how to read hoa financial statements

This may involve hiring an independent auditor to conduct regular audits to verify the accuracy of financial records and compliance with relevant laws and regulations. The board’s role in financial management can vary depending on whether the association has a management company, the size of the community, and the association’s bylaws. However, below are some of the most common aspects of the board’s role regarding finances. However, some HOA board members might not have adequate expertise or experience to interpret or analyze complex HOA financial statements.

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For instance, it would not make sense to spend five figures on office supplies. Members should remember that it is okay to question the board’s spending and that such a practice is healthy and helps keep the board in check. Key metrics include the estimated useful life of components, current replacement costs, and the funded status or percentage of reserves currently available. The Cash Ledger helps monitor spending patterns, verify that funds are used appropriately, and ensure that all expenditures align with the approved budget.

how to read hoa financial statements

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This ensures that all the information will be completed in a timely manner without taking time out of community volunteer’s busy schedules. It also means that the statements have been professionally checked and relieves some of that stress from the board members as well. They track income, expenses, assets, and liabilities, providing a clear picture of the HOA’s financial position. There are different types of financial statements, each serving a specific purpose. One of these, the Balance Sheet, is particularly important for a comprehensive understanding of an HOA’s financial health.

Cash Flow Statement

  • Homebuyers can also have access to such reports, as assessing the financial health of the association will help them make a decision on whether or not to buy into the community.
  • An HOA or management company gathers information in this database, which associations can use to maintain and expand membership, streamline monotonous tasks, and inform and engage members.
  • Because it is so essential to understand the financial aspects, an HOA should consider an audit.
  • The cash flow recorded should be the same as the increase or decrease of cash transactions in the Income Statement for accurate reporting.
  • Because even big expenses like refurbishing the swimming pool or the roofs can be planned in advance and covered under the reserve funds.

The audit report will provide only a reasonable assurance that the financial statements taken as a whole are free from material misstatement. The CPA must also report any significant or material weaknesses in the organization’s internal control structure. Most HOA board members don’t actually grasp all the association’s financial details. As a result, every association should consider an audit (at least periodically) to take a closer look at the HOA financial condition.

Balance Sheet

Thus, the A/P is a form of credit that suppliers and vendors offer to the Association by allowing them to pay for a product or service after it has already been received. Accounts receivables show all the money that is owed to the HOA and has not yet been collected. Accounts receivable include collections, credits from vendors and any other payments for services offered by the HOA. Understanding the account receivables document can give you a better understanding of the activities that your HOA has been engaging in.

how to read hoa financial statements

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how to read hoa financial statements

Get familiar with income statements, balance sheets, and reserve studies to deliver transparent, actionable insights that build trust with your clients. The HOA General Ledger is a comprehensive accounting document that records all financial transactions of a homeowners association. It categorizes hoa accounting each transaction by type, such as income, expenses, assets, and liabilities, providing a detailed and organized financial history of the community. The HOA Balance Sheet is a financial statement that provides a snapshot of the association’s financial condition at a specific point in time.

how to read hoa financial statements

These assessments are therefore prepaid and still the property of the homeowner – and not of the association. Prepaid Revenues are Liability Accounts because the association has not “earned” the money yet. Prepaid Expenses are assets because the association has paid for something it has not yet used. Prepaid reports can be delivered in many formats, but should show who is prepaid, and how much credit is in their account. Whether an HOA is made up of ten units or ten thousand units, it could be beneficial to hire a management company to ensure that everything is being run as efficiently and effectively as possible. When looking into property management companies, it is important to look for a company with a strong financial background.

Use your monthly financial statements as the foundation for your upcoming budget. This will also help you generate a thorough business plan and create financial goals for the coming year. If the association has a management company or an independent bookkeeping company, the actual reconciliation will be done by that firm. However, it is important that the association’s Board of Directors (and the manager, if they have one) carefully review this reconciliation AND they compare it with an original bank statement.