Does an HOA need an audit, and what's the difference between an audit, a review, and a compilation?
By OurHOA · General information · Revised
A compilation provides no assurance, a review provides limited assurance, and an audit provides reasonable assurance. Check the required service and read the accountant’s actual report.
Name the service before comparing proposals
A compilation assists with financial-statement presentation and provides no assurance. A review involves inquiry and analytical procedures and provides limited assurance. An audit involves additional risk assessment and verification procedures and provides reasonable, not absolute, assurance. The accountant’s report identifies the engagement and its conclusion; a spreadsheet prepared by the treasurer is not automatically any of these services.
Check independence and the required scope
AICPA guidance requires independence for reviews and audits. A compilation does not require independence, but a lack of independence must be disclosed. Ask a prospective accountant to identify the service, reporting framework, deliverables, and any independence issue. Compare like-for-like proposals rather than selecting an engagement because it is casually described as checking the books.
Find the rule that applies to your association
Review applicable law and the governing documents with the accountant. In California, section 5305 requires a review by a California Board of Accountancy licensee when annual gross income exceeds $75,000, unless the documents impose stricter standards. That example is not a national audit threshold. Ask whether another requirement, such as a financing agreement, calls for a different engagement.
Match a specific concern to the work requested
An audit does not guarantee the absence of fraud or certify every transaction. If you are concerned about a particular withdrawal, missing record, or conflict, describe it to the professional and ask what work would address it. Do not assume the ordinary annual engagement includes a targeted investigation. Preserve the relevant records without circulating accusations as established facts.
Prepare the records and review the result
Ask for a records checklist and delivery timetable. Gather the ledger, reconciliations, bank statements, contracts, assessment records, and relevant board decisions. Keep the final report with the statements and notes it covers. Ask the accountant to explain qualifications, missing information, proposed adjustments, or follow-up work. A completed engagement does not replace ongoing payment approval and bank reconciliation.
Sources
These guides are general education for HOA boards and residents, not legal, tax, or financial advice. Rules vary by state and by your community's governing documents - check with a professional for your situation.