Is your community self-managed?
How are the residents handling the service of financial accountability?
Every homeowner and condominium community association should have the proper accounting practices in place. Both board members and homeowners have an interest in the finances of the community. While some associations may choose to be self-managed or hire a small management company with little resources, the accounting standards should never be shortchanged. The industry standards should apply to all associations no matter what the annual budget amount. CPA firms that work closely with community associations follow GAAP standards.
Generally Accepted Accounting Principles (GAAP) is a set of accounting standards, rules, and practices that stipulate how financial statements should be prepared and presented. They are used specifically in the United States. The Financial Accounting Standards Board (FASB) created GAAP with the goal of improving the comparability, clarity, and consistency of financial information shared with stakeholders. The GAAP standard is composed of guidelines published by FASB, the U.S. Securities and Exchange Commission (SEC), and the American Institute of Certified Public Accountants (AICPA).
When an audit or a financial review is processed for an association, the accounting firm (CPA) will make notes and comparisons regarding best practices and GAAP standards. The CPA also prepares the association’s tax filings and financial statements.
GAAP is used across organizations of different sizes and industries for carrying out various accounting functions:
• Producing financial statements, namely the balance sheet, income statement, and statement of cash flows.
• Revenue recognition
• Expense recognition
• Measuring assets and liabilities
• Consolidation of financial statements and various business combinations
Is your board providing the required financial statements?
The proper standard of reporting?
One way to have a proper system in place is to have professional management contracted at your association. The Community Association Management Company will handle the documentation of financial matters. The association’s management company handles everything to do with physical property. It also handles the association accounting end of the following financial matters:
• Invoices to homeowners (AR)
• Collecting HOA fees (AR)
• Paying Vendors and Utilities (AP)
• Keeping the books / Financial Statements
• Preparing the annual budget for review by the board
• Providing proper notices and mailings for the budget process.
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