CMCA Financial Reporting and Controls 2 — Questions and Answers
Question 1: Which financial statement shows the association's assets, liabilities, and equity at a specific point in time?
- Income statement
- Balance sheet (Correct answer)
- Cash flow statement
- Budget variance report
Correct answer: Balance sheet
The balance sheet (statement of financial position) presents assets, liabilities, and equity as of a specific date.
Question 2: What does a positive budget variance on an expense line item indicate?
- Actual expenses exceeded the budget
- The association spent less than budgeted (Correct answer)
- Revenue exceeded projections
- The reserve fund is overfunded
Correct answer: The association spent less than budgeted
A positive (favorable) expense variance means actual spending came in below the budgeted amount.
Question 3: An HOA's accounts receivable aging report shows a homeowner 120+ days past due. What is the most appropriate next step?
- Write off the balance immediately
- Refer the account to the association's attorney for collection (Correct answer)
- Waive the late fees as a goodwill gesture
- Remove the homeowner from the member roster
Correct 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.
Question 4: Which internal control best prevents a single employee from both approving invoices and issuing payment?
- Dual signature requirement
- Monthly bank reconciliation
- Segregation of duties (Correct answer)
- Bonding and fidelity insurance
Correct answer: Segregation of duties
Segregation of duties separates authorization, custody, and recordkeeping functions among different individuals to reduce fraud risk.
Question 5: What is the primary purpose of a reserve study for a community association?
- To set the annual operating budget
- To project future major repair and replacement costs and funding needs (Correct answer)
- To audit current financial statements
- To determine homeowner assessment delinquency rates
Correct 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.
Question 6: Under accrual-basis accounting, when is assessment revenue recognized by a community association?
- When the cash is received from homeowners
- When the board approves the budget
- When assessments become due per the governing documents (Correct answer)
- When the fiscal year ends
Correct 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.
Question 7: A community association maintains two separate bank accounts—one for operating funds and one for reserves. What principle does this practice reflect?
- Matching principle
- Fund accounting (Correct answer)
- Cash basis accounting
- Materiality principle
Correct answer: Fund accounting
Fund accounting segregates resources by purpose, keeping operating and reserve funds in separate accounts to ensure proper stewardship.
CMCA Financial Reporting and Controls 2
Which financial statement shows the association's assets, liabilities, and equity at a specific point in time?