Take Stock of Association’s Finances with Audit
The day-to-day focus of the association manager, members, and the board might center on their roles in keeping the community running smoothly—abiding by the governing documents, quickly dealing with problems that pop up, and making decisions that affect the community, respectively.
Finances, however, are what really enable the community to run in the first place. That’s sometimes forgotten when associations are in the thick of daily operations. But it’s important for associations to treat themselves as businesses. And that means carving out some of their budget to pay for an audit or other audit alternative to confirm that their finances are on track. Using an independent, third-party to assess the health of the association can ensure that it continues to run smoothly—or get it back on track if it’s in trouble.
Your association’s accounting firm can help tailor an audit or audit alternative to fit its needs. A full audit is sometimes not necessary for an association, which can opt to use an audit alternative, like an agreed-upon procedures engagement. To determine which type of accounting is best for the association you manage, familiarize yourself with the details and objectives of each method:
- Audit. A financial audit is an independent, objective evaluation of an association’s financial reports and financial reporting processes.
- Agreed-upon procedures engagement. This is a targeted examination of specific financial areas more prone to errors or issues.
Once your association decides that an audit or engagement is necessary, association managers and management companies typically are asked to help prepare for it by providing all of the information the firm needs for the audit or other engagement. So be prepared to answer questions as the CPA conducts the audit, and provide follow-up documentation. Keep in mind that, with board approval, you could have a role later in correcting any issues or implementing any procedural enhancements that are recommended.
For more information about how you can help make the process more efficient, and tips on how to plug the loopholes it uncovers, see “Use Audit to Test Association's Financial Health,” available to subscribers here.