Submitted by Roger D. Perry, P.C., Certified Public Accountant
Why have and Audit or Review?
What do the Governing Documents
say?
What is
the difference?
Levels of Financial Reporting
Services:
Audit
Services -Provides the highest level of financial statement assurance. Audits
are engagements where a CPA provides an opinion about the fairness of a
financial statement that has been prepared according to generally accepted
accounting principles (GAAP). The general structure and document requirements
of an audit are governed by the American Institute of Certified Public
Accountants (AICPA) and the Auditing Standards Board and are subject to strict
peer review standards.
Review
Services -Provides only limited assurance about the financial statements.
Although a review is also governed by the AICPA and subject to peer review
standards, it
is substantially less in scope than an audit. It consists principally of
inquiries of entity personnel and analytical procedures applied to the
financial data. The limited assurance is in the form of negative assurance
whereby the CPA will report that he is unaware of any material modifications
needed in order for the financial statements to be in conformity with GAAP.
Compilation
Services -Provides no assurance about the financial statements. A compilation is an
engagement where the CPA presents, in the form of financial statements, information that is
supplied by the entity and performs few procedures outside file documentation. The accountant’s
report provides no assurance and clearly states that the financials are the
entity‘s
presentation.
Why Cash Basis of Accounting?
Cash Basis
vs. Accrual
Basis of Accounting:
Cash Basis
-Revenue is recognized when received (when fees are deposited into the bank) and expenses are
recorded when they are paid in cash. The most straightforward basis of
accounting to practice and to understand.
Accrual
Basis -Revenue is recognized when it is realized/earned/due without regard to when
payment is received and expenses are recognized when incurred, without regard as to when
payment is made. This method provides a better matching of revenues to expenses
but requires specialized accrual based accounting procedures (integrated
accounts receivable and accounts payable details).
Why Cash
Basis for Interim Financial Statements:
Financial
statements should be easy to read. They should set forth the financial
information in a clear, precise and informative manner. On an interim basis,
cash basis financial statements can be more timely generated and can be
understood by the majority of homeowners.