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

A compilation financial report differs from an audit primarily in that a compilation:

Answer: Involves the CPA presenting management-provided data without verifying its accuracy or providing any assurance

In a compilation, the CPA formats management's data into financial statements but does not verify the underlying records or provide any assurance on their accuracy. It is the lowest level of CPA engagement.

Which of the following is the best indicator that an association's operating budget is healthy?

Answer: Actual year-to-date expenses are tracking close to budgeted amounts with no major variances

Minimal variance between actual and budgeted expenses indicates that the budget was realistic and spending is under control, reflecting sound financial planning and management.

The statement of cash flows is useful to a community association board because it shows:

Answer: How cash was generated and used during the period including operating, investing, and financing activities

The cash flow statement reveals where money came from such as assessments and loans and how it was spent such as on operations, capital projects, and debt service, giving a complete picture of liquidity.

A manager notices that the same employee who processes vendor invoices also signs checks to pay those vendors. This is a problem because:

Answer: It eliminates the separation of duties control that would catch unauthorized or fraudulent payments

When one person controls both invoice processing and payment authorization, there is no independent check. This person could create fictitious invoices and pay them without detection.

Funds held in an association's reserve account should be:

Answer: Kept in a separate, clearly designated account to prevent accidental spending on operating expenses

Reserve funds must be kept in a separate account segregated from operating funds to prevent misuse and ensure the money is available for its intended capital replacement purposes.

An association's chart of accounts serves as:

Answer: The standardized numbering and classification system for all financial transactions

The chart of accounts is the master list of account categories used to classify every financial transaction, ensuring consistency in financial reporting.