Condominiums are generally run by a condominium owners association (COA), whose goal is to represent the interests of the residents and maintain the shared parts of the property such as the pools, conference rooms, etc. One of the most important tasks on their plate is the preparation of the year-end financial report.
Why Prepare Financial Reports For Your Condominium Community?
It’s critical for a condominium owner’s association to prepare year-end financial reports. These reports help the community make steadfast decisions that ultimately impact all of the condominium’s residents. Furthermore, the absence of these reports (or if the reports are unclear) can cause residents to feel that they can’t trust the COA’s board of directors.
What Does Florida Law Say About Condominium Financial Reports?
The start of the new year means that condominium owners’ associations must now prepare their year-end financial reports. According to Florida Statute 718, the financial reports a COA should produce should be based on its total revenue and the number of units it operates.
- An association with fewer than 50 units must prepare a report of Cash Receipts and Expenditures according to the Generally Accepted Accounting Principles (GAAP).
- An association with total revenues of less than $150,000 must prepare a report of Cash Receipts and Expenditures according to the GAAP.
- An association with total revenues of $150,000 or more (but less than $300,000) must prepare the Compiled Financial Statements or the “Compilation” according to the GAAP.
- An association with total revenues of $300,000 or over, but not more than $500,000, must prepare the Reviewed Financial Statements or the “Review” according to the GAAP
- An association with total revenues of $500,000 or more must prepare the Audited Financial Statements or the “Audit” according to the GAAP.
The year-end report (prepared by your COA or by a third party such as a condominium management company) of the condominium must be completed within 90 days of the end of the fiscal year (not the calendar year). Once it is completed, a copy of the report should be mailed or hand-delivered to every condominium unit owner for free. Do note that the law does not allow for the financial report to be distributed by email.
What Financial Reports Should You Prepare?
As stated in Florida law, your year-end reports must be based on your COA’s total yearly revenue.
#1. Compilation
A compilation is the most simple and informal report that your condominium community’s CPA can prepare. Compared to other reporting methods, a compilation does not come with any assurance. A third-party accountant will review the financial statements, however, they cannot provide their opinion.
#2. Review
A review or a financial review is a test performed by a CPA whose aim is to determine the plausibility of your report. Compared to the compilation, a review comes with some assurance. An auditor can only attest that your financial statements are from misstatements and that they’re in agreement with the GAAP.
#3. Audit
An audit is the most comprehensive reporting method a CPA can produce. In an audit, an auditor checks if the information in your financial report is accurate, and coincides with your COA’s current financial position. In some cases, an auditor may even interview your COA to assess whether or not your financial practices and processes are correct.
Now that you know what reporting method to use, let’s go over a few financial reports you should prepare every year:
#4. Balance Sheet
The balance sheet reflects the association’s financial status. There are three main components involved: the assets (e.g. cash and accounts receivable), the liabilities (e.g. accounts payable), and the COA’s net worth (assets – liabilities). As the name implies, this financial statement must be balanced – if there’s an imbalance, the bookkeeper or CPA must double-check the books to see what caused the inconsistency.
#5. Income Statement
The income statement (also called the “profit-loss statement” or the
statement of income and expense”) provides a detailed overview of the COA’s income when compared to its expenses. It shows whether or not the COA concluded the year with a profit. If it failed to end the year with a profit, the COA can use the report to spot inflated expenses. For example, if they see that they’re spending too much on office supplies, they can spend less on supplies the next year.
#6. Cash Flow Statement
Essentially, the cash flow statement allows COAs to see how money is “flowing” in and out of the association. While it may seem similar to the income statement, the cash flow statement considers only cash transactions.
#7. General Ledger
An important part of property management financials is maintaining a general ledger. The general ledger can be considered the “master record”, as it contains every transaction that has ever occurred in the COA. Because the transactions are sorted by date and number, it makes backtracking much easier.
#8. Account Delinquency Report
Condominium unit owners typically pay a monthly fee to the COA, however, not all of them are prompt payers. Some of them will forget to pay their fees, while others will refuse to do so. To keep track of who has and hasn’t paid, you must prepare this financial report. It simply shows how much money a person owes the COA, allowing you to easily collect and impose penalties later on.
How Can a Property Management Company Help Your Condo Community?
Property management companies may not be part of the COA, but they can aid a COA’s board of directors with administrative duties such as preparing the year-end report. This can be incredibly helpful, as not all COAs have volunteer members who are accountants or have the capacity to hire a CPA. A property management company can work for the COA and complete the financials on behalf of the board. Since they’re well-versed in Florida law, you can rest assured your COA will meet the financial requirements year after year.
If you own a condominium (whether as a sole investor or via fractional ownership) which has an association, it would be wise to partner with a property manager. By doing so, you can relieve your COA of its financial obligations, and in that way, allow your board of directors to concentrate on more important parts of condominium management. Furthermore, a property management company can offer other forms of assistance to your COA, such as providing a more convenient way to collect COA dues and enforcing the COA’s rules.
When you choose Luxury Property Care, you’ll receive the support you need to properly run your condominium community. For more information, call (561) 944 – 2992 or fill out our contact form today.
