Ask the HOA Expert: Can a New Board Overrule a Previous Board's Decision? (Part 2 of 3)

Question: Please explain the difference between the three types of CPA services known as compilation, review and audit.

Answer: An audit involves examination of financial statements, on a test basis, evidence supporting amounts and disclosures in financial statements. It also includes assessing the accounting principles used as well as evaluating the overall financial statement presentation. In conducting an audit, CPAs are required to obtain reasonable assurance about whether the financial statements are free of material errors or irregularities. An audit offers assurance that the statements present a homeowner association=s financial position, results of operations and cash flows in conformity with Generally Accepted Accounting Principles (GAAP).

CPAs also offer two other types of services: review and compilation. In performing a review, the CPA applies analytical procedures to financial statements and makes certain inquiries of the bookkeeper. Review procedures are substantially less comprehensive than those performed in an audit. They allow CPAs to express limited assurance on conformity of the financial statements with generally accepted accounting principles.

In compilations, CPAs put financial information supplied by the clients into the form of financial statements, but do not express any assurance on the statements.