Homeowners Associations (HOAs) play a crucial role in managing the operations, amenities, and financial affairs of residential communities. With fiduciary responsibilities to homeowners, maintaining financial transparency and accountability is essential. This is where HOA audits come into play. These independent examinations, typically conducted by Certified Public Accountants (CPAs), provide a detailed look into the financial health and compliance status of an HOA.
In this blog, we explore key elements of a HOA audit; this includes the types of audits, legal and regulatory requirements (with an emphasis on New Jersey HOA audit requirements), and common audit findings.
What is a HOA or a Commercial Owners Association (COA)?
A Homeowners’ Association or Commercial Owners Association (COA) is an organization that creates and enforces property and resident rules and guidelines for a subdivision, planned community, condominium, or commercial property. Typically, an HOA is composed of residents, whereas property owners of commercial buildings form a COA. These associations are responsible for maintaining shared amenities, collecting dues, and overseeing compliance with community bylaws.
What is an HOA Audit, and why does it matter?
An HOA audit is an independent evaluation of a homeowner’s association’s financial statements and records. Conducted by a CPA, the goal is to determine whether the financial statements are free of material misstatements and conform to Generally Accepted Accounting Principles (GAAP).
Unlike a financial review or compilation, an audit offers the highest level of assurance and involves substantive procedures like transaction testing, internal control evaluation, and third-party confirmations, providing a thorough analysis of the association’s financial integrity.
However, HOA audits expand beyond mere compliance, they are a cornerstone of sound financial management and community trust. By independently examining HOA’s financial records, audits provide stakeholders with a clear, unbiased view of the association’s fiscal health and practices.
Here’s why regular HOA financial audits are essential:
- Transparency: HOA Audits reassure homeowners that dues and assessments are being managed responsibly.
- Legal Compliance: Many states mandate audits based on revenue thresholds or the HOA’s governing documents.
- Risk Mitigation: Audits detect potential fraud, mismanagement, or budgetary issues.
- Informed Decision-Making: Boards rely on accurate financial data to plan maintenance, repairs, and community enhancements.
Types of HOA Audit Services
The financial reporting needs of HOAs depend on the size of the association, state laws, and what is outlined in their governing documents, HOAs can select from different levels of financial assurance. Each type offers a different depth of analysis and assurance, ranging from basic financial presentations to a thorough examination of records. The three primary types of HOA audit services include:
1. Full Audit
A comprehensive examination that includes transaction testing, internal control evaluation, and external confirmations. This level of scrutiny is essential for large HOAs or when required by law.
2. Review
A review includes analytical procedures and management inquiries. It provides limited assurance and is suitable for mid-sized associations.
3. Compilation
In a compilation, the CPA organizes the financial data into statement format without providing assurance. Ideal for small HOAs where full audits are not required.
Understanding Homeowners Association Audit Requirements
HOA Audit requirements vary by state and may also be defined in the HOA’s bylaws or CC&Rs (Covenants, Conditions & Restrictions). They operate under a unique set of financial and governance rules, which directly influence whether an audit is required. Here’s a closer look at the key requirements and how they apply, including a focus on New Jersey HOA audit requirements.
In New Jersey, HOAs are generally not mandated by state law to conduct annual audits. However, if the HOA is incorporated as a nonprofit, it must:
- Maintain accurate financial records
- Comply with nonprofit governance laws
- Conduct audits if required by its bylaws or at the request of members
HOAs in New Jersey should also consider regular audits as best practice, even when not legally required. Transparency and proactive financial oversight can prevent disputes and legal issues.
Requirements of Other States [at a glance]:
- California: HOAs with income exceeding $75,000 must prepare and review their financial statements.
- Florida: Audits are mandatory for associations with revenue exceeding $500,000.
- Texas: Audit is required upon request from the board or one-third owners.
- Illinois: Audit is required for HOAs with annual income above $250,000.
- Colorado: Biennial audits for HOAs with income over $250,000.
Get the Full Guide: HOA Audits for Board Members
Whether you’re new to HOA management or looking to sharpen your audit practices,
this whitepaper is for you.
Key Components of an HOA Financial Audit
A standard HOA audit typically includes the following procedures:
Audit Planning and Risk Assessment
Auditors begin by understanding the HOA’s financial structure, reviewing previous audits, and identifying risk areas such as capital expenditures and changes in leadership.
Financial Statement Review
Auditors examine:
- Balance Sheets: Assets, liabilities, and equity
- Income Statements: Revenues and expenses
- Cash Flow Statements: Operational liquidity
- Internal Controls Evaluation
This involves reviewing:
- Authorization processes
- Segregation of duties
- Access control mechanisms
- Transaction Testing
Sampled transactions are reviewed for accuracy, compliance, and documentation. Auditors confirm account balances with banks and vendors.
Reserve Fund Analysis
Auditors evaluate:
- Adequacy of contributions
- Reserve studies and projections
- Proper use of funds
- Legal and Budgetary Compliance
Auditors check adherence to:
- Approved budgets
- Spending thresholds
- State laws and governing documents
Role of the Auditor in HOA Governance
Auditors are independent advisors who:
- Maintain objectivity and transparency
- Report findings to the board
- Recommend best practices in financial management
Auditors communicate findings via:
- Engagement Letter (scope and timeline)
- Exit Meetings (to discuss findings)
- Final Audit Report (including financials and recommendations)
They may also attend member meetings to explain audit results and answer questions.
Annual Reporting Obligations for HOAs
Beyond audits, HOAs are responsible for several annual reporting duties, including:
- Annual Financial Reports: Including budgets and reserve disclosures
- Tax Filings: Federal Form 1120-H or 1120, and any state filings
- Secretary of State Reports: State filings to maintain nonprofit or corporate status
- Annual Meetings: Board elections and financial disclosures
- Insurance Reviews: Annual assessment of policy coverage
How AcoBloom Supports CPA Firms in HOA Audits
AcoBloom International serves as a co-sourcing partner for CPA firms, helping them clear HOA audits , and other audit support services efficiently and compliantly.
Our services include:
- Preparing pre-audit documentation
- Performing bank and reserve reconciliations
- Supporting tie-outs, variance analysis, and PBC lists
- Assisting in internal control assessments
- Delivering audit-ready workpapers
Why CPA Firms Choose AcoBloom:
- Expand capacity without added overhead
- Accelerate audit turnaround with offshore efficiency
- Ensure compliance with HOA-specific standards
- Cut costs without compromising quality
AcoBloom can serve as an extension of the CPA firm’s audit team, enabling firms to focus on strategic advisory services.
Conclusion
HOA audits have led to an increase in transparency and compliance. As state regulators tighten requirements from HOAs, community members, as a result, have become more financially savvy, while the audits themselves are shifting from being optional to essential.
By understanding Homeowners’ Association Audit requirements, maintaining GAAP-compliant records, and engaging professional auditors, HOAs build a culture of accountability and financial responsibility. With partners like AcoBloom International, CPA firms can enhance service delivery, expand their practice, and support HOAs in maintaining long-term financial health.
Whether you’re a board member, property manager, or CPA, staying informed and proactive about audit requirements ensures the
