Financial Reporting and Controls Flashcards

Which document provides an independent third-party opinion on whether an HOA's financial statements are free of material misstatement?

Answer: Auditor's report

An auditor's report, issued by an independent CPA, provides an opinion on the fairness and accuracy of the financial statements.

What is the key difference between a compilation and a review engagement for HOA financial statements?

Answer: A review provides limited assurance; a compilation provides no assurance

A review provides limited (negative) assurance through analytical procedures, while a compilation simply presents management's numbers with no assurance.

An HOA treasurer discovers that the prior month's bank reconciliation was never completed. What is the immediate risk?

Answer: Errors or fraudulent transactions may go undetected

Bank reconciliations are a key detective control; skipping them allows errors, unauthorized transactions, or fraud to remain undetected.

In an HOA's statement of revenues and expenses, what does a net loss indicate?

Answer: Total expenses exceeded total revenues for the period

A net loss occurs when total expenses for the reporting period exceed total revenues generated during that same period.

What is the purpose of a fidelity bond (crime policy) for a community association?

Answer: To protect the association from financial loss due to employee dishonesty or theft

A fidelity bond protects the association if an employee or manager steals or misappropriates association funds.

Which reserve funding method maintains a target percent-funded level calculated against the fully funded benchmark?

Answer: Percent-funded method

The percent-funded method measures the ratio of actual reserve balance to the fully funded ideal balance and targets a specific percentage.

A manager receives an invoice for $8,500 that was not included in the approved budget. What should the manager do first?

Answer: Present the unbudgeted expenditure to the board for approval before payment

Unbudgeted expenditures above a board-established threshold require board authorization before payment to maintain proper financial controls.