Managing an association’s finances and budget are among the most important duties of an HOA/condo board. At some point, your association may want to seek a professional, independent evaluation from a Certified Public Accountant (CPA) or a reliable accounting firm.
According to the American Institute of Certified Public Accountants (AICPA), timely and accurate financial statements are the foundation upon which companies and organizations make important decisions.
There are several different types of reviews CPAs and accounting firms offer to businesses and organizations. Here, our Illinois condo & HOA law attorneys explain the difference between audits, reviews and compilations.
Understanding Accounting Statements and Accounting Practices Compilations
A compilation is the most basic type of professional accounting statement. It provides a broad overview of a business, organization, or association’s finances. Notably, a compilation report will generally include an explicit note stating whether a review or an audit was also conducted by an independent accounting professional. If so, the compilation essentially serves as a cover page and summary of the information. If not, the compilation likely will state that a CPA is not offering any assurances regarding the veracity of the information. Instead, a compilation is merely a summary of the financial information provided by the entity.
A review is a more intensive accounting statement than a compilation. With a review, an accountant or accounting firm will offer some limited assurance as to the veracity of the information being provided. Generally, CPAs will confirm no adverse material modifications have been made and that the information provided “makes sense.” To perform a review, a CPA must be independent from the business/association. If a review has been conducted, parties can generally be confident an organization’s financial statements meet basic accounting principles.
Finally, an audit is the most in-depth, detailed type of accounting assessment. It is significantly more comprehensive and intensive than a compilation or a review. With an audit, a CPA will issue a formal report, making reasonable assurances the information provided has been presented fairly and is accurate. For this reason, audits are the most trusted type of accounting statement. Once again, an audit can only be conducted by an independent accounting professional. To conduct an audit, an accounting professional must:
- Understand an organization’s internal structure;
- Assess the risk of fraud;
- Corroborate financial disclosures; and
- Identify any possible material misstatements.
In performing an audit, accounting professionals will typically inspect documents, exam financial records and obtain confirmations from third parties.
Call Our Chicago, IL HOA & Condo Law Attorneys for Immediate Assistance
At Keough & Moody, P.C., our Illinois community association lawyers provide comprehensive, reliable legal services to clients. If you have questions about review, audits, compilations, or any other financial matter – we are here to help.
To arrange a confidential, no commitment initial consultation, please contact us today. With office locations in Naperville, Chicago and Tinley Park, we represent HOAs and condo associations throughout the region, including in Cook County, DuPage County, Kendall County, Kane County, and Will County.