Understanding HOA financial statements plays a key role in successful community management. These reports show how much money the association has, where it goes, what owners owe, and whether the association stays on budget. Reading these reports helps the board spot potential problems before they worsen.
What are HOA Financial Statements?
Homeowners association financial statements are reports that summarize an association’s financial activity and position over a specific period. They help the board track dues, expenses, cash, liabilities, delinquencies, reserves, and other financial transactions.
Financial statements can range from standard accounting reports, such as a balance sheet and an HOA income statement, to management reports, such as a delinquency report and an accounts payable report.
What are the Different HOA Financial Reports?
Common HOA financial reports include the balance sheet, income and expense statement, cash flow statement, budget comparison, delinquency report, accounts payable aging, general ledger, and reserve fund statement. Let’s discuss each one below.
1. HOA Balance Sheet
An HOA balance sheet shows the association’s financial position at a specific point in time. It generally includes three categories:
- Assets. These include cash, investments, accounts receivable, and prepaid expenses.
- Liabilities. These show what the association owes, such as unpaid vendor bills, loans, and other obligations.
- Equity or Fund Balances. This is the difference between assets and liabilities.
The basic accounting equation is:
Assets = Liabilities + Equity
The board can use the balance sheet to see how much cash and other assets the association has and how much it owes. It should also look for significant changes from previous months.
2. HOA Income and Expense Statement
An HOA income and expense statement, sometimes called a profit and loss statement or statement of operations, shows the association’s revenues and expenses during a particular period.
Common income items include:
- Homeowner dues
- Late fees
- Interest income
- Rental income
- Other association income
Common expenses include:
- Landscaping
- Insurance
- Utilities
- Repairs and maintenance
- Management fees
- Legal and accounting services
- Administrative costs
3. HOA Cash Flow Statement
A cash flow statement shows how money moves into and out of the association during a specific period. It focuses on actual cash transactions.
The board can use this report to determine whether the association is generating enough cash to cover its obligations. It can also help explain why the association’s cash balance changed even when its income and expense statement does not show a similar change.
4. HOA Budget Comparison Report
A budget comparison report shows the association’s actual income and expenses and compares them against the budgeted amounts. It can indicate if the HOA is overspending or has inaccurate projections. Small variances are normal, but significant differences warrant a closer look.
5. Aged Delinquency Report
An aged delinquency report shows how much homeowners owe the association and how long those balances have been outstanding.
The report commonly separates unpaid balances into categories such as:
- Current
- 1 to 30 days past due
- 31 to 60 days past due
- 61 to 90 days past due
- More than 90 days past due
The board can use the report to monitor collections. Using this information, the HOA can identify accounts that may require additional collection action.
6. Accounts Payable Aging Report
An accounts payable aging report shows bills that the association owes to vendors and other parties. Like the aged delinquency report, it shows how long obligations have been outstanding and groups unpaid balances into similar categories.
The board can use this report to identify unpaid bills and determine whether invoices are being paid on time. Too many outstanding balances or significantly aged debts are a red flag.
7. General Ledger
The general ledger is a detailed record of the association’s financial activities. The ledger logs every transaction according to the chart of accounts. Because it serves as the basis for all reports, the board can refer to it when investigating a particular transaction.
8. Reserve Fund Statement
A reserve fund statement shows the financial activity of the association’s reserve funds. It can show the beginning balance, contributions, interest or investment income, withdrawals for capital projects, and ending balance.
The board should compare the reserve balance against the association’s reserve study and upcoming needs. Even if an HOA has a large reserve balance, it doesn’t mean it covers all needs.
Are the Financial Reports for Condos the Same?
In general, condo associations use the same types of financial reports as HOAs. Both need to track income, expenses, assets, liabilities, cash, dues, accounts payable, and reserves.
That said, the terminology and accounting structure can vary. It ultimately depends on the condo association’s governing documents and accounting practices. Moreover, condominiums typically have more complex finances because of their obligations.
Are HOA Finances Public Record?
Generally, HOA financial statements are not public record in the same way as government records.
In Virginia, owners have a right to inspect and copy these statements (Section 55.1-1945). That said, they must go through the board or management company to request them. They can’t go to the county recorder’s office to request copies.
Who Prepares the HOA Financial Statements?
The person or body responsible for preparing the financial statements depends on the governing documents and the association’s internal operations. Some communities assign the role to the board treasurer, while others rely on an HOA management company or Certified Public Accountant (CPA).
Should HOA Financial Statements Be Audited?
Whether an HOA is required to audit its financial statements depends on state laws and the governing documents. Virginia has no statutory requirement to conduct an audit.
That said, many associations still conduct audits as a general financial practice. An audit can help identify financial discrepancies, explain irregularities, and strengthen internal controls. Some governing documents require it when management or leadership changes.
Boards can feel more confident in their decisions when they base them on HOA-audited financial statements. Audited reports offer more accuracy. Of course, audits must be performed independently, not by the HOA board.
A Collective Unit
Understanding HOA financial statements can help board members monitor the association’s financial health and make informed decisions. Each report serves a different purpose, so review them together. Relying on a single report alone may not present an accurate picture.
National Realty Partners is a leading provider of HOA financial management services in Virginia, Maryland, and Washington, DC. We can help your board with rule enforcement. Call us today at 703-435-3800 or request a proposal online!
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