This may be helpful:
HOA Retained Earnings Quote:
"In short, Retained Earnings is a measuring stick, indicating the accumulation of net income and loss over time. Other than that the more important items are always the Reserve Study first, then Cash on Hand, then Accounts Payable and Receivable, and is the budget and cash position able to meet the requirements of the Reserve Study plus unexpected expenses."
I wouldn't necessarily use it to make audit adjustments - audits are just professional opinions on the soundness of your financial managing and reporting. I would ask questions, though. Why do you have too much in retained earnings? Is the board over-estimating its spending needs? Or is it neglecting maintenance and not spending enough of the money it collects? If you're running a deficit each year, it suggests you may be living beyond your means. Some level of retained earnings is probably good. There are always unexpected events, and if the board isn't allowed to set aside some money to meet these unplanned operational expenses, then they're left with the choice of a special assessment, a loan, raiding the reserves, or neglecting whatever it was. These are not attractive options and should be avoided if possible.