HOA audit requirements and when your board has to get one
An HOA audit is required by state statute, by the association's governing documents, by a board vote or, in some states, by owner petition. We tell boards and managers which rule applies to them, and we perform the audit.
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What Is an HOA Audit?
An HOA audit is an independent examination of a homeowners association's financial statements, accounting procedures and internal controls by a CPA. The auditor's opinion gives reasonable assurance that the financial statements are free from material misstatement.
Of the three engagement levels a CPA offers, the audit gives the highest assurance:
| Engagement | What it gives you |
|---|---|
| Audit | Examination with an opinion from a CPA. |
| Review | Limited scope, mainly analytical procedures and inquiry. |
| Compilation | Presentation of financials without assurance. |
Boards with growing budgets, staff turnover or owner scrutiny can commission an audit where none is required by law.
When Is an HOA Audit Required?
An HOA audit is triggered in one of four ways:
State Statutes
Governing Documents
An annual audit may be set by the bylaws or CC&Rs, the recorded covenants.Board Discretion
Boards can vote to commission an audit for transparency or internal control purposes.Owner Request
In some states, a majority of homeowners can petition for an audit.
We tell boards whether an audit is required and by which rule.
Four examples of state HOA audit requirements
- CaliforniaUnder Civil Code Section 5305 a review of the financial statements by a licensed CPA is required for any fiscal year in which gross income exceeds $75,000, unless stricter standards are set in the governing documents, and a copy is delivered to members within 120 days of year end.
- FloridaUnder section 720.303(7) an HOA with annual revenue of $500,000 or more, or 1,000 or more parcels, prepares audited financial statements. Members present at a properly called meeting may vote to substitute a lower level of report, but not in consecutive fiscal years; 20 percent of owners may petition to raise the level.
- TexasThere is no audit requirement in Property Code chapter 209, which governs subdivision associations; the governing documents are the only source of one. Condominium associations fall under chapter 82, which requires an annual independent audit at any size.
- ArizonaUnder A.R.S. 33-1810 the board provides for an annual audit, review or compilation, completed within 180 days of fiscal year end and made available to members within 30 days after that, unless an annual CPA audit is required by the governing documents.
The four states use four different triggers: gross income, revenue and parcel count, entity type, and none. We check the statute and the governing documents for your state before we scope the engagement.
Which audit rule applies to your association
Why HOA Audits Matter
Beyond a statutory requirement, an audit gives the board:
Improved Transparency
Homeowners gain confidence knowing that finances are independently verified.Fraud Prevention
The auditor reports red flags, which discourages misuse of funds.Stronger Governance
Internal control gaps identified, with recommendations.Dispute Resolution
An independent view of the numbers during board transitions or owner disputes.Funding Opportunities
Audited statements where a lender or insurer asks for them.
What an HOA Audit Includes
An HOA audit has five stages:
Engagement Letter
The scope, responsibilities and deliverables, agreed in writing.Planning and Risk Assessment
Auditors evaluate risks based on revenue sources, controls, and past issues.Fieldwork
Detailed testing of transactions, bank reconciliations, reserve accounts, and vendor payments.Internal Control Review
Gaps in financial processes identified, with recommendations.Audit Report
The CPA's opinion on whether the financial statements are presented fairly under GAAP, generally accepted accounting principles.
We scope the audit to the size of the association.
Documents Needed for an HOA Audit
The auditor asks for:
Having them ready before fieldwork shortens the audit.
- Balance Sheets and Income Statements
- General Ledger and Trial Balance
- Bank Statements and Reconciliations
- Reserve Fund Reports
- Budget and Variance Reports
- Vendor Contracts and Invoices
- Board Meeting Minutes
- Governing Documents (Bylaws, CC&Rs)
- Prior Year Audit Reports (if applicable)
Red flags in HOA finances
Five practices an auditor reports as red flags:
Lack of Segregation of Duties
One person controls too many financial functions.Unauthorized Transactions
Expenses not approved by the board or outside the budget.Missing Reserve Contributions
Failing to fund reserves as required by governing documents.Late or Incomplete Bank Reconciliations
More room for error or fraud.Unrecorded Assessments
Assessments not properly invoiced or reported as receivables.
We report them to the board with the correction for each.
Choosing the Right CPA Firm for Your HOA Audit
What to look for in a firm for an HOA audit:
- Experience with HOAs A firm that works with homeowner associations and their management companies.
- Knowledge of State Law Your CPA should be familiar with HOA statutes in your jurisdiction.
- Transparent Process Clear timelines, communication, and expectations from start to finish.
- A quote before work starts A fee agreed in writing before the engagement begins.
- Responsive Service Boards and management companies need fast, clear answers during an audit.
Dimov Audit audits community associations across all 50 states, and the quote is agreed before work starts.
How Often Should HOAs Be Audited?
Where the frequency is not fixed by statute or by the governing documents, the board sets it in its own policy. A regular cycle provides:
Regular Financial Health Checks
Transparency for Homeowners
Compliance with Lenders or Insurers
Preparation for Capital Projects or Assessments
What to Expect After the Audit
Once your HOA audit is complete, the board receives:
An Audit Report
Findings and Recommendations
Suggestions to improve financial procedures or correct issues.Supporting Schedules
Details on reserves, assessments, and expenditures.
Boards review the results at a meeting and, where appropriate, share a summary with homeowners. We present the findings to the board in plain terms.
Talk to us about your HOA audit
Whether the audit is required by statute, by your documents or by a board vote, we scope it to the association and agree the fee before work starts. Contact Dimov Audit to speak with a CPA who audits community associations.
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Reviewed by George Dimov, CPA. Dimov Audit works with community associations across all 50 states.