Q&A - Five Commonly Asked Board Questions about Audits/Accounting

Five Commonly Asked Board Questions about Audits/Accounting

By Justin Wareham

Q:nWhy is the GAAP so important to condominium financial preparation and what is it exactly?

A: nGAAP stands for “Generally Accepted Accounting Principles”, which are a common set of accounting standards, policies and procedures used when preparing financial statements. Specific to condominiums in Ontario, Section 66 of Act requires that “A Corporation shall have it’s financial statements prepared in the prescribed manner and in accordance with generally accepted accounting principles as are prescribed.” Regulation 48/01, Section 16 explains that “a Corporation shall have it’s statements prepared in the manner and in accordance with accounting principles specified in the Handbook of the Canadian Institute of Chartered Accountants.” All audited condominium financial statements must be prepared using Accounting Standards for Not-For-Profit Organizations (ASNFPO) in order to be in compliance with the Act.

Q:nHow are year-end audits impacted by late invoicing, missed po’s, and any other missing or late items?

A: nLate invoicing and missed PO’s can affect the work that the auditor performs on payables. Part of the audit process is to perform accounts payable cutoff testing where the auditor will review invoices that are payable at year and invoices paid subsequent to year end to ensure that they are recorded in the correct fiscal year. Quite often an invoice is issued late and recorded in the month(s) subsequent to year end so this testing helps identify items that should be accrued at year end. When invoices are issued extremely late and not picked up during the audit process, it can skew the financial statements when comparing actual expenditures to budget, say when a 2022 expense is recorded in 2023.

Q:n When Corporations want to split each and every tiny expense to various categories for EXTREME accuracy how does this impact the audit, and is this level of extreme detail required?

A: Extreme detail like this can make expense testing challenging, especially when the allocations to the various expense accounts aren’t well documented. However, with that being said, being as accurate as possible with expense allocations is crucial when preparing financial statements in order to get the truest representation of budget vs. actual. In my experience, a lot of the questions that I receive from owners when presenting financials statements are related to budget vs. actual

and why a certain line item is so much higher or lower than budget so it’s important to ensure that each line item is accurate.

Q:nDo loans and special assessments impact the audit preparation and how?

A:n There is really no impact to audit preparation when it comes to special assessments. Management however should provide the auditor with a copy of the notice of special assessment as well as a per unit breakdown of the special assessment. When it comes to loans, part of the audit process is to obtain confirmation from the lender that confirms the loan balance at the year end date. The auditor should send this confirmation to the lender as soon after the year end date as possible in order to prevent delays in the audit. As soon as the loan commences, management should send the auditor a copy of the lending agreement as well as a copy of the Corporation’s borrowing by-law.

Q:nAre there any tips or tricks that Management or the Boards can adhere to in order to make the audit process more efficient?

A:n It is important for management and boards to be in communication with the auditor throughout the year, especially when complex financial issues arise. Dealing with those issues at the time makes the audit process far more efficient than first learning of those issues during the audit. Preparing detailed board meeting minutes that summarize major financial decisions can also greatly assist the auditor. In general, providing organized and well documented

Justin Wareham is a CPA at Millards Chartered Accountants in Brantford, Ontario with 7+ years experience in auditing condominium corporations. He is also a condominium owner and board member, so he has an understanding of the unique challenges that owners and boards face.