Audits are generally the highest level of service rendered by an independent CPA in terms of the extent of work performed and the level of assurance given. They are performed in accordance with generally accepted auditing standards (GAAS). This service includes tests of the accounting records and such other auditing procedures as the CPA deems necessary. Because a detailed examination of all transactions is not performed, there is a risk that errors, irregularities and/or illegal acts, including fraud, may exist and not be detected. Under California law, community associations must, each year, have an audit or review if gross receipts exceed $75,000.
Reviews are generally the second highest level of service rendered by an independent CPA in preparing yearend financial statements. In a review, the financial statements are subjected to analytical review procedures and inquiry as a means of insuring compliance with generally accepted accounting principles (GAAP). Under California law, community associations must, each year, have an audit or review if gross receipts exceed $75,000.
Compilations are generally the lowest level of assurance rendered by a CPA associated with the financial statements. Compiled financial statements are appropriate for those situations in which conformity with GAAP is desired without the need for the greater assurance given in an audit or review. In addition, California requires corporations with gross receipts in excess of $10,000 to prepare and distribute to all owners the year-end financial statements of the corporation on an annual basis.
In this type of engagement, the association and the CPA agree on the accounts to be looked at and the procedures to be performed. The CPA’s report reflects such agreed upon scope of work in addition to his/her findings. This service may be appropriate, and more cost-effective, when a “full audit” is not necessary.
