include all of the following:
(1) The estimated revenue and expenses on an accrual basis.
(2) A summary of the association's reserves based upon the most recent review or study conducted pursuant to Section 1365.5, based only on assets held in cash or cash equivalents, which shall be printed in boldface type and include all of the following:
(A) The current estimated replacement cost, estimated remaining life, and estimated useful life of each major component.
(B) As of the end of the fiscal year for which the study is prepared:
(i) The current estimate of the amount of cash reserves necessary to repair, replace, restore, or maintain the major components.
(ii) The current amount of accumulated cash reserves actually set aside to repair, replace, restore, or maintain major components.
(iii) If applicable, the amount of funds received from either a compensatory damage award or settlement to an association from any person or entity for injuries to property, real or personal, arising out of any construction or design defects, and the expenditure or disposition of funds, including the amounts expended for the direct and indirect costs of repair of construction or design defects. These amounts shall be reported at the end of the fiscal year for which the study is prepared as separate line items under cash reserves pursuant to clause (ii). Instead of complying with the requirements set forth in this clause, an association that is obligated to issue a review of their financial statement pursuant to subdivision (b) may include in the review a statement containing all of the information required by this clause.
(C) The percentage that the amount determined for purposes of clause (ii) of subparagraph (B) equals the amount determined for purposes of clause (i) of subparagraph (B).
(D) The current deficiency in reserve funding expressed on a per unit basis. The figure shall be calculated by subtracting the amount determined for purposes of clause (ii) of subparagraph (B) from the amount determined for purposes of clause (i) of subparagraph (B) and then dividing the result by the number of separate interests within the association, except that if assessments vary by the size or type of ownership interest, then the association shall calculate the current deficiency in a manner that reflects the variation.
(3) A statement as to all of the following:
(A) Whether the board of directors of the association has determined to defer or not undertake repairs or replacement of any major component with a remaining life of 30 years or less, including a justification for the deferral or decision not to undertake the repairs or replacement.
(B) Whether the board of directors of the association, consistent with the reserve funding plan adopted pursuant to subdivision (e) of Section 1365.5, has determined or anticipates that the levy of one or more special assessments will be required to repair, replace, or restore any major component or to provide adequate reserves therefor. If so, the statement shall also set out the estimated amount, commencement date, and duration of the assessment.
(C) The mechanism or mechanisms by which the board of directors will fund reserves to repair or replace major components, including assessments, borrowing, use of other assets, deferral of selected replacements or repairs, or alternative mechanisms.
(D) Whether the association has any outstanding loans with an original term of more than one year, including the payee, interest rate, amount outstanding, annual payment, and when the loan is scheduled to be retired.
(4) A general statement addressing the procedures used for the calculation and establishment of those reserves to defray the future repair, replacement, or additions to those major components that the association is obligated to maintain. The report shall include, but need not be limited to, reserve calculations made using the formula described in paragraph (4) of subdivision (b) of Section 1365.2.5, and may not assume a rate of return on cash reserves in excess of 2 percent above the discount rate published by the Federal Reserve Bank of San Francisco at the time the calculation was made. The summary of the association's reserves disclosed pursuant to paragraph (2) shall not be admissible in evidence to show improper financial management of an association, provided that other relevant and competent evidence of the financial condition of the association is not made inadmissible by this provision. Notwithstanding a contrary provision in the governing documents, a copy of the operating budget shall be annually distributed not less than 30 days nor more than 90 days prior to the beginning of the association's fiscal year.
(b) Commencing January 1, 2009, a summary of the reserve funding plan adopted by the board of directors of the association, as specified in paragraph (4) of subdivision (e) of Section 1365.5. The summary shall include notice to members that the full reserve study plan is available upon request, and the association shall provide the full reserve plan to any member upon request.
(c) A review of the financial statement of the association shall be prepared in accordance with generally accepted accounting principles by a licensee of the California Board of Accountancy for any fiscal year in which the gross income to the association exceeds seventy-five thousand dollars ($75,000). A copy of the review of the financial statement shall be distributed within 120 days after the close of each fiscal year.
(d) Instead of the distribution of the pro forma operating budget required by subdivision (a), the board of directors may elect to distribute a summary of the pro forma operating budget to all of its members with a written notice that the pro forma operating budget is available at the business office of the association or at another suitable location within the boundaries of the development, and that copies will be provided upon request and at the expense of the association. If any member requests that a copy of the pro forma operating budget required by subdivision (a) be mailed to the member, the association shall provide the copy to the member by first-class United States mail at the expense of the association and delivered within five days. The written notice that is distributed to each of the association members shall be in at least 10-point boldface type on the front page of the summary of the budget.
(e) A statement describing the association's policies and practices in enforcing lien rights or other legal remedies for default in payment of its assessments against its members shall be annually delivered to the members not less than 30 days nor more than 90 days immediately preceding the beginning of the association's fiscal year.
(f)
(1) A summary of the association's property, general liability, earthquake, flood, and fidelity insurance policies, which shall be distributed not less than 30 days nor more than 90 days preceding the beginning of the association's fiscal year, that includes all of the following information about each policy:
(A) The name of the insurer.
(B) The type of insurance.
(C) The policy limits of the insurance.
(D) The amount of deductibles, if any.
(2) The association shall, as soon as reasonably practicable, notify its members by first-class mail if any of the policies described in paragraph (1) have lapsed, been canceled, and are not immediately renewed, restored, or replaced, or if there is a significant change, such as a reduction in coverage or limits or an increase in the deductible, as to any of those policies. If the association receives any notice of nonrenewal of a policy described in paragraph (1), the association shall immediately notify its members if replacement coverage will not be in effect by the date the existing coverage will lapse.
(3) To the extent that any of the information required to be disclosed pursuant to paragraph (1) is specified in the insurance policy declaration page, the association may meet its obligation to disclose that information by making copies of that page and distributing it to all of its members.
(4) The summary distributed pursuant to paragraph (1) shall contain, in at least 10-point boldface type, the following statement:
"This summary of the association's policies of insurance provides only certain information, as required by subdivision (f) of Section 1365 of the Civil Code, and should not be considered a substitute for the complete policy terms and conditions contained in the actual policies of insurance. Any association member may, upon request and provision of reasonable notice, review the association's insurance policies and, upon request and payment of reasonable duplication charges, obtain copies of those policies. Although the association maintains the policies of insurance specified in this summary, the association's policies of insurance may not cover your property, including personal property or, real property improvements to or around your dwelling, or personal injuries or other losses that occur within or around your dwelling. Even if a loss is covered, you may nevertheless be responsible for paying all or a portion of any deductible that applies. Association members should consult with their individual insurance broker or agent for appropriate additional coverage."
Studies show that 5 out of 4 people have problems with fractions
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