Audit

An independent examination of the association's financial records and statements conducted by a certified public accountant (CPA). An audit provides the highest level of assurance that financial statements are presented fairly and in accordance with generally accepted accounting principles (GAAP). The CPA tests transactions, verifies account balances, confirms bank statements, reviews internal controls, and issues a formal opinion letter. In California, Civil Code Section 5305 requires every association with gross income of $75,000 or more to distribute a review of its financial statements to members, and permits associations to opt for a full audit instead. Associations with gross income below $75,000 may distribute a compilation rather than a review, provided the decision is approved by the board. An audit typically costs between $3,000 and $15,000 depending on the size and complexity of the association. There are three tiers of CPA engagement — compilation (lowest assurance, reorganizing management-provided data), review (limited assurance, including analytical procedures), and audit (highest assurance, including direct testing). Boards should consider a full audit when there are concerns about financial irregularities, during management transitions, or when required by lenders for FHA or Fannie Mae certification. The audit report, including any management letter with recommendations, should be presented to the full board and made available to members upon request. Regular independent audits are a cornerstone of fiduciary responsibility and financial transparency.