What Florida requires each year
Every Florida condominium and homeowners association must complete an annual financial report for the fiscal year just ended. Florida sets the minimum level of that report by the association's total annual revenues. It ranges from compiled to audited financial statements, depending on revenue. An HOA with 1,000 or more parcels must be audited regardless of revenue.
The revenue tiers, deadlines, and voting rules are set out on one page so they stay consistent. See Florida reporting requirements before the board makes a decision.
Your declaration and bylaws may require more than the statute. A lender or insurer may too.
Choosing the level of report
The statute sets a minimum. The board can always choose a higher level, for example an audit when a review would satisfy the statute. A board may do so for stronger oversight, for example after a change in management or when owners raise questions about the finances.
Owners can also vote to use a lower level than the statute requires. That vote has its own rules:
- The required vote differs between condominiums and HOAs.
- A condominium vote takes place at a meeting held before the fiscal year ends.
- An HOA vote takes place at a properly called meeting, with no year-end requirement.
- Neither may use a lower level for consecutive fiscal years.
- Owners cannot vote to skip the annual report entirely.
The details are under changing the level of the report. Questions about notices, proxies, and meetings belong with the association's attorney.
For what each level involves and the assurance it provides, see audit vs. review vs. compilation.
The engagement letter
Before work begins, the board signs a written engagement letter on behalf of the association. It is the agreement between the association and the CPA. It sets out:
- The service: an audit, a review, or a compilation, and the fiscal year covered.
- The financial reporting framework the statements follow.
- The board's and management's responsibilities, including complete records and access to the people who keep them.
- Our responsibilities, and the form of report we expect to issue.
Read it before it is signed. It is the clearest statement of what the engagement will and will not cover.
What the board approves and signs
During the engagement
The board makes records available, usually through management or the treasurer, and answers our questions. In an audit, this can include authorizing confirmation requests to banks and a letter to the association's attorney about legal matters.
The draft statements
We share a draft before the report is final. The board and management review it and raise any questions. The financial statements belong to the association. By accepting them, the board and management take responsibility for them, including the disclosures in the notes.
The management representation letter
In audits and reviews, professional standards require written representations before the report is issued. The board signs the management representation letter on behalf of the association. The letter confirms, among other things, that:
- The board and management are responsible for the financial statements.
- All financial records and all minutes of board and owner meetings have been made available.
- Known fraud or suspected fraud, legal matters, and commitments have been disclosed.
- Events after year-end that could affect the statements have been disclosed.
Sign it only after reading it. If a statement in it is not accurate, tell us before it is signed.
The tax return
The association's federal return follows the statements, and a member of the board signs it. Associations normally file Form 1120-H. See Form 1120-H for associations.
Reading the financial statements
Compiled, reviewed, and audited statements follow generally accepted accounting principles and use fund accounting. Operating and reserve funds are shown side by side, so you can see each fund's balance and activity.
The accountant's or auditor's report
Read this first. It says which service was performed and the level of assurance: reasonable assurance for an audit, limited assurance for a review, and none for a compilation. Any paragraph that departs from the standard wording deserves a question.
Balance sheet
What the association owns and owes at year-end, by fund. Look at cash and investments in each fund, assessments receivable from owners, prepaid assessments, amounts owed to vendors, and any loan balance. Amounts one fund owes another should be understood and settled.
Statement of revenues and expenses and changes in fund balances
The year's assessments and other income, the expenses by category, and how each fund balance moved from the start of the year to the end. Compare it with the budget the board adopted. A deficit in the operating fund, or reserve spending without matching contributions, is worth discussing.
Some reports present revenues and expenses and the changes in fund balances as two separate statements. Either presentation shows the same information.
Statement of cash flows
Where cash came from and where it went during the year. It explains why cash changed when the association's results did not.
Notes to the financial statements
The notes explain the accounting policies and add detail the statements cannot show. Typical notes cover assessments, reserve funding, income taxes, commitments and contracts, special assessments, loans, and events after year-end.
Reserve disclosures
For condominiums, Florida's rule requires reserve disclosures even if reserves were waived. They show each reserve account's beginning balance, additions, expenditures, and ending balance. They also show the annual funding needed to fully fund each account, the estimation method, and the date the estimates were last made.
Statements also commonly include supplementary information on future major repairs and replacements of common property. These figures come from the association's reserve study or reserve schedule. The financial statements report reserve balances and activity. They do not replace a reserve study, a structural integrity reserve study, or a milestone inspection. For more, see reserve accounting and reporting.
An HOA whose budget does not provide statutory reserves has its own required statement in the financial report. See HOA-specific rules.
Delivering the report to owners
The association, not the CPA, delivers the annual financial report to owners. The board should know three things:
- The report must be completed, and then delivered, within deadlines measured from fiscal year-end.
- Delivery can be a copy of the report or a notice that owners may request one at no charge.
- Larger condominiums and HOAs must also post the report on the association's website or app, and condominiums document delivery with an affidavit.
The deadlines, thresholds, and affidavit rule are on Florida reporting deadlines. Plan the engagement so the final report is ready in time.
The board's role and ours
The board and management are responsible for the association's records, its internal controls, and its financial statements. Our responsibility is to perform the engagement the association chose and to report on it.