Did You Know?
What is the Difference between an Audit, Review and a Compilation?
Under Arizona law (ANNUAL AUDIT A.R.S. 33-1810 / CONDO A.R.S. 33-1243) a board of directors is required to conduct an annual financial audit, review or compilation of the association’s books. The annual audit, review or compilation must be completed no later than 180 days (6 months) after the end of each fiscal year and made available upon request to the members within 30 days of its completion. If the association’s documents require an annual audit by a certified public accountant, then the association must hire a certified public accountant to conduct the audit. Otherwise, the association can hire an accountant, or have the books reviewed by a committee appointed by the board of directors.
“An audit is an examination of the accounting records and procedures of an organization by a certified public accountant (CPA) for the purpose of verifying the accuracy and completeness of financial records. An annual audit may be required by your community association’s governing documents and/or your state’s statutes. External verification of the accuracy and completeness of your community’s financial records is a sound business practice.”
“A review is a year-end report prepared by a certified public accountant (CPA). A review is less thorough and less costly than an audit, but provides some assurances to the board and other interested parties that the financial statements make sense. Report states that the CPA is not aware of any material or significant changes that should be made to the financial statements in order for them to be in conformity with GAAP (Generally Accepted Accounting Principles) for community associations. As is also the case with audits, it is important to use a CPA who is familiar with community associations. If included in the scope of work, a review typically includes the preparation of the association’s tax return. A review provides:
1) No external verification of the accuracy and completeness of financial records.
2) No confirmation of selected transactions.
3) No inspection of records.
4) An analytical review of financial procedures for comparison and changes from the previous year.
5) Interviews of management personnel.
6) Some assurances that the financial statementsmake sense.
7) No opinion letter, but a report that no material or significant changes are needed.”
“A compilation is presentation of financial statements by a certified public accountant (CPA) without the assurance that the information conforms to Generally Accepted Accounting Principles (GAAP). When a community association hires a CPA to perform a compilation, the CPA cannot make any claims about the accuracy and completeness of the financial statements. A compilation differs from an audit and review, which provide a higher level of detail about the association’s financial condition.”
Source: Community Associations Institute, State Advocacy Key Issues