• Required to report any noted significant deficiencies or material weaknesses in your system of internal control.


REVIEW A review involves performing analytical procedures such as comparing the current year’s information with the prior year’s information and making inquiries of management. We are required to understand your industry (HOA industry) and obtain knowledge about your specific association. This helps us identify areas in the financials where it might be more likely that a material misstatement occurs.


One example of a review procedure would be when we compare current year operating expenses to the prior year amount. If we see a large discrepancy between the two years, we are going to look at the detail in the account, and inquire as to why there was such a huge change. We may request the supporting documentation,


in addition to asking management and the


board about the difference. A quick list of takeaways for a review is:


• An opinion is issued concluding whether or not any material modifications need to be made, in order for the financial statements to be in accordance with your framework;


• Limited assurance is given; • CPA must be independent; • Less expensive than an audit, but more expensive than a compilation.


COMPILATION As mentioned at the beginning of this article, in performing a compilation, we read the financials prepared by your management company considering the financial


framework being used, and consider whether the financials appear appropriate in form and are free of obvious material misstatements. There is no testing or verification involved.


A quick list of takeaways for a compilation is: • No opinion is given, just a cover report stating it


is a


compilation and that management is responsible for the financials;


• No assurance is given; • CPA does not have to be independent, but must disclose in the report if not;


• Less expensive than an audit or review.


PREPARATION An example of a preparation service would be a situation where we are doing bookkeeping for a self-managed association and we prepare month end financials from the accounting software. It is intended for in house use by a controller, or the association board.


A quick list of takeaways for a preparation is: www.caioc.org 25


We encourage you to discuss with your management company and CPA what may be required for your association.


—Kendra Gangal is a CPA with 25 years of experience serving the HOA industry. She owns Synergy CPA & Advisor (www. synergyacct.com) and offers a full range of CPA services to associations throughout CA and surrounding states. She can be reached at kgcpa@synergyacct.com.


• Governing documents may require it; • State law may require it; • If there are concerns that funds might have been mismanaged or mishandled;


• A change in management companies. reporting


• No opinion is given, and no report is provided; • No assurance is given; • CPA does not have to be independent; • Normally least expensive option.


The table below provides a quick summary of the differences between services.


Audit


Level of assurance provided


CPA required to obtain understanding of internal control and assess fraud risk


CPA required to perform verification and substantiation procedures


CPA required to perform inquiry and analytical procedures


CPA required to be


independent


CPA issues formal report


reporting Cost Yes Most


expensive as requires the most work


Yes


Less than an audit, but


more than a compilation


Reasonable (defined as high but not absolute)


Review Compilation Preparation Limited No Assurance No Assurance


Yes


NoNoNo


Yes


NoNoNo


Yes


Yes


No Yes Yes No-but disclose if not No


Typically less than audit or review


No


No No


Typically least expensive, but can vary


Now that you know what the different services are, you might be wondering why you may need an audit or review. It really depends on your association and situation. A few reasons include:


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