All things considered, an audit provides reasonable assurance that the numbers are good. An audit will assess internal controls and provide a high degree of comfort to the board and to the unit owners. So, the HOA also reserves some rights in case they do not receive a timely fee from some members. It may only be one odd person or a couple of them, but it does happen that people do not pay their dues, maybe because they are short of funds. If monthly seems too much, sending an HOA statement quarterly is also a great idea.
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It should not take an advanced accounting degree to read an HOA’s financial statement. Reserve studies reveal to HOA managers and board members the life left in these structures and how much it will cost the association to replace them when they wear out. From this analysis, the board, working with a management company, can determine the budgetary dollar-amount required to be set aside each year. One of the association manager’s primary duties is to manage the HOA’s finances. This involves careful planning, record keeping, and reporting to show responsible handling of resources to the board and homeowners. The Accounts Payable (A/P) Report reflects accounts for vendors or suppliers that the Association owes money, but hasn’t paid yet (a form of debt).
- In some states, it is a legal requirement for HOAs to maintain and submit regular financial statements.
- The Income Statement is key to assessing the association’s profitability and financial health.
- Contrary to public opinion, an audit will not provide assurance that the financial statements are free of fraud.
- The procedures performed vary drastically between each attestation service offering.
- The board is responsible for collecting association fees from homeowners and enforcing payment deadlines.
- This underlines that financial management is a critical component of running a successful community association.
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- Throughout this article, we have explored the various components of HOA financial statements, including the balance sheet, income statement, cash flow statement, and notes.
- Board members should regularly update residents on the association’s financial status, budgetary decisions, and any potential assessments, soliciting feedback and input when appropriate.
- Although it may seem like the latter option will save money, there are other factors to consider.
- This will also help you generate a thorough business plan and create financial goals for the coming year.
- Homeowners Associations must be able to produce reports that can detail expenditures and revenues for multiple funds, and reports that summarize the financial activities of the entire entity across all funds.
- Understanding the balance sheet is fundamental to helping HOA board members make informed financial decisions, monitor the association’s financial health, and plan for the future.
An HOA Reserve Study is a comprehensive assessment that projects the long-term funding needs of a homeowners association for major repairs and replacements. It evaluates the current condition and estimated lifespan of common area components, estimating future costs and establishing a funding plan to meet those expenses without financial strain on the community. As a title professional, you should examine the ledger for consistency in income and regular expenses and look for unusual entries that could indicate financial mismanagement.
- Comprehensive accounting tools automatically reconcile accounts and create reports, and intuitive communication platforms facilitate more efficient and effective information sharing.
- Financial statement audits are based on a financial reporting framework oftenly known as Generally Accepted Accounting Practices (GAAP).
- To compute these numbers, reserve study specialists take the replacement cost and divide it by the sum of years the item is expected to last.
- Profit-oriented businesses only have one set of self-balancing accounts or general ledger.
- Another tip when evaluating the balance sheet is to compare current balance sheets with previous periods to identify trends and assess financial performance.
- Unlike the previous two reports, this one focuses solely on both the positive and negative bank balances of your HOA or Condo Association.
Basics of the HOA Income Statement
So, let’s drill down on what the HOA financial statements are, what each specific document within them means, and what insight they give title and escrow professionals. As discussed, an audit provides the highest level of assurance and is intended to provide the user a reasonable comfort level on the financial statement accuracy. A CPA will perform various procedures to obtain reasonable assurance (explicitly defined as a high level but not absolute) about whether the statements presented are free from material misstatement. If discrepancies exist, the CPA must dig deeper, ask more direct questions and attempt to gain additional comfort on the numbers. Since a review is much lower in scope than an audit, it only provides limited assurance that the financials are free of material misstatement. The HOA can efficiently plan a monthly due for the members while planning the HOA budget, as the budget process allows them to account for most expenses, along with the reserve fund.
To prevent these issues, the board should establish and adhere to a realistic budget that accurately reflects the association’s income and expenses. The board must ensure that the HOA has adequate insurance coverage to protect against potential liabilities, property damage, and other risks. This includes reviewing existing policies, obtaining quotes for coverage, and recommending insurance requirements to homeowners. This involves estimating income from association fees and projecting expenses for maintenance, repairs, utilities, insurance, and other operating costs. Board members need to ensure that the budget is realistic and meets the needs of the community while keeping fees reasonable.
This financial statement shows profitability, and any inaccuracy can result in unnecessary costs and wrong inventory projections. After all, some communities need to earn extra money for the benefit of the community, too, like a Father’s Day buffet or Halloween costume party. The accounts payable is similar to the accounts receivable report but in reverse. Instead of showing amounts owed to the HOA, this report shows the amounts the HOA owes. As with the AR report, it may also show how long each account has remained unpaid.
Comparative Income and Expense Report
Interpreting HOA financial statements requires careful consideration of year-to-year comparisons, industry benchmarks, reserve fund adequacy, collection and delinquency rates, and review of the notes section. Seeking professional assistance, when necessary, can further enhance homeowners’ understanding of complex financial data and ensure accurate interpretation. The accounts receivable report tells boards and owners how much is owed to the association. It could include dues from homeowners, rental income from a facility, etc. This could also come in the form of an aging report, which shows how long each account has remained unpaid. As a title professional, you should pay attention to the assets and liabilities when reviewing the balance sheet.
The board, along with input from homeowners, prepares a budget outlining income and allocating funds to different categories. Once approved, the budget is implemented, with ongoing monitoring for adjustments as needed. How to Read the HOA Balance Sheet Financial StatementThe Balance Sheet shows the current state of your HOA/Condo Association’s bank accounts. This information is important for making sure there is enough money put aside for taking care of bills and other HOA expenses. This could lead to losing focus and moving even farther away from your goals than your HOA team was to begin with. The expenses reflect all operating expenses, such as cost of goods, cost of services, rent expenses, bank fees, utilities, salaries for employees, etc.
Who Should Prepare HOA Accounting Reports?
Unlike the balance sheet, which offers a snapshot of financial health at a given moment, the income statement demonstrates how well an HOA has managed its income and expenses over time. The dynamic quality makes the income statement invaluable for showing trends and comparisons to make smart financial decisions. An HOA statement is also called the accounts receivable statement or HOA dues statement. It is an important part of the annual financial statements, including the balance sheets, income statement, cash flow statement, annual payable report, etc. Financial statements compile all of the association’s important financial information into one document so that the board can easily review it. If your association has a management company, they will typically put these reports together on a monthly basis.
How to Review Your HOA’s Income Statement
Unlike the previous two reports, this one focuses solely on both the positive and negative bank balances of your HOA or Condo Association. If you’re on the hunt for an HOA management company, our online directory lists the best ones by location. It might seem tedious, but establishing these internal controls can deter hoa accounting fraud and prevent theft within your association. Accounting is arguably one of the most challenging aspects of managing an HOA community. Yet, HOA accounting remains an integral part of your job as an HOA board member. Implement scalable software to give your team enough bandwidth to manage twice as many associations.