HOA Audit Services and Requirements

When Is an HOA Audit Required?

HOA audits may be required by your state, your CC&Rs (your association’s Covenants, Conditions and Restrictions, the set of rules used to govern your association), or your bylaws.

You may also receive a request for an audit from a lender or insurance company.

Following are a few common HOA audit triggers:

• State law - Many states require annual HOA audits if you meet a certain threshold based on your association’s annual revenue, number of units, or both.

  Examples: According to California Civil Code §5305, you have to make certain financial disclosures to members following the end of each fiscal year if your association meets California’s threshold requirements.

  HOAs in Florida are required to follow Statute §720, and Florida condos are subject to Florida Statute §718.

  The state of Washington has similar statutes for condos (RCW 64.34) and HOAs (RCW 64.38.)

  Note: State HOA laws are subject to change, so check with your state to confirm the CURRENT audit requirements for your HOA or condo association.

• Governing documents - Many CC&Rs and bylaws require an annual or biennial audit — whether your state requires it or not.
• Lender or insurer request - Mortgage lenders financing units in your HOA, or insurers underwriting master policies may also require audited financials.

HOA Audit vs. Review vs. Compilation — Don’t Overpay

HOA audits may not be required, even if someone requests one from your association. Many CPA audit firms don’t help you determine which type of audit service you actually need. They just bill you for the most expensive one.

In many cases, you may be able to submit a compilation or review, at a much lower cost.

When you contact our HOA auditors, we’ll first determine which type of audit service you need, verify your audit requirements, and then provide you with a free quote, so there are no surprises about the cost of your audit service.

This recommendation is based on:

• Who is requesting the HOA/condo audit
• The current HOA/condo requirements in your state
• The audit requirements of your condo or homeowners association

What Is an HOA Audit?

HOA audits are independent CPA examinations of your homeowners or condominium association's financial statements under Generally Accepted Auditing Standards (GAAS). It’s the highest level of assurance (or confidence in the accuracy of your financial records) you can get on a set of financials.

HOA audit requirements vary based on your state, but often include a review of the following:

• Balance sheet
• Assessment income
• Vendor disbursements
• Reserve fund accounting
• Operating fund accounting

HOA audits are different than IRS tax audits, which determine whether you filed your tax returns correctly and paid the full amount of taxes due.

They’re also different than internal management audits performed by your HOA board.

What Does an HOA Audit Cover?

HOA audits involve reviewing several types of financial records, including:

• Assessment receivables and delinquencies — HOA auditors verify what’s been billed, collected, and written off
• Reserve fund accounting — HOA auditors confirm reserves have been properly segregated and tracked
• Operating expenses — review of vendor payments, management fees, repairs and maintenance
• Bank reconciliations — HOA auditors confirm your cash matches what you’ve reported
• Internal controls over disbursements — review of your check signing authority, two-signature requirements, and board approval workflows
• Reserve study integration — HOA auditors confirm your reserve study aligns with your association’s financial statements

Are Your HOA Books Audit-Ready?

If your books are clean and current (meaning all accounts have been reconciled), your audit can proceed much more smoothly.

HOA books are often kept by volunteer treasurers, rotating board members, or a management company that may or may not specialize in association accounting. So you may need some help to get your association’s books ready for your audit.

Need a pre-audit readiness review to determine the state of your books? Set up a quick consultation call to get started.

Bookkeeping services cost less than CPA cleanup hours. We can help you clean up your books before our HOA auditors begin the audit if needed.

HOA Audit Cost: How We Price Your Audit

Once your HOA or condo association’s books are audit-ready, the cost then comes down to:

• The number of units in your HOA/condo association
• The complexity of your reserve accounting
• The condition of your association’s books (whether you need bookkeeping clean-up before we can begin fieldwork)
• Whether you need a simple compilation or a review or a complete financial statement audit

We provide a fixed-fee quote on our initial FREE scoping call, so you don’t have to worry about surprise billing.

One of the best ways to save money on your audit costs is by consolidating your reserve accounts into a single account. This simplifies reconciliation, can reduce the number of audit hours you need, and makes it harder for association funds to be misclassified between operating and reserves.

Why Work With Clarity Tax Group on Your HOA Audit

When you need an HOA audit, there are a few things you want to look for when choosing the best CPA audit firm for the job.

Watch Out for these Red Flags When Choosing an Audit Firm for your HOA:

• Lack of experience in your state, or with HOAs in general. Every state has different HOA audit requirements. If your auditor is not well versed in your state’s laws, they may need more time to get up to speed. That can potentially increase your audit cost and risk of errors.
• Our firm is PCAOB-registered and peer-reviewed every 18 months. That means another CPA firm checks our work on a regular basis and provides objective feedback so we can work as efficiently as possible.
• Poor responsiveness. HOA auditors shouldn’t take several business days to respond to you when you contact them. When we see this, it’s a HUGE red flag for us, and it should be for you, too. We provide same-day responsiveness year-round. We don’t close after tax season ends, so we’re available when you need us.
• Assigning junior staff for your audit. You should feel confident in the auditors you’re working with. If it seems like they don’t know what they’re doing, they may be new to the process. At Clarity, we don’t assign audits to junior staff. Senior auditors complete our compilations, reviews and financial statement audits.
• Not asking the right questions. You don’t want to work with an audit firm that just sells you the most expensive audit service without learning about your HOA first. When you contact Clarity Tax, we first find out who is requesting the audit and what your state law requires. Then we help you determine whether you could get a simple audit service like a compilation or review. We only recommend a financial statement audit if you need one.

Your HOA Audit Process: What to Expect

1. We schedule a FREE quick scoping call to learn more about your HOA or condo association and determine whether you need a compilation, review or financial statement audit
2. We send you an engagement letter with a FREE fixed-fee quote
3. We complete a pre-audit readiness review (books check)
4. We begin fieldwork, typically requesting documents that you send us via a secure network
5. We tell you about any findings on the audit and deliver the report for your HOA
6. We complete a post-audit debrief with your HOA/condo board, including recommendations for next year

HOA Audit Frequently Asked Questions

How often does an HOA need to be audited?

HOA audit requirements vary by state, with many states, including California, Washington and Florida requiring annual HOA audits if you meet an annual revenue threshold, have a certain number of units, or both.

Who is required to perform an HOA audit?

You may need a CPA audit firm to complete your HOA audit. Check the audit requirements for your state to be sure.

How long does an HOA audit take?

HOA financial statement audits typically take about 6-8 weeks. If you start with clean, current books and respond quickly to our requests for information, that time can be cut down to as little as 4 weeks. Compilations typically take 1-3 weeks, and reviews about 3-5 weeks. We’ll recommend the least expensive service that meets your needs.

If it takes a long time to provide the information we need, your HOA audit can take up to 3 months. If you need help cleaning up your books prior to your audit, our bookkeepers can help.

Do we need an audit if we're a small HOA?

HOA audit requirements vary by state, and are often triggered by revenue thresholds over a certain amount, a certain number of units, or both.

Contact your state to determine your HOA audit requirements (since they can change from year to year) or book a consultation call with us so we can help determine if your HOA meets your state’s threshold.