Financial Reporting
The Board Synergy Club provides comprehensive guidelines on financial reporting for condominium associations, emphasizing compliance with Florida Statutes and effective financial management. Key aspects include:
- Annual Financial Reporting Requirements:
- Preparation Timeline: Associations must prepare a financial report within 90 days after the fiscal year's end or as specified in their bylaws. Within 21 days of completion, but no later than 120 days after the fiscal year's end, the association must distribute the report to unit owners or notify them of its availability upon written request.
- Report Type Based on Revenue:
- Less than $150,000: Report of cash receipts and expenditures.
- $150,000 to $300,000: Compiled financial statements.
- $300,000 to $500,000: Reviewed financial statements.
- Over $500,000: Audited financial statements.
- Components of Financial Statements:
- Balance Sheet: Shows balances of accounts such as Operating, Reserve, and Escrow.
- Profit and Loss Statement: Compares the annual budget to actual expenses month-to-date.
- Delinquency Report: Identifies unit owners behind on payments.
- Bank Statements: Details deposits and withdrawals for account reconciliation.
- Year-End Tax Considerations:
- Income Reporting: Associations must report any income earned during the year, such as laundry revenue.
- Independent Contractors: If the association employed independent contractors, it must issue 1099 forms to the IRS.
- Tax Status: While condominium associations are "not for profit," they are not tax-exempt and must comply with relevant tax obligations.
Adhering to these guidelines ensures legal compliance and promotes transparent financial practices within the association.
As the end of the year quickly approaches, your Association will need to put together a report of any income you may have earned during the year. The prominent source of extra income for the Associations will be the laundry money that is regularly collected.
For those Associations that deposit those funds into an account separate from your Valley National Operating account, you will need to tabulate your bank deposits for the year so it can be provided to your CPA to add to the filing. Although uncommon, Associations that own a unit directly will need to gather information on the rental income and expenses to include.
Remember that although Condominium Associations are “Not for profit”, they are not tax exempt. Also, if your Association has employed an independent contractor to work directly for the Association during the year, you will need to report their 1099 form to the IRS. For most of the Associations, this will not be necessary as the staff on site work directly for Management and not the Associations.
For more information, consider reading the following articles:
https://hoatax.com/florida-hoa-condo-tax-return-filing-requirements/
https://www.mcgrathnorth.com/tax-status-condo-association-and-hoas
What are Financials? - Seacrest Services Update 12/15/2023
Financials consist of several reports which our accounting dept provides to Boards.
Balance Sheet: The balance sheet is the report that shows the balances of the accounts that the Association has and reports to us. This typically includes Operating, Reserve, and Escrow.
Operating: This account is where the Association pays its normal, budgeted expenses. All monthly maintenance payments are deposited into this account, Reserve income is then transferred monthly.
Reserve: This account is where the Association collects money for future projects. The expense and time frame of these projects are tracked on the Reserve spreadsheet.
Escrow: This account is a non-interest baring account where the Association keeps Common Area Security Deposits for either both owners/renters or just renters provided the Documents give the Association the authority to require security deposits.
Special Assessment: Special Assessments are not co-mingled with operating or reserves. They should be held in their own accounts and payments made only for their stated purpose.
Profit and Loss (P and L): This report is a comparison of the annual budget to the actual expense of the Association month to date.
Delinquency: This report shows which unit owners are in arrears to the Association in the maintenance payments. When a Unit Owner is 90 days in arrears to the Association, they can pursue the debt through their attorney or through a debt collection company.
Bank Statements: This is the same report that you and I receive from our banks to show the deposits and withdrawals from the various accounts so the accounting dept can reconcile the accounts.
The annual financial report requirements for condominium associations are outlined in Section 718.111(13), Florida Statutes. The statute requires that within 90 days after the end of the fiscal year, or annually on a date if provided in the bylaws, the association shall prepare and complete, or contract for the preparation and completion of, a financial report for the preceding fiscal year. Further, the statute requires that within 21 days after the financial report is completed, and no later than 120 days from the end of the fiscal year, the association must mail or hand deliver to each unit owner a copy of the financial report or a notice that a copy of the financial report will be mailed or hand delivered to the unit owner, without charge, within 5 business days after receipt of a written request from the unit owner.
The type of report required that depends on the annual revenue of your condominium association. Pursuant to the statute, an association with total annual revenues of less than $150,000 shall prepare a report of cash receipts and expenditures. An association with total annual revenues between $150,000 and $300,000, shall prepare compiled financial statements. An association with total annual revenues between $300,000 and $500,000, shall prepare reviewed financial statements. An association with total annual revenues of $500,000 or more shall prepare audited financial statements. Pursuant to Rule 61B-22.006 of the Florida Administrative Code, reviewed financial reports and audited financial reports must be performed by an independent Certified Public Accountant. Reports of cash receipts and expenditures or compiled financial reports may be prepared by the association.
718.111(13)
(13) FINANCIAL REPORTING.-Within 90 days after the end of the fiscal year, or annually on a date provided in the bylaws, the association shall prepare and complete, or contract for the preparation and completion of, a financial report for the preceding fiscal year. Within 21 days after the final financial report is completed by the association or received from the third party, but not later than 120 days after the end of the fiscal year or other date as provided in the bylaws, the association shall mail to each unit owner at the address last furnished to the association by the unit owner, or hand deliver to each unit owner, a copy of the financial report or a notice that a copy of the financial report will be mailed or hand delivered to the unit owner, without charge, upon receipt of a written request from the unit owner. The division shall adopt rules setting forth uniform accounting principles and standards to be used by all associations and addressing the financial reporting requirements for multicondominium associations. The rules must include, but not be limited to, standards for presenting a summary of association reserves, including a good faith estimate disclosing the annual amount of reserve funds that would be necessary for the association to fully fund reserves for each reserve item based on the straight-line accounting method. This disclosure is not applicable to reserves funded via the pooling method. In adopting such rules, the division shall consider the number of members and annual revenues of an association. Financial reports shall be prepared as follows:
(a) An association that meets the criteria of this paragraph shall prepare a complete set of financial statements in accordance with generally accepted accounting principles. The financial statements must be based upon the association's total annual revenues, as follows:
1. An association with total annual revenues of $150,000 or more, but less than $300,000, shall prepare compiled financial statements.
2. An association with total annual revenues of at least $300,000, but less than $500,000, shall prepare reviewed financial statements.
3. An association with total annual revenues of $500,000 or more shall prepare audited financial statements.
(b)1. An association with total annual revenues of less than $150,000 shall prepare a report of cash receipts and expenditures.
2. An association that operates fewer than 50 units, regardless of the association's annual revenues, shall prepare a report of cash receipts and expenditures in lieu of financial statements required by paragraph (a).
3. A report of cash receipts and disbursements must disclose the amount of receipts by accounts and receipt classifications and the amount of expenses by accounts and expense classifications, including, but not limited to, the following, as applicable: costs for security, professional and management fees and expenses, taxes, costs for recreation facilities, expenses for refuse collection and utility services, expenses for lawn care, costs for building maintenance and repair, insurance costs, administration and salary expenses, and reserves accumulated and expended for capital expenditures, deferred maintenance, and any other category for which the association maintains reserves.
(c) An association may prepare, without a meeting of or approval by the unit owners:
1. Compiled, reviewed, or audited financial statements, if the association is required to prepare a report of cash receipts and expenditures;
2. Reviewed or audited financial statements, if the association is required to prepare compiled financial statements; or
3. Audited financial statements if the association is required to prepare reviewed financial statements.
(d) If approved by a majority of the voting interests present at a properly called meeting of the association, an association may prepare:
1. A report of cash receipts and expenditures in lieu of a compiled, reviewed, or audited financial statement;
2. A report of cash receipts and expenditures or a compiled financial statement in lieu of a reviewed or audited financial statement; or
3. A report of cash receipts and expenditures, a compiled financial statement, or a reviewed financial statement in lieu of an audited financial statement. Such meeting and approval must occur before the end of the fiscal year and is effective only for the fiscal year in which the vote is taken, except that the approval may also be effective for the following fiscal year. If the developer has not turned over control of the association, all unit owners, including the developer, may vote on issues related to the preparation of the association's financial reports, from the date of incorporation of the association through the end of the second fiscal year after the fiscal year in which the certificate of a surveyor and mapper is recorded pursuant to §718.104(4)(e) or an instrument that transfers title to a unit in the condominium which is not accompanied by a recorded assignment of developer rights in favor of the grantee of such unit is recorded, whichever occurs first. Thereafter, all unit owners except the developer may vote on such issues until control is turned over to the association by the developer. Any audit or review prepared under this section shall be paid for by the developer if done before turnover of control of the association. An association may not waive the financial reporting requirements of this section for more than 3 consecutive years.
61B-22.006 Financial Reporting Requirements.
(1) Basis of accounting. The financial statements required by Sections 718.111(13) and 718.301(4), F.S., shall be prepared on the accrual basis using fund accounting in accordance with generally accepted accounting principles. Reviewed financial statements shall be reviewed in accordance with standards for accounting and review services and audited financial statements shall be audited in accordance with generally accepted auditing standards. Reviews and audits of an association's financial statements shall be performed by an independent certified public accountant licensed by the Florida Board of Accountancy. As used in this rule the terms "generally accepted accounting principles," "standards for accounting and review services," and "generally accepted auditing standards" shall have the same meaning as set forth in Chapter 61H1-20, F.A.C.
(2) Components. The financial statements required by Sections 718.111(13) and 718.301(4), F.S., shall at a minimum include the following components:
(a) Accountant's or Auditor's Report;
(b) Balance Sheet;
(c) Statement of Revenues and Expenses;
(d) Statement of Changes in Fund Balances;
(e) Statement of Cash Flows; and
(f) Notes to financial statements.
(3) Disclosure requirements. The financial statements required by Sections 718.111(13) and 718.301(4), F.S., shall contain the following disclosures within the financial statements, notes, or supplementary information:
(a) The following reserve disclosures shall be made regardless of whether reserves have been waived for the fiscal period covered by the financial statements:
1. The beginning balance in each reserve account as of the beginning of the fiscal period covered by the financial statements;
2. The amount of assessments and other additions to each reserve account including authorized transfers from other reserve accounts;
3. The amount expended or removed from each reserve account, including authorized transfers to other reserve accounts;
4. The ending balance in each reserve account as of the end of the fiscal period covered by the financial statements;
5. The amount of annual funding required to fully fund each reserve account, or pool of accounts, over the remaining useful life of the applicable asset or group of assets;
6. The manner by which reserve items were estimated, the date the estimates were last made, the association's policies for allocating reserve fund interest, and whether reserves have been waived during the period covered by the financial statements; and
7. If the developer has established converter reserves pursuant to Section 718.618(1), F.S., each converter reserve account shall be identified and include the disclosures required by this rule.
(b) The method by which income and expenses were allocated to the unit owners;
(c) The specific purpose or purposes of any special assessments to unit owners pursuant to Section 718.116(10), F.S., and the amount of each special assessment and the disposition of the funds collected;
(d) The amount of revenues and expenses related to limited common elements shall be disclosed when the association maintains the limited common elements and the expense is apportioned to those unit owners entitled to the exclusive use of the limited common elements; and
(e) If a guarantee pursuant to Section 718.116(9), F.S., existed at any time during the fiscal year, the financial statements shall disclose the following:
1. The period of time covered by the guarantee;
2. The amount of common expenses incurred during the guarantee period;
3. The amount of assessments charged to the nondeveloper unit owners during the guarantee period;
4. The amount of non-assessment revenues earned by the association, with each non-assessment revenue generating activity disclosed separately, during the guarantee period;
5. The amount of expenses incurred in the production of non-assessment revenues, with each non-assessment revenue generating activity disclosed separately, during the guarantee period;
6. The amount of the developer's payments pursuant to the guarantee; and
7. Any financial obligation due to or from the developer resulting from the guarantee.
(4) Multicondominium associations.Multicondominium associations may present the financial statements required by Sections 718.111(13) and 718.301(4), F.S., on a combined basis as long as the financial statements, notes, or supplementary information disclose the revenues, expenses, and changes in fund balance for each condominium, and the association, as applicable. The financial statements, notes, or supplementary information shall also disclose the revenues and expenses of the association that are not directly associated with specified condominiums, and the method used to allocate such expenses to the condominiums or units, as applicable. Additionally, the reserve disclosures required by this rule shall be presented separately for each condominium and for any association reserves not specifically identified with individual condominiums. The provisions of this rule shall apply to multicondominium financial reporting for fiscal periods ending on or after December 31, 2002. Earlier application of the provisions of this rule is permitted.
(5) Developer assessments. All financial reporting required by Chapter 718, F.S., shall disclose the assessment revenues from the developer separately from that of the non-developer unit owners.
(6) Financial reports required by Section 718.111(13)(b), F.S.. The financial report required by Section 718.111(13)(b), F.S., shall meet the following requirements:
(a) The report shall be prepared using a cash basis method of accounting.
(b) The report shall include the reserve disclosures required by paragraph 61B-22.006(3)(a), F.A.C.
(c) The report shall include the special assessment disclosure required by paragraph 61B-22.006(3)(c), F.A.C.
(d) If the association maintains limited common elements and the expense is apportioned to those units entitled to the exclusive use of the limited common elements the report shall contain the limited common element disclosures required by paragraph 61B-22.006(3)(d), F.A.C.
(e) The financial reports of multicondominium associations shall separately disclose the following items:
1. The receipts and expenditures directly associated with specific condominiums; and
2. The receipts and expenditures of the association that are not directly associated with specific condominiums.
(7) The minutes of the association shall reflect the number of votes cast by the membership to waive the requirement for audited, reviewed, or compiled financial statements and the type of financial reporting that the association will be preparing and disseminating to the membership.