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Glossary of condo and HOA financial terms
Plain-language definitions of the terms Florida condominium and HOA boards see in budgets, reserve studies, financial statements, and tax returns. Each one links to a guide with the full detail.
27 terms · Reviewed as of
Accrual basis
The accrual basis is an accounting method that records revenue when it is earned and expenses when they are incurred, rather than when cash changes hands. Florida's condominium rule requires financial statements on the accrual basis using fund accounting.
Alternative funding method
An alternative funding method is a way for a multicondominium association to fund its required reserves other than the standard formula. Under Florida's reserve rule, it must be submitted to the state before the budget meeting and approved by a majority of the total voting interests.
Annual financial report
The annual financial report is the report a Florida condominium or homeowners association must prepare after each fiscal year and deliver to owners. Its minimum level, from compiled to audited financial statements, depends on the association's total annual revenues.
Assurance
Assurance is the level of confidence a CPA's report gives readers that financial statements are free of material misstatement. An audit gives reasonable assurance, a review gives limited assurance, and a compilation gives no assurance.
Audit
An audit is an examination of an association's financial statements by an independent CPA under generally accepted auditing standards. The auditor tests the records and gathers evidence, then gives an opinion on whether the statements are presented fairly. A Florida association with total annual revenues of $500,000 or more needs one.
Compilation
A compilation is an engagement in which a CPA presents an association's financial information as financial statements without providing any assurance. The CPA does not test the records. It is the minimum Florida level for total annual revenues of $150,000 to under $300,000.
Deferred maintenance
Deferred maintenance is major maintenance an association postpones to a future year, such as repaving or painting. Florida condominium reserves cover deferred maintenance and capital expenditures for items above the statutory cost threshold.
Engagement letter
An engagement letter is the written agreement between an association and its CPA that sets out the service, the responsibilities of each side, and the report to be issued. The board signs it on the association's behalf before work begins.
See Guidance for boards.
Exempt function income
Exempt function income is the dues, fees, and assessments an association receives from members in their capacity as owners. On Form 1120-H it is excluded from tax, while other income, such as interest and amounts from nonmembers, is taxable.
Fiscal year-end
The fiscal year-end is the last day of an association's accounting year, which may differ from December 31. Florida's deadlines for completing and delivering the annual financial report are measured from it.
See Reporting deadlines.
Form 1120-H
Form 1120-H is the U.S. income tax return for homeowners associations, including condominium management associations. Associations normally file it each year; filing it is an annual election that lets a qualifying association exclude its exempt function income from tax.
Fund accounting
Fund accounting is a method that separates an association's money by purpose, typically into an operating fund for day-to-day costs and a reserve fund for major repairs and replacements. Florida's condominium rule requires financial statements prepared using fund accounting.
Gross income and expenditure tests (60% and 90% tests)
The gross income and expenditure tests decide whether an association may file Form 1120-H for a year. At least 60% of its gross income must be exempt function income, and at least 90% of its expenditures must be for acquiring, building, managing, maintaining, and caring for association property.
Management representation letter
A management representation letter is a letter, signed by the board on the association's behalf before an audit or review report is issued, confirming that the records and information given to the CPA are complete and accurate.
See What the board signs.
Milestone inspection
A milestone inspection is a structural inspection of certain Florida condominium buildings required by law at set points in a building's life. It is performed by qualified professionals, not by the association's CPA, and its findings can lead to repairs funded by reserves, special assessments, or loans.
Operating fund
The operating fund is the part of an association's financial statements that shows day-to-day revenues and expenses, such as insurance, utilities, management, and routine maintenance. It is reported separately from the reserve fund.
See Fund accounting.
Pooled reserves (Pooling method)
Pooled reserves combine several reserve items in one account funded together, so projected cash coming in covers projected spending over the items' remaining useful lives. A Florida condominium board may switch between pooled and straight-line reserves without an owner vote, within the limits of the reserve rule.
Required supplementary information
Required supplementary information is information presented with an association's financial statements, outside the basic statements, about estimates of future major repairs and replacements of common property. It is not audited.
Reserve fund (Reserves)
Reserves are money an association sets aside for capital expenditures and deferred maintenance, such as a roof, painting, or paving. A Florida condominium's budget must include reserves for those items and for any item whose cost exceeds the statutory threshold.
Reserve study
A reserve study is an analysis of an association's major common components that estimates each one's remaining useful life and replacement cost and recommends how much to save each year. It is prepared by reserve analysts or engineers, not by the association's CPA.
Review
A review is a limited-assurance engagement in which an independent CPA asks questions and performs analytical procedures on an association's financial statements, then reports whether any material changes are needed. It is the minimum Florida level for total annual revenues of $300,000 to under $500,000.
Special assessment
A special assessment is a charge to owners beyond the regular assessment, levied for a specific purpose such as a major repair. A Florida condominium's financial statements disclose the purpose, amount, and use of special assessments.
Straight-line reserves
Straight-line reserves fund each reserve item on its own, dividing its remaining replacement cost by its remaining useful life. It is one of the two methods Florida recognizes for funding condominium reserves; the other is pooling.
Structural integrity reserve study (SIRS)
A structural integrity reserve study (SIRS) is a study of a condominium building's key structural and safety components, such as the roof, structure, fireproofing, plumbing, electrical systems, waterproofing, and windows. Florida requires one at least every 10 years for condominium buildings three habitable stories or higher.
See SIRS and reserves.
Total annual revenues
Total annual revenues are all of an association's revenues for the fiscal year, the measure Florida uses to set the minimum level of the annual financial report. A large special assessment can raise revenues enough to move an association into a higher tier.
Turnover
Turnover is the transfer of control of an association from the developer to the unit or parcel owners. Under Florida condominium law, an audit or review prepared before turnover is paid for by the developer.
Waiver of the report level
A waiver of the report level is an owner vote to prepare a lower level of annual financial report than Florida requires, such as a review in place of a required audit. It applies to one fiscal year and cannot be used for consecutive fiscal years; owners cannot vote to skip the report entirely.
Sources
Primary sources, reviewed as of November 9, 2026. Laws change; confirm the current text before acting.
- Section 718.111, Florida Statutes (2026) — Condominium association records and financial reportingFlorida Legislature, Online Sunshine
- Section 718.112, Florida Statutes (2026) — Bylaws, budgets, reserves, and SIRSFlorida Legislature, Online Sunshine
- Section 720.303, Florida Statutes (2026) — HOA records, reserves, and financial reportingFlorida Legislature, Online Sunshine
- Rule 61B-22.005, Florida Administrative Code — Reserves (effective October 4, 2026)Florida Department of State
- Rule 61B-22.006, Florida Administrative Code — Financial Reporting RequirementsFlorida Department of State
- Instructions for Form 1120-HInternal Revenue Service
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