1. AUDITS- 20 Questions! AKA Stump the Auditor!
Cagianut & Company, CPAs//Catherine Kuhn, CPA

2. Let’s Play 20 Questions
20 most commonly asked questions about the audit and tax process
20 minutes – 1 minute per question – FLYOVER!
10 minutes - YOUR questions~
I will be available afterward~
Hoacpa.com “FAQs”

3. #1 – WHAT is an Audit? Independence (CPA)
MATERIALLY correct financial statements (We don’t look at EVERYTHING)
GAAP - Generally Accepted Accounting Principles – “In accordance with”
Adequate Disclosures in the Footnotes (Readers are current and FUTURE members)

4. #2 – WHY have an Audit?
State Requirement (in some cases) - See next slide
BOD Duty – Accountable to Membership, Oversight
Run it like a business – Internal Controls, Accounting practices
Error and Fraud prevention/awareness
Materially correct financial statements and impact on owners/potential owners

5. # 3 When is an Audit REQUIRED?
New Act (1990) Condo – WA RCW or more units (Under 50 waiver/60%)
Old Act (pre-1990) Condo - Defaults to New Act, EXCEPT, Governing Docs over-ride if an audit is required
HOAs – ASSESSMENTS $50K Over or under $50K can be waived/67%
Developer Transition “transfer of control” – (waived 2/3 other than Declarant units)

6. # 4 -When is an Audit RECOMMENDED?
Large Settlement (Defect, Insurance, or otherwise)
Large Reserve Fund projects
Mgmt Company Change
Suspected Fraud (FORENSIC, NOT GAAP Audit)
Board politics, changes
Little or no Internal Controls

7. # 5 – WHAT does an Auditor DO?
“Walk through the Balance Sheet”
Cash- Accuracy of Bank Recs -
ALL ACCOUNTS including CDs-
Assessments Receivable/Assmt Income-
AR Aging, Bad Debts
Assmt Income – Compare to Bgt
Special Assmt Income/testing

8. #6 What does an Auditor DO?
Prepaid Insurance – Verify & test Expense
Accounts Payable- Are accruals complete?
Federal Tax Payable – Calculate Liability

9. #7 What does an Auditor DO?
Reserves – Largest risk area:
Allocation – Compare to Bgt and RS
Trace the cash in and out for the year
Compare BOD minutes to reserve expenses
Compare reserve expenses to RS
Examine reserve expense invoices
Check exp coding between res/ops/SA
Adjust Due to/Due From Res if necessary

10. #8 What does an Auditor DO?
Income:
Compare to prior year and budget
Test unusual items e.g. Insurance settlement
Completeness: Is it all there?
Expenses:
12 months?
Examine selected invoices
NOT “value auditing”

11. #9 What does an Auditor Do?
Yes, more….. OTHER ITEMS:
Read governing docs (financial impact)
Evaluate Internal Controls (for the audit)
Read BOD Minutes including Exec
Learn the “story” of the Assn
Approval of financial transactions
Information for Footnotes (e.g. Litigation)

12. #10 Why does Auditor look at the months AFTER Year End?
Responsible for events up to DATE of the Audit Report (e.g. 05/31/18 for 12/31/17 year end)
Called “Subsequent Events”
Similar to what may be disclosed in re-sale certificate- these items are in the Footnotes
Litigation, loans, SAs, Settlements, Uninsured damage/claims

13. #11 What does an Auditor look at for Subsequent Events?
Minutes up to report date
Financial statements
General Ledger
Representations from Mgmt/BOD

14. #12- What does Auditor’s Report SAY?
“Opinion” - Only thing we “own”
Rest are the Financial Statements- Assn’s
“Clean Opinion”
Materially Correct Financial Statements
In accordance with GAAP
Adequate Footnote Disclosures
“Qualified Opinion” – Clearly Stated –
Lack of evidence to support balance(s)

15. #13 Is the Reserve Study a Required Disclosure?
YES
“Required Supplementary Information”
If NOT:
Statement in the Auditor’s Report that the information has been OMITTED

16. #14 Do we AUDIT the RS information?
NO!
We are not reserve professionals
We DO compare components and assumptions for material changes from year to year and disclose if necessary

17. #15 What else is disclosed from a Reserve Study?
% Funded
Components
Estimated Lives
Replacement cost (current or future)
Minimum required annual allocation if materially higher than budget
Recommended large Special Assessments

18. #16 Why does the BOD sign a “Letter of Representation”?
Financial Statements are the responsibility of “Management”
“Management” is those “charged with governance” (BOD and Mgmt Co)
Current BOD asked to sign “to the best of their knowledge”
Dated the same as the Auditor’s Report
Signifies the BOD is ready to Issue the Report “Final”

19. #17 What are SOME Financial Matters that should be documented in the Minutes?
Opening/Closing Bank Accounts
Major Contracts- Approval
Reserve Expense approval (amt/desc)
Collections/AR write offs
Financial Statement review- Budget/Actual
Approval of Budget, Assessments, SA, Large Projects

20. #18 Do Auditors LOOK for Fraud?
Not specifically
Need to evaluate risk, modify procedures as appropriate
If find fraud, notify next level up of Mgmt
This is a financial statement (GAAP/GAAS) audit, not a “forensic audit”

21. #19 How do we PREVENT fraud?
Corporate culture – Ethical, policies
Tone at the Top
Segregate duties
Bank reconciliations different from issuing checks
Bank deposit separate from AR posting
Rotate duties, random checks

22. #20 Do HOAs file tax returns and pay taxes?
YES!
What else do I need to know about taxes?
That’s a whole different class!
See FAQs hoacpa.com

23. AUDITS- 20 Questions! Also known as: Stump the Auditor!
Presented by: Cagianut & Company, CPAs//Catherine Kuhn, CPA