Overview
The annual audit is a key governance requirement for condominium corporations and an opportunity to demonstrate transparency, accountability, and confidence in your financial reporting. A smooth audit begins long before year-end, and much of its success depends on how well records are organized and communicated between management, the board, and the auditor.
Below is an overview of the recommended preparation process, along with best practices to help ensure the audit proceeds efficiently and reflects well on both management and the board.
1. Understand the Scope and Year-End Timeline
Before beginning the preparation process, confirm the corporation’s fiscal year-end date and the expected submission timeline from the appointed auditor. Clarify deadlines for providing financial records, format requirements, delivery method, and ensure that any entries from the prior year’s audit have been accurately entered and rolled forward into the current year.
2. Complete All Final Month-End Accounting Tasks
Ensure that all regular financial processes are completed and reconciled through the fiscal year-end month, including: posting invoices, reimbursements, and accruals; reconciling bank accounts; reconciling credit cards/petty cash; recording interest, penalties, and adjustments; and finalizing inter-fund transfers. Invoices can sometimes come in late and it’s important to ensure that they have been recorded appropriately. It’s also important to make sure any large projects are accounted for as auditors will generally want to know how far along the project is in its completion, or if it has finished or even begun at that stage, to ensure the accruals are accurate.
3. Verify the Accuracy of the General Ledger
Conduct a detailed review to ensure that transaction descriptions are accurate, expense accounts align with the budget, reserve expenses meet requirements, duplicates or mis-posted entries are corrected, and suspense or undeposited funds accounts are cleared.
4. Prepare Supporting Documentation
Ensure that every transaction within the year can be fully validated. Supporting documentation should include vendor invoices, proof of payment, bank statements, deposit slips, contracts, project documents, warranties, insurance papers, and legal correspondence. Using a consistent file naming format can help keep this information organized and easily accessible for the auditor.
5. Prepare Year-End Schedules and Reconciliations
Depending on the corporation’s size, this may include: prepaid expenses, deferred revenue, receivable and payable aging reports, reserve fund schedules, accrued liabilities, project holdbacks, investment summaries, and interest earned. Keeping on top of this information throughout the year is very helpful in ensuring the final preparation process goes smoothly.
6. Prepare the Auditor Package
Organize final documentation using a structured digital folder system and including the following documents:
i. Accounts payable and receivable aging reports. Make sure that the trial balance aligns with these reports.
ii. The approved budget and common element fee listing for the current year. Providing the full package that was distributed to Owners will help the auditor understand context behind any fluctuations in fees.
iii. Any ongoing contracts that span the fiscal year, as well as any new contracts that were entered into during the year.
iv. Monthly unaudited financial statements. Some auditors only require the statements for the year-end and the first month of the new fiscal year, but it’s important to ensure your records are prepared and ready to be reviewed if requested.
v. Statements for any and all bank accounts, alternate funds, investments or credit cards the corporation has for the full year.
vi. A complete general ledger for the fiscal year, as well as for the period after the year-end up to the audit commencement. This should generally be available in Excel format as it’s easier to navigate, make notes and for auditors to import into their own financial systems for review.
vii. The most recent Information Certificate prepared for the corporation.
viii. The most recent Status Certificate that has been prepared and released.
ix. The trial balance for the year-end, as well as for the period following year-end.
x. Current Reserve Fund Study and Notice of Future Funding.
xi. Insurance certificate and accompanying invoice or payment schedule for both the fiscal year in question and any subsequent renewals. If any appraisals have been done, the report and any updates should be provided as well.
xii. The current Board of Directors listing, including first and last names, and email addresses. The auditor will report to the Board of Directors directly and will also seek to discuss any potentials of fraud, legal activity or subsequent events with them.
xiii. All invoices that have been processed during the fiscal year, as well as invoices processed within the period following the year-end up to when the audit is prepared. It is beneficial to ensure that electronic copies of invoices are available, whether in a designated folder or through an electronic payment system. This helps to reduce time spent on locating invoices the auditor needs to review.
Ultimately, the more information you can provide in an organized and structured fashion, the easier it will be for everyone involved in the audit process. Transparency is essential for an effective audit process. Providing thorough and well-organized documentation ensures the audit can be completed efficiently and with minimal disruption for the board.
7. Communicate with the Auditor and Board
Ensure the board is informed of timelines, the auditor has a direct primary and backup contact, availability is confirmed, and all follow-up requests are documented and answered promptly.
8. Conduct a Post-Audit Review
Review management letters, discuss findings with the board, and implement improvements to streamline future audits.
A well-prepared audit package demonstrates professionalism and strengthens the relationship between management, the board, owners, and auditors. Clear documentation, consistency, and effective communication remain the key pillars of a successful audit.
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