An audit is the highest level of review of an association’s financial books and records and is typically required to be performed annually by an association’s declaration. Here are three reasons why annual audits are important for your association.
- It’s a formal method of checking financial records and procedures.
As an elected board member, it’s part of your fiduciary duty to act in the best interest of the association – and this includes exercising reasonable business judgement when making financial decisions. An audit is designed to provide reasonable assurance that financial statements prepared by the treasurer, management company or bookkeeper are presented fairly, in the best interest of the association, and in conformity with the American Institute of Certified Public Accountants’ (AICPA) Generally Accepted Accounting Principles (GAAP).
- It identifies weaknesses in accounting procedures.
An audit will contain information regarding non-compliance with statutes, failure to utilize a cost-effective income strategy, and liabilities that could impact future finances. If applicable, it will also note an insufficient repair and replacement fund, disclose an area of exposure to possible losses, and analyze the cash flow of funds and any resulting shortages that could be offset by an investment program. In addition to identifying weaknesses in accounting procedures, an audit will also trace transactions to any supporting documents and authorizations, and review association minutes and legal documents.
- It corrects financial problems.
As a board member, it’s your responsibility to ensure that the financial interests of your association are safe and beneficial to the community. A yearly audit will indicate any issues concerning financial management, and an auditor will make suggestions for how to modify procedures and improve an association’s financial management operations. As always, when conducting a yearly audit, be sure that your association consults only qualified and capable financial advisors.
Does your association conduct annual audits? Why or why not? Share in the comments!