B.K. from Tolland County, Connecticut writes:
I read in our latest condo newsletter that our condo records were going to receive a certified audit. My husband used to serve on the Board and they conducted their own audits of the financial records. What is a certified audit and why do we need one?
Mister Condo replies:
B.K., Certified audits are quite different from self-audits performed by Board members like your husband. To give you a more thorough answer, I asked Sam Tomasetti, CPA of Tomasetti, Kulas & Company, P.C. to give us a proper answer. Here’s what Sam had to say:
Certified public accountants are licensed under state law to allow them to give their opinion about financial statements. There are three basic types of opinions that are allowed.
The highest level of assurance is the audit (sometimes we hear this referred to as a certified audit). The audit opinion of the certified public accountant states that the information provided by the association is presented fairly in the financial statements. It does not mean that the information is presented perfectly. The process of auditing is one based in balancing the cost of testing selected transactions and in not verifying each transaction. The end result is useful information at a reasonable cost.
The lowest level of assurance is the compilation. The compilation opinion is given as an observation that the information in a set of financial statements is in an acceptable format and nothing was noticed that would not be present in any typical residential condominium association.
In between the audit and the compilation concepts is the review level of assurance. A review is when the certified public accountant gives an opinion after analyzing the records in a way that is in more depth than a compilation but less detailed than an audit. For instance, the accountant may look for budget variances and attempt to explain them but may not need to go into the source documents in the way an audit might require.