How to Pass a Homeowners Association (HOA) Audit 2022


The need to pass a homeowners association (HOA) audit should not confuse your board. This is a standard procedure to evaluate the financial state of your organization and determine whether its documents are compliant with Generally Accepted Accounting Procedures (GAAP) or other reporting frameworks. An HOA audit must be performed by an independent third-party CPA (Certified Public Accountant) licensed in your state. The following steps will help you prepare for an HOA audit and pass it without a hitch:


1Determine the objective of an audit. State regulations or the internal documents of your HOA may oblige you to conduct audits with a certain regularity. If this is not the case, consider the benefits that a comprehensive accounting examination can deliver you:

The highest degree of assurance and the ability to showcase your board's upscale performance to shareholders, investors, potential real estate buyers, tenants and other interested parties;

Audited financial statements will bring you a pool of useful financial information. A CPA will provide you with improvement recommendations and point out ways to curb fraud and a culture of negligence that lead to accounting mistakes and financial leakage;

Advice from a licensed CPA will make it easier for your board to shift to a new management type, undertake control from a developer, or compile a sound budgeting strategy for the next year, keeping in mind the mistakes and achievements of the past.

2Contact a CPA. Find an independent CPA or a public accounting firm that serves HOAs in your state. Schedule an initial consultation to discuss the objectives of the examination, the scope of work, reporting deadlines and price. Convey your concerns to the auditor and point out any vulnerable areas that you want analyzed with particular thoroughness.

3Prepare for an audit. Notify your board about the upcoming audit, as well as the necessity to collaborate and take part in interviews. Allocate a physical space within your board's office for the auditor's work. Extract important accounting papers from your archive and sort them by date, name, project or department.

In the process of the audit, the CPA may request your board minutes, covenants, bylaws, and other internal documents. They will also want to see the most recent audit report, copies of annual tax returns, current and next year's budget, receipts, invoices, signed contracts, drafts of improvement projects, and information on any legal cases your HOA was involved in, along with its primary and additional sources of income. Therefore, the proper bookkeeping throughout the entire fiscal year is critical.

Also, you may need to provide the CPA with contact data of your association's attorney and the bank where your operational and reserve accounts are kept. The auditor will reach out to third parties to check whether your estimates coincide with theirs.

4Collaborate. As a host party, you need to walk the auditor through the association's key accounting processes , make sure they receive all the requested documentation without delays, and point out existing issues so that the CPA does not have to spend time on problems about which you already know. During interviews, board members should answer the auditor's questions honestly and should not conceal any details through self-interest.

5Receive an audit report. Upon the completion of the planned auditing procedures, you will receive an official audit report from your CPA. They can issue any of the following types of opinion:

Unqualified opinion (or clear opinion), if your accounting papers are accurate, legitimate and compliant with GAAP.

Qualified opinion, if minor mistakes that are easy to fix were found.

Adverse opinion, if serious problems were detected that indicate fraud or negligence on the part of your board.

Also, a disclaimer of opinion can be issued if the CPA is unable to file an audit report.

6Pass a repeat audit if necessary. If you have received a qualified or adverse opinion, or a disclaimer of opinion, you can fix the issues revealed by the CPA and pass a repeat audit to improve your result and regain the trust of your shareholders and investors.