3. The Roles in Accounting The Accountant’s Goals Transparency Informed Consent Ascertainable Standards of Care The Board’s Duties Care, Custody & Control of HOA Financial Assets Maintain, Protect and Enhance community values
4. What is accounting? Accounting is the art of communicating financial information about an association to homeowners, community managers, lenders and prospective buyers.
9. Balance Sheet & Income Statement Income Statement June 20XX Balance Sheet May 31, 20XX Balance Sheet June 30, 20XX = +
10. Income Statement Activity for a period of time Revenues – Income as it is earned Expenses – Costs as they are incurred
11. Balance Sheet vs. Income Statement Balance Sheet A snapshot of one point in time Assets = Liabilities + Net Assets Income Statement Reports activity between two points in time Revenues – Expenses = Excess/Shortage
12. Budget (Page 4) Short term (1 Year) estimate Includes a projected income statement Should include a reserve provision Most expenses are not discretionary
13. Budget Variance Report Short term (1 Year) estimate Budget variance reports help identify potential problems and track progress throughout the year
15. Reserve Study (Page S3) Long term (30 Year) estimate Components are repaired or replaced infrequently The repair or replacement is a significant cost
16. Reserve Study (Page S5) Long term (30 Year) estimate A tool to prevent avoidable special assessments Have a plan and discuss it with the owners
17. Budget vs. Reserve Study Budget Short Term (1 Year) An estimate of the next year’s revenues and expenses Ex. Assessment revenue, landscaping expense, utilities Reserve Study Long Term (30 Years) A study of major components that need to be repaired or replaced over the next 30 years Ex. Replace roofs, resurface asphalt streets, replace mailboxes
20. So how do you tell the difference? A positive net asset balance A reserve funding plan without cash shortfalls or special assessments Sufficient operating cash to meet current obligations Effective assessment collection practices =
21. So how do you tell the difference? A negative net asset balance No reserve funding plan Insufficient operating cash to meet current obligations Poorly managed accounts receivable =
22. What can you do? Review your financial statements regularly Know your reserve funding plan Review bank statements and reconciliations Manage delinquent accounts Ask Questions
All we can do in a half an hour is hit some highlights, but I hope this will be useful to you as an introduction and encourage you to explore this subject further.
Large financial packets including general ledger detail, accruals. Many of you are making decisions that affect millions of dollars worth of real estate on a volunteer salary of nothing.
Our goal is not to make it seem like smoke and mirrors. Rather it is to be transparent and paint a realistic picture about the financial status of the association. The board is responsible for the care custody and control of the HOA assets.
Not as precise and rule driven as most perceive. There are a lot of estimates and judgments that have to be made. What we are really doing is telling stories about the financial activity in an HOA.
So how does a someone without judge the financial health of an HOA when their expertise is in another profession and there are no rating systems. HOA’s Financial Condition
Your duty is to read and understand the following reports
Remember just because the books balance doesn’t mean they are right.
Accrual method of accounting now required. Involves estimates about certain revenues and expenses that make the profession more of an art. Of course the CA Legislators have tried to make it even more artistic by revering to modified accrual accounting a method that does not meet any ascertainable standard of care.
Now that we have a better understanding of the financial reports we can start making judgments about what is desirable or not.
Almost all fraud and defalcation loss occurred because the board members were not reviewing the financial records on a regular basis.
