The Importance of Audits for Condo and Co-Op Buildings: Key Considerations for Board Members
For any condominium or cooperative building, an audit is an essential tool for ensuring that the financial operations are transparent and accountable. A comprehensive audit can provide important insights into the financial health of the property and help identify any potential risks or weaknesses in the management of the building's finances.
What is an Audit?
An audit is an independent and objective examination of a property's financial statements and accounting records to determine if they accurately reflect the financial position of the building. It involves a review of the financial statements and supporting documentation to determine whether the financial statements are presented fairly and in accordance with generally accepted accounting principles.
“The primary reason for conducting an audit is to ensure the financial health and accountability of the building,” commented LMJ CPAs partner, Jim Liggett, CPA. “It provides an opportunity to review the property's financial transactions, assess the accuracy of the records, and identify any financial risks.”
“An audit is also important for compliance with state and federal regulations and tax laws,” he added.
Who Should Conduct the Audit?
An audit should be conducted by an independent and certified public accountant (CPA) should:
Have experience in auditing condominium and cooperative properties.
Be independent of the building's management.
Have no personal or financial interest in the building.
Be selected by the board and approved by the membership.
What is Included in an Audit?
An audit typically includes:
A review of the financial statements, balance sheets, income statements, and cash flow statements.
A review of the internal controls of the building, including a review of the accounting policies and procedures.
Recommendations for improving the accounting procedures, as well as any areas of concern.
What are the Benefits of an Audit?
An audit can provide several benefits to the building’s financials, including:
Assurance of the financial health of the building;
Identification of potential risks or areas of concern;
Improvement of accounting procedures and internal controls;
Compliance with state and federal regulations and tax laws, and;
Increased confidence from lenders, investors, and other stakeholders.
How Often Should an Audit be Conducted?
An audit should be conducted annually to provide ongoing assurance of the financial health of the building. However, the frequency of audits can be adjusted based on the size and complexity of the building's financial operations. Larger buildings may require more frequent audits to ensure compliance with state and federal regulations.
An audit is an essential tool for ensuring the financial health and accountability of a condominium or cooperative building. The board should ensure that the audit is conducted by an independent and certified public accountant, and that the results are presented to the membership. By conducting an annual audit, the board can increase the confidence of lenders, investors, and other stakeholders, and ensure that the building is compliant with state and federal regulations and tax laws.
Reach out to us well before your audit is scheduled so we may help you identify any issues you should tackle beforehand.