ACCOUNTING
Managerial Accounting for Association Managers By David Schuknecht, CMCA, AMS
C
ommunity association managers wear many hats, some of which are not even visible to the board members and the homeowners of the associations they manage. The board may never know of the phone call held with an owner that completely changed the way the owner felt about the community or the contractor who understood the expectations more clearly when the manager pulled them aside. One of such items that is more behind the scenes is the financials of the association. Most board members and homeowners do not understand the attention to detail required and how all the transactions affect one another to produce the final product, with many not understanding the final product and merely read from the summary page prepared by the manager. This column will explore some of the more basic ideas to better understand the financials for both managers and board members.
"DEPENDING ON HOW THE INFORMATION IS MEANT TO BE SHARED AND ACTED UPON MAY DICTATE HOW THE FINANCIAL STATEMENTS ARE PREPARED." The first thing that needs to be determined with the preparation and review of any financial document is the users the document is intended for and how the document was prepared. There will be three different users of financial documents, stakeholders, internal users, and external users, and External Users in any business. For a community association, the stakeholders are your homeowners as they have a vested interest in the financial health of the organization, the internal users would be the board members and management as they 28
Quorum February, 2021
make decisions that directly affect the internal operations, and finally, the external users would be mortgage lenders, lenders to community associations, and prospective purchasers. Depending on how the information is meant to be shared and acted upon may dictate how the financial statements are prepared. The first is the one people are most familiar with, financial accounting. Financial accounting focuses on developing and communicating information to external users by helping them determine whether the organization is in good financial health and if the operations are sustainable. On the other hand, managerial accounting is primarily concerned with reporting for internal users, especially management. The chart below provides a quick summary of the differences between the two. Financial Accounting
Managerial Accounting
Users
External and Internal
Internal
Accounting Standards
US GAAP or IFRS
Flexible
Type of Information
General, Overall Health
Product Costing, Project Management, Decision Making
Frequency
Annual and Quarterly
As Needed
Most community associations maintain their books on what is known as modified cash or modified accrual basis. What that means in simple terms is that the income is accrued while the expenses are tracked on a cash basis. However, when communities complete their annual financial review as required by Civil Code 5305 (Unless the governing documents impose more stringent standards, a review of the financial statement of the association shall be prepared in accordance
