What key areas should the manager explain during the review of the draft audit by the Board?

  • Opinion Page: Make sure there is an unmodified opinion. This is good news for the Association. If the opinion is modified, make sure you understand the reason for the modification. If there is an emphasis of matter paragraph, make sure you understand the reason for this also.
  • Balance Sheet: What are the Association’s delinquent owner balances? Is an allowance for doubtful assessments recorded? If delinquencies are over 3% of annual assessments, this indicates that the Association is having problems with collections.

    Does the Association have excess operating funds? Look at unappropriated members’ equity. This number should not be a deficit and should be equal to 10% – 20% of annual assessments.
    Statement of Income: Did the Association end the year with net income or a loss?

  • Statement of Members’ Equity: This page shows the replacement reserve contributions and expenditures for the year. This is a good summary page of what happened in replacement reserves.
    Notes to the Financial Statements: The financial statements and the notes are the responsibility of the Association. The auditors draft the notes for the Association, but the Board can revise the notes.
    Representation Letter: This is a letter from the Association to the auditors and contains certain standard wording. The representation letter needs to be reviewed by the Board. This letter needs to be signed by the President or Treasurer, and returned to our office within 60 days from the date the draft was issued in order for us to finalize the audit.
  • Management Letter: The Board should read the management letter. Our firm puts general comments as well as specific comments and recommendations in the management letter. Often, the management letter can be looked at as a checklist of items that need to be followed up on as a result of the audit.
  • AU-C §260 Letter: This letter describes the audit process and lets the Board know if there were any disagreements with management, difficulties in doing the audit, significant disclosures to the financial statements, significant estimates in the financial statements, or if material adjustments were proposed to the Association’s financial statements.
  • AU-C §265 Letter: The auditors are only required to issue this letter if the auditors find control deficiencies that rise to the level of a material weakness or significant deficiency.