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What are some of the requirements to file an 1120 tax return? If             quickly. Generally, the association needs to follow strict accounting requirements including segregation of operating and reserve cash, and “fund accounting” is preferable. The Association should adopt and adhere to a budget that agrees with the reserve study, have minimal “transfers between funds”, document repayment plans for “due between funds” and be aware of the capital and non-capital items in the reserve study. They also need to have the association 


What is the “70-604” tax election?      As noted above, if                   membership income to be deferred from year one to year two. Since the 70-604 cannot be used two years in a row, this is only a   remaining at the end of year two, if an 1120 return is again filed, and   70-604 each year at the annual meeting, regardless of the type of return filed. This is because it is not known (until the return filing) which form will be appropriate, and if an 1120 is necessary, the  regardless of the form filed each year. Again, this election is approved by the membership, not the board.


Is transferring monies to reserves the same as the “70-604?” No. Should be two separate motions. Our firm’s website has a 70-604 approval form that qualifies with the IRS.


When is the tax return due to the IRS?    


What is an audit? An independent CPA is engaged by the association to determine if the year end financial statements are materially correct, in accordance with Generally Accepted Accounting Principles (GAAP) and that adequate financial statement disclosures have been presented. The CPA should not be connected to the association in any way. “Materiality” is a matter of CPA judgment, however it            “disclosures” would be litigation, special assessments, contingencies,  end but before the date of the Auditors’ Report.


Is our association required to have an annual audit? This depends on the body of Washington law (RCW) that governs the association, and the size of the association. Please read the noted RCW for more clarification and consult your attorney if unclear.


 “New Act” Condominiums (Created after 7/1/90 -RCW 64.34.372) Condominiums with 50 or more units must be audited annually. Condominiums with less than 50 units have an annual audit requirement, however, there are annual waiver provisions.


 “Old Act” Condominiums: (Created before 7/1/90) Generally, the requirements default to the New Act Condominiums provisions, however, if the governing documents require an annual audit, then an audit is required, regardless of the number of units.


www.wscai.org 17


 Homeowners Associations (RCW 64.38.045) Associations with annual assessments of $50,000 or more must be audited annually, however, there are annual waiver provisions.


Additionally, there is an audit requirement for New Act Condominiums upon the legal transition from developer control. (RCW 64.34.312)


When is an audit recommended, regardless of the requirements? Because the board is charged with governance of the association, they need to think through carefully whether the waiver of an audit is advised. Some of the reasons to have an audit include:


  recommendations that protect the board and association.


           


If there is suspected fraud, a separate “forensic audit” may be appropriate.


What is needed in an audit? The auditor will ask for the financial records and reports for both the audit year and subsequent year. If it is a new client, the auditor will ask for the financial records of the prior year end. Additionally, the  returns, budgets, and board minutes.


How long will the audit take?            


Who receives the audited financial statements? The Auditors’ Report is addressed to the association board and membership. Other users include future owners (in the re-sale certificate) and current or possible association lenders. (The “Report of Internal Control” is addressed to the association board and management.)


What do we do if an audit discloses an issue? Discuss the audit results with your management company and CPA, if you don’t understand the issue. Then, the board should discuss their plans to rectify the issue, and document this in the board minutes.


Are there more questions? Possibly, this article has raised more questions for you, than answered. Consult your association CPA, as there are numerous 


Was this really 20 questions? No. Apparently the CPA cannot count.


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