Q. I am on the board of a 95-unit condominium association. One of our members is a certifiedpublic auditor and he has suggested that he could do our annual audit at a price that would be considerably lower than other auditors in the area.
We are inclined to save the money, but are concerned as to whether this would create any problems. Can you advise?
A. The American Institute of Certified Public Accountants is the primary standards and rule-making body in the United States for the CPA profession. The group has developed codes of ethics that apply to all its members, and set the tone for the standards to be used by all CPAs.
Recently, the institute's professional ethics division issued several rulings and interpretations that have an impact on community association living.
One of these rulings, No. 31, states that "A CPA's independence is impaired if the CPA's firm, or any member of the firm, owns a unit in a condominium association, time-share development, or other common-interest real estate association."
This means that the CPA who owns a unit in a condominium would be ethically prohibited from performing either a review or an audit of the condo association.
The CPA audit is supposed to be truly independent. While I have no doubt that the CPA who lives in your complex will be honest, and can do a creditable job, the fact remains that there may always be a suspicion as to whether he wanted to cover up some items, or present a more favorable picture of the association's financial health.
According to the institute, the CPA must be independent not only in fact, but also in appearance. Thus, the CPA may not hold any direct or indirect financial interest in the association, nor indeed have a familial relationship with officers or directors of the association.
I have no problem with the CPA who lives in your building assisting the independent auditor. For example, the unit owner could review the manager's report, and be available to the independent CPA to answer any questions that may arise. However, to be truly independent, I know that the outside auditor will not rely exclusively on the information provided by the inside auditor.
Community associations have faced other questions dealing with independent audits, such as whether the CPA who has a client relationship with the management company can also audit the management company's association clients.
It probably makes sense for the community association to make sure that their independent CPA does not also audit the books of the management company. After all, the management company usually handles the books and records of the community association, and therein lies the potentia1814061935 Every community association must have an independent audit every year. Boards of directors have certain responsibilities and obligations to the members of the community. One of these obligations is to assure the association that funds are being properly managed. We often forget that many community associations are, in effect, big businesses.
A question often raised is whether all the owners should get a copy of the financial audit. The answer is yes. If the board is concerned about the cost of distributing the audit, you can be assured that it will cost you much more if a unit owner sues the board claiming mismanagement.
Benny L. Kass is a Washington attorney. For a free copy of the booklet "A Guide to Settlementon Your New Home," send a self-addressed, stamped envelope to Benny L. Kass, Suite 1100, 1050 17th St. NW, Washington, D.C. 20036. Readers may also send questions to him at that address.