CMCA - Certified Manager of Community Associations Financial Reporting and Controls Questions and Answers Flashcards

A CPA's review of financial statements, compared with an audit, provides:

Answer: Limited assurance based mainly on inquiry and analytical procedures

A review gives limited assurance, while an audit gives reasonable assurance.

What is the purpose of an allowance for doubtful accounts on the balance sheet?

Answer: To reduce assessments receivable to the amount expected to be collected

The allowance adjusts receivables to their net realizable value.

Why do many associations use a lockbox for assessment payments?

Answer: It separates receipt of payments from onsite staff and speeds deposits

A lockbox processed by the bank limits internal handling of payments and strengthens control.

Which statement about reserve funds is generally correct?

Answer: They should be held separately and used only for their intended purpose

Reserve funds are designated for major repairs and replacements and should be separately held and tracked.

On a budget variance report, an unfavorable variance on an expense line means:

Answer: Actual expense exceeded the budgeted amount

Spending above budget is an unfavorable variance.

What is the general purpose of an association's variance explanation to the board?

Answer: To identify causes of significant differences so the board can take corrective action

Explaining significant variances helps the board decide whether to adjust spending or the budget.

If a homeowners association elects to file IRS Form 1120-H, its taxable income is generally taxed at what flat rate for a residential association?

Answer: 30%

Form 1120-H taxes non-exempt function income of a residential association at a flat 30% (32% for timeshare).