Introduction:

An HOA audit is an analysis of the association’s accounting records. It facilitates a better understanding of internal controls while providing a high level of assurance to unit owners, prospects, and third parties.

It also provides the HOA with valuable knowledge that can help to improve the association.

Every HOA needs to conduct a financial audit at least once a year.

This checklist is designed to be used by both the CPA and the HOA President or other chosen representative of the association. There are certain approval tasks that require both parties to approve, and numerous opportunities to exchange information and collaborate throughout the audit process.

From clarifying the objectives and timing of the audit to granting the CPA access to HOA records and receiving a final audit report, this checklist guides you through the entire audit process, ensuring that nothing is overlooked and each task is completed efficiently.

Not sure if your HOA needs to do an external audit? Check out this article by Condo Control Central that outlines all of the circumstances in which an audit should be performed. 

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Enter basic details

To kick things off, fill in some basic details regarding the HOA organization.

Enter CPA contact details

Enter the contact details of the CPA you are hiring.

Preparation:

Gather all financial statements

Gather all relevant financial documents to prepare for the audit.

By completing the subtasks below you will ensure that no statement has been overlooked.

You can attach/link to relevant documentation below. 

  • 1
    Income statement
  • 2
    Balance sheet
  • 3
    Budget statement (current & next year)
  • 4
    General ledger
  • 5
    Bank reconciliations
  • 6
    Payroll records
  • 7
    Original invoice expenses
  • 8
    Loan statements
  • 9
    Copies of signed contracts & leases
  • 10
    Copies of insurance coverage
  • 11
    Copies of reserve schedules

Note: if you gather all financial documents and make them accessible from a secure link and enter that link in the above form field, it will be automatically populated in a following task's email template, making it super easy for you to provide the CPA with everything they need to get started. 

Planning:

Determine objectives of the audit

In the form field below, clearly state what the objectives of the audit are. 

Generally, the objective of an audit is to form an independent opinion on the financial statements of the HOA. The opinion includes whether the financial statements show a true and fair view, and have been properly prepared in compliance with accounting standards.

Regardless, the objective of your audit will almost certainly be at least one of the following:

  1. Accounts and statements verification
  2. Checking compliance with accounting policies
  3. Error and fraud detection
  4. Improve quality/efficiency of business processes
  5. Assurance to investors
  6. Checking assets and liabilities to assess overall health

Determine timing of fieldwork

Fieldwork refers to the detailed analysis of financial statements, particularly the income statement and balance sheet.

In coordination with the CPA, determine the anticipated timing for conducting all of the necessary fieldwork. 

Determine audit report deadline

Determine the deadline for the audit report which will be delivered to you by the CPA once the audit is fully complete. 

Depending on your state, there are specific rules and regulations regarding report deadlines as well as whether or not you need a CPA to create a report in the first place. 

For example, Florida law states:

  • The audit report must be delivered to owners within 120 days of the HOA’s fiscal year-end.
  • HOA’s with annual revenues more than $400,000 must have an audit by a CPA.
  • HOA’s with annual revenues of $400,000 or less must have a review, compilation, or report of cash receipts and expenditures by a CPA.

Determine audit fees

Before the CPA really gets to work, you must of course determine and confirm the audit fees. 

Approval: Audit ready to begin

Will be submitted for approval:
  • Determine objectives of the audit
    Will be submitted
  • Determine timing of fieldwork
    Will be submitted
  • Determine audit report deadline
    Will be submitted
  • Determine audit fees
    Will be submitted

CPA access:

Grant CPA access to HOA records

Make sure that the CPA has been granted permission to access any records that they need for the audit. 

For example, the CPA will need a copy (or access to) the homeowners association’s trial balance, general ledger, and journal entries to determine what accounts and transactions are material and significant to the audit.

For your own record-keeping purposes, note down which documents the CPA has been granted access to.  

Send all documents to the CPA

Now that you have gathered all of the relevant financial documents, you need to securely send them to the CPA so they can begin the audit.

Use the email template below to inform them that all financial documents have been gathered and are ready to be reviewed. 

Risk assessment:

Review most recently audited financial statements

Conduct a thorough review of the most recently audited financial statements. 

Review copies of annual IRS tax return filings

Conduct a thorough review of the HOA's annual IRS tax return filings.

Review annual budget

Conduct a thorough review of the HOA's annual budget.

Review board minutes

Conduct a thorough review of the HOA's board minutes.

Approval: Risk assessment completed

Will be submitted for approval:
  • Review board minutes
    Will be submitted
  • Review annual budget
    Will be submitted
  • Review copies of annual IRS tax return filings
    Will be submitted
  • Review most recently audited financial statements
    Will be submitted

Fieldwork:

Evaluate income statement and balance sheet

Evaluate the HOA's income statement and balance sheet by means of analytical testing.

Analytical testing involves identifying relationships between an HOA’s balance sheet and income statement.

The most basic form of analytical testing is a variance analysis, where the current year’s results are compared to the prior year’s results.

Examine bank statements & reconciliations

Examine the HOA's bank statements & reconciliations.

Examine vendor contracts

Examine the HOA's vendor contracts to verify they are in compliance with state and federal regulations.

Examine payroll records

Examine the HOA's payroll records.

Examine copies of signed contracts and leases

Examine the HOA's signed contracts and leases.

Verify proof of ownership (land, buildings, equipment)

Look over documents that show proof of ownership, whether it be land, buildings, equipment, or any other asset that the HOA claims to have ownership of. 

Provide a brief summary of the evaluation below. 

You also attach and/or link to relevant documentation.

Approval: Fieldwork successfully completed

Will be submitted for approval:
  • Evaluate income statement and balance sheet
    Will be submitted
  • Examine bank statements & reconciliations
    Will be submitted
  • Examine vendor contracts
    Will be submitted
  • Examine payroll records
    Will be submitted
  • Examine copies of signed contracts and leases
    Will be submitted
  • Verify proof of ownership (land, buildings, equipment)
    Will be submitted

Reporting:

Sign necessary documents to verify audit

As part of the review/audit process, CPAs require a signed "Management Representation Letter" describing the management practices of the association.

"Management" includes board members. The letter is one of the steps CPAs must follow to satisfy the review and auditing standards issued by the American Institute of CPAs.

Typically, the signatures of two board members (usually the president and treasurer) and the manager are required.

Receive a draft financial report

The audit report is issued after the CPA is satisfied that the homeonwers' association’s books and records are free of material misstatement and properly stated in accordance with GAAP.

You can attach and/or link to the draft financial report below. 

Approval: Financial report

Will be submitted for approval:
  • Receive a draft financial report
    Will be submitted

Issue final audit report to the HOA

Now that all the necessary documents have been signed and the draft financial report has been approved, it is time to issue the final report to the HOA. 

You can attach and/or link to the final audit report below. 

Sources:

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