What an audit provides
In an audit, we plan and perform procedures to obtain reasonable assurance that the financial statements are free of material misstatement, whether from error or fraud. We then express an opinion on whether they are presented fairly under generally accepted accounting principles.
Reasonable assurance is a high level of assurance, but not a guarantee. An audit tests samples of transactions rather than every one. It focuses on amounts large enough to influence the decisions of the people who read the statements.
Audit
Reasonable assurance
Tests records against outside evidence, such as bank confirmations, and issues an opinion.
Review
Limited assurance
Inquiry and analytical procedures. No opinion is expressed.
Compilation
No assurance
Statements presented from the association's records, without testing.
For a fuller comparison, see audit vs. review vs. compilation.
When an association needs an audit
- Florida's revenue threshold. Condominiums and HOAs with total annual revenues of $500,000 or more must prepare audited financial statements.
- Large HOAs. An HOA with 1,000 or more parcels must be audited regardless of revenue.
- Governing documents. Some declarations or bylaws require an audit at any revenue level.
- Lenders and insurers. A loan, line of credit, or insurance application may call for audited statements.
- Board choice. A board may choose an audit for stronger oversight, for example after a change in management or when owners raise questions.
Owners can vote to substitute a lower level for a required audit, but not for consecutive fiscal years. The vote requirements differ between condominiums and HOAs. See changing the level of the report.
What the audit involves
Each audit is planned around the association's size, its risks, and its records. Typical procedures include:
- Understanding the association's operations, its management arrangement, and the internal controls relevant to financial reporting.
- Confirming cash, investment, and loan balances directly with banks and lenders.
- Testing assessment revenue, owner receivables, and collections, including special assessments.
- Testing expenses and disbursements against invoices, contracts, and approvals in the minutes.
- Testing reserve fund activity and comparing it with the budget and reserve schedule.
- Reading minutes and contracts, and asking the association's attorney about pending legal matters.
- Obtaining written representations from management and the board at the end of fieldwork.
An audit considers internal control to plan procedures, but it does not express an opinion on internal control. We communicate significant deficiencies or material weaknesses we identify in writing.
What the board receives
- The independent auditor's report, with our opinion.
- A balance sheet, a statement of revenues and expenses and changes in fund balances, a statement of cash flows, and notes. Operating and reserve funds are presented separately.
- Supplementary information on future major repairs and replacements, as required for common interest realty associations.
- For condominiums, the components and reserve disclosures required by Rule 61B-22.006, F.A.C.
- Written communication of any significant deficiencies or material weaknesses identified.
The association delivers the report to owners. For deadlines and posting rules, see Florida reporting deadlines.
Records typically needed
Requests vary with each association. Most audits draw on the following: