HOA Finance
HOA Audit vs. Review vs. Compilation: What Board Members Need to Know
Quick answer: An audit, review, and compilation are different levels of CPA financial-statement service. An audit provides the highest level of assurance through testing and evidence; a review provides limited assurance primarily through inquiry and analytical procedures; a compilation presents financial information without providing assurance. Requirements vary by law, governing documents, lenders, insurers, and board policy.
Compilation: financial statements without assurance
In a compilation, the accountant assists in presenting financial information in financial-statement form but does not provide assurance that the statements are free of material misstatement. It can still improve presentation and organization, but the board should not describe it as an audit.
Review: limited assurance
A review provides limited assurance and generally relies more heavily on analytical procedures and inquiries than an audit. It provides more assurance than a compilation but less than an audit.
Audit: the highest assurance of the three
An audit involves obtaining evidence and testing sufficient for the CPA to express an opinion on whether the financial statements are presented fairly in accordance with the applicable financial reporting framework.
What determines what an HOA needs?
The answer may come from state law, governing documents, annual revenue thresholds, owner votes, lender requirements, insurance considerations, or board policy. Do not assume another association's requirement applies to yours.
Records that make year-end work easier
- Current reconciliations.
- Organized bank statements.
- General ledger and trial balance.
- Support for significant transactions.
- Accounts receivable and payable detail.
- Reserve activity.
- Board approvals for material transactions.
- Contracts and invoices for major projects.
- Prior-year reports and adjusting entries.
Keep the final report as institutional history
The final audit, review, or compilation should be stored with the fiscal year's financial record set along with the engagement letter, final adjustments, tax return, and board materials documenting review or acceptance.
Frequently asked questions
Is an HOA financial review the same as an audit?
No. A review provides limited assurance and involves less work than an audit. An audit involves more extensive evidence and testing and results in a higher level of assurance.
Does every HOA need an audit every year?
No universal rule applies to every association. Requirements depend on jurisdiction, governing documents, financial thresholds, and other circumstances.
Should the board keep old HOA audits?
Yes. Prior audits and other year-end financial reports are important historical records and can help future boards, accountants, lenders, and other authorized reviewers understand prior periods.