Condominium Audits

By John A. Morris, Esq.

Under Hawaii Revised Statutes Section 514B-150, all condominium associations with 20 or more units must annually have an audit and an unannounced cash balance verification.  Condominium associations with fewer than 20 units may waive those requirements by a majority vote at a meeting.  Subject to certain exceptions, an association must make a copy of the audit available to all owners and must provide a copy to those owners who request one by marking their proxy.  Not only does the audit confirm the association’s financial condition, it also helps protect board members from subsequent complaints that they mishandled the funds of the association.  The auditor will usually provide some type of confirmation of the funds on hand at a particular point in time.

Normally, a copy of the audit must be provided to each owner that checks the appropriate box on the proxy form returned by the owner at least thirty days prior to the annual meeting which follows the end of the fiscal year. If the audit is not completed in time to provide the audit report to the owners, the unaudited year end financial statement for the fiscal year must be provided instead. If the association’s fiscal year ends less than two months before the annual meeting, the unaudited financial statement may cover the period from the beginning of the fiscal year to the end of the month preceding the date on which the notice of the annual meeting notice is mailed. Once the audit is completed, the audit report must be provided to the owners that have checked the appropriate box on the proxy form. This must be done within six months after the annual meeting.

Condominium audits and the unannounced cash balance verification are undertaken by the Certified Public Accountant (“CPA”) for the condominium association. CPAs undertake three types of evaluations of financial statements: compilations, reviews, and audits. The Association of International Certified Professional Accountants describes the difference between the three in a short article on its website. In a compilation, the CPA does not provide any assurances about the financial statements. In a review, the CPA provides limited assurance that the financial statements are free of material misstatement. In an audit, the CPA obtains high, but not absolute assurance about the financial statements. While it is important to know the difference among the three, unless the condominium association has fewer than 20 units, an audit is required for condominium associations.