Reading Financial Statements Series©

Reading Financial Statements Series© Your Association’s Year End Accounting Review

By Jeremy Newman, CPA

Most associations have fiscal years that end on December 31. If an association does not obtain an independent audit by a certified public accountant, it is perhaps more imperative that boards of directors pay close attention to their internally generated year-end financial reports. Some areas to consider include:

CASH

Ensure all bank accounts have been reconciled. Obtain a copy of reconciliations and bank statements and compare them. Pay close attention to unusual or large reconciling items. Ensure they clear the next month’s bank statement.

ASSESSMENTS RECEIVABLE

Review the aged receivables report. Understand the reasons for delinquent accounts and ensure that a collection plan is in place to maximize recovery of delinquencies.

ACCRUED EXPENSES

Most associations account for expenses only when invoices are paid. Boards should ensure they account for all expenses incurred during the year, regardless of when vendors are paid. Remember, you set a budget for the year. It is easy to overlook a late invoice for this year that may be recorded as an expense in the next year.

SPECIAL ASSESSMENTS

Sometimes special assessment programs last more than one year. Often, special assessments are levied to repay a commercial loan. If accounting for special assessments billed, collected, outstanding or delinquent is inaccurate, a board of directors may not be able to determine if the remaining funds to be collected are sufficient to repay a related loan.

Ensure there is a report showing special assessment billing to and receipts from homeowners. Compare the aggregate of special assessment bank account balances plus amounts to be billed and collected, less any outstanding special assessment expenditures to the loan repayment requirements, both principal and interest. Early determination of a potential deficit will provide boards with the opportunity to develop a contingency plan. LOANS Ensure the correct loan balance is presented on your financial statements. Compare to the loan statement provided by lenders.

INCOME

Review assessments and other income accounts to ensure all income appears to have been recorded. You will need to know if the financials are prepared on an accrual or cash basis. Under the accrual basis, assessment income should match the budget.

EXPENSES

Compare actuals to budget. Inquire about unexpected variances. Ensure all current year expenses have been recorded. Review the general ledger for more detail, and request copies of vendor invoices.

You can reach Jeremy at (760) 206-4448 or by email at jeremy@hoacpa.com. More information about Newman Certified Public Accountant PC can be found at their website at www.hoacpa.com.