Financial Reporting and Controls Flashcards

Which financial statement shows the association's assets, liabilities, and equity at a specific point in time?

Answer: Balance sheet

The balance sheet (statement of financial position) presents assets, liabilities, and equity as of a specific date.

What does a positive budget variance on an expense line item indicate?

Answer: The association spent less than budgeted

A positive (favorable) expense variance means actual spending came in below the budgeted amount.

An HOA's accounts receivable aging report shows a homeowner 120+ days past due. What is the most appropriate next step?

Answer: Refer the account to the association's attorney for collection

Accounts delinquent beyond 120 days typically warrant escalation to legal counsel per the association's collection policy.

Which internal control best prevents a single employee from both approving invoices and issuing payment?

Answer: Segregation of duties

Segregation of duties separates authorization, custody, and recordkeeping functions among different individuals to reduce fraud risk.

What is the primary purpose of a reserve study for a community association?

Answer: To project future major repair and replacement costs and funding needs

A reserve study evaluates the condition and remaining useful life of common elements to project future costs and required funding levels.

Under accrual-basis accounting, when is assessment revenue recognized by a community association?

Answer: When assessments become due per the governing documents

Accrual accounting recognizes revenue when it is earned and due, not when cash is actually collected.

A community association maintains two separate bank accounts—one for operating funds and one for reserves. What principle does this practice reflect?

Answer: Fund accounting

Fund accounting segregates resources by purpose, keeping operating and reserve funds in separate accounts to ensure proper stewardship.