Member Audit Committee - is it legal ?

DukeS (Colorado)
Posts: 8

Posted:

Our Colorado HOA, founded 1971 with annual budget less than $100,000 has a bylaw which says there will be an aanual audit done by a member committee. Originally bylaws required a outside audit firm to do so. Realizing cost involved members amended it to have it done by a volunteer member committee. Board now says we can't have a committee do it because Colorado laws says must be done by a licenced CPA. So therefore no member audit is legal and our bylaws are to be ignored.

Can see where under CCIOA with budget greater than $250,000 an audit is a "legal" requirement therefore needing a CPA. As our members want an audit why could not a committee do so - a number of members do have accounting experience, are CPAs but not licenced to do an audit.

Is a member committee legal?

PatrickH (California)
Posts: 204

Posted:

Hi Duke,

Federal and State laws supercede the rules of your HOA. However, if the Colorado state law says that the budget has to be over 250k before a CPA is required to do the audit, and your budget is only 100k, it doesn't appear that you are violating the law by having your own audit committee do the work.

You may want to do more research yourself or even check with an attorney to make sure you are interpreting and following the laws correctly.

RogerB (Colorado)
Posts: 5,067

Posted:

Duke asked "Is a member committee legal?"
Answer - YES. However, I believe your volunteer committee is doing a financial review rather than an audit.

MaryA1 (Arizona)
Posts: 7,043

Posted:

It's understandable that laypeople don't understand the meaning of "audit". Many gov. docs. require an annual "audit" but don't specify that it be performed by a CPA. If anyone other than a CPA conducts an "audit", technically speaking it is not a true audit. In fact, most laypersons wouldn't even know what to look for to perform an audit. Only a licensed CPA can perform an audit IAW with GAPP. But, to answer your question, "NO" there is not illegal to have a group of members conduct an "audit". However, if the board choose to do this, I would suggest looking for people who have at least some bookkeeping experience.

FYI. . .there are 3 types of reports than can be performed by a CPA:

1) compilation: this is just a presentation of a financial statement prepared by the board (or the mgmt co.) compiled IAW SSARS (Statements on Standards for Accounting & Review Services). No opinion or assurance is expressed. The client must be asked to correct any obvious errors or departures from GAAP (Generally Accepted Accounting Principles). If the client refuses then the CPA shall refuse to issue the compilation.

2) review: Inquiry and analytical procedures are undertaken that are more extensive than a compilation but less extensive than an audit. The CPA is independent from the client (not an employee) and shall express a limited assurance about conformance to GAAP. Certain analytical procedures will be performed, past reviews or audits will be reviewed and financial statements will be reviewed to determine if they comform to GAAP. The CPA will issue a letter of limited assurance which will read: "based on our review, we are not aware of any material modifications that should be made to the accompanying financial statements in order for them to be in accordance with generally accepted accounting principles."

3) audit: Can only be performed by a licensed, independent CPA knowledgeable in all areas of GAAP. An audit adds credibility to the financial statements dispensing any differing opinion between the board and the members. Upon completion the CPA will issue either an Unqualified Opinion, Qualified Opinion, Disclaimer of an Opinion or an Adverse Opinion. Included will be a number of statements. The audit is conducted to uncover material misstatements and gather and evaluate evidence using ananlytical procedures, inquiry observation, recalculation, confirmations, vouching, tracing, footing, cross-footing, reconciliation, etc. This is the most extensive reporting that can be undertaken.