1. COMMUNITY ASSOCIATION AUDIT PROCESS DeLeon & Stang, CPAs and Advisors Allen P. DeLeon, CPA Janet Gorden, CPA allen@deleonandstang.com LUNCH-N-LEARN

2. Speaker biography – Allen P. DeLeon, CPA  Partner with DeLeon & Stang, CPAs and Advisors  Over 25 years community association auditing experience  Member of the Community Association Institute (CAI)  Chair of the Maryland Association of CPAs

3. Speaker biography – Janet Gorden, CPA  Senior auditor with DeLeon & Stang  Over five years community association auditing experience  Member of the Community Association Institute (CAI)

4. Agenda  Introduction  Overview of community association audit process  Engagement and audit planning  Audit fieldwork  Concluding the audit  Audit reports  Board approval and other issues

5. WHAT DO YOU THINK AN AUDIT IS?  List your ideas.

6. OVERVIEW OF COMMUNITY ASSOCIATION AUDITS  Why are audits necessary?  Most by-laws require annual audits  Protects the Board of Directors  Provides confidence on the financial statements  Available to new members through re- sale package

7. ENGAGEMENT AND PLANNING  Engagement letter  Client prepared materials list  Risk assessment and evaluation of internal controls  What is audit materiality and how is used during the audit?  Auditor Independence  First year audit issues

8. AUDIT FIELDWORK  Gathering audit evidence.  Testing account balances  Analytical review  Gather footnote information and support  Receivable, bank and investment confirmations  Record audit adjustments and document any waived adjustments

9. CONCLUDING THE AUDIT  Preparation of the financial statements  Balance sheet  Income statement  Statement of Members’ equity  Cash flow statement  Draft footnote disclosures

10. CONCLUDING THE AUDIT (continued)  Supplementary statements  Replacement reserve fund  Reserve study  Budget to actual reports  Commitments and contingencies  Related party transactions  Subsequent events

11. AUDIT REPORTS  Auditors’ Opinion & Financial statements  SAS No. 115 letter with management comments  SAS No. 114 – communication from the auditor  Representation letter

12. AUDIT REPORTS (continued)  Different types of audit opinions  Unqualified  Exception  Disclaimer

13. ADVICE TO BOARDS  Review the draft audit report and ask questions  Pay attention to the SAS No. 115 letter for significant control deficiencies or material weaknesses  Review audit adjustments and make sure they are recorded by management company  Sign representation letter within 60 days

14. RECENT AUDIT TRENDS  Allowance for bad debts and delinquent assessments receivable  Going concern  Borrowing from replacement reserve fund  Out of date replacement reserve studies  Inadequate budgeting – resulting in operating fund losses

15. RECENT AUDIT TRENDS (continued)  Books kept on cash basis  Filing incorrect tax returns – 1120 vs. 1120H  Not recording prior year audit adjustments  Lack of fidelity insurance  Not recording all year end accruals  Not recording insurance claims

16. FUTURE ACCOUNTING AND AUDITING STANDARDS  Clarity project  Going concern  Private company accounting standards  OCBOA accounting standards  Review or compliation  IFRS – merging US and International accounting standards

17. QUESTIONS