The management of a homeowners association involves several parts, the most confusing of which is financial management. HOA boards with no experience in preparing financial statements and filing taxes often look to professionals for help. Here is why a CPA for an HOA is essential and how to find the right one.
In this article:
The Importance of a CPA for an HOA
CPA means Certified Public Accountant. In other words, someone who is qualified in the accounting field. But, it is not enough to know the CPA definition. As a member of your HOA board, you must know why CPAs are integral to the success of your association. Here are the ways a CPA can assist with your HOA accounting:
- Better Understanding of Taxes. CPAs are more equipped to handle taxation because they usually have years of experience and education under their belts.
- Knows Which Forms to File. Non-profit organizations like HOAs have two forms to choose from when filing taxes: Form 1120 and Form 1120-H. CPAs know which form to file for your association, as well as what information to fill in.
- Knows Exempt from Non-exempt Income. HOA tax returns can be confusing. Not all income is exempt from taxes, and knowing which income is exempt and non-exempt requires professional expertise.
- Saves Time. More than anything else, HOA boards will save plenty of time with the help of an accountant. Save time spent on redoing incorrect tax returns by hiring a CPA to do it right the first time.
What Are the Three HOA CPA Services?
There are three different services supplied by CPA for an HOA. The use of any or all three can vary depending upon the size of your association. The three types are listed below:
A compilation is the least involved form of service that a CPA provides. During a compilation, the CPA firm does not establish an opinion regarding financial accuracy. Instead, the firm supplies a compilation of financial statements and reports in order to concisely represent the management of the finances. This can be helpful for smaller communities with less complex expenditure.
A review is a step up from a compilation, and provides lower-level assurances as to the conformity of the year’s finances by speaking with the client and providing analysis of the information provided by the financial statement. The review provides limited assurance, but does not delve into accounting records.
An HOA audit is the highest form of assurance that a CPA for an HOA provides. It requires detailed and extensive work by the CPA firm. The aim is to provide evidence that the financial statements are accurate in every respect and that no misstatements exist. As such, the auditor spends time thoroughly understanding the association and tests the financial statements using the accounting documents.
Some states actually require HOAs to complete an annual audit. In this case, it is extremely important for your HOA to comply with this law on a yearly basis. A CPA will know all the HOA audit requirements without missing a beat. However, even if your state does not require an audit, many association bylaws still necessitate these services. In many cases, your bylaws will specify exactly which CPA service is required.
Determining Which Is Right for Your Association
As stated before, the first thing your board should do is to check local and state laws to determine if an audit is a necessity. Next, review the governing documents to see if any instructions are given on this subject. If there are no specific regulations, your board is free to decide which of the three is right. Many smaller associations feel comfortable with a yearly review. However, if your community has experienced recent changes, it is a good idea to have an audit performed.
Is It Better to Outsource HOA CPA Services?
An HOA board typically consists of volunteers from the community. More often than not, these volunteers have no experience with homeowners association accounting. They do not have the proper tools and knowledge to carry out complicated accounting tasks. As such, it is better for an HOA to outsource such services. Not only will you save time, but you can also rest easy knowing a qualified and skilled CPA is taking care of all your accounting needs.
How to Look for the Right HOA Accountant
So, you have decided to outsource your HOA accounting needs. But, the decision does not stop there. You will need to conduct a search for the best CPA that suits your association. How do you do that exactly? Follow the tips below:
1. Do Your Research
The right HOA CPA is not just going to fall into your lap. It requires a good amount of research to find the perfect firm. First, you will need a local accounting firm to partner with, so limit your search accordingly. Perhaps you know other people in the HOA business whom you can ask for recommendations. It is always a good idea to look at customer reviews, too. That way, you can get a sense of the firm’s reliability and results.
2. Ask Questions
Do not just pick a random CPA out of a list — the selection process requires much more finesse than that. Make sure to interview potential candidates before arriving at a decision. Ask them if they have the time to even accommodate you as a client. A lot of CPA firms have a large clientele, so they may not prioritize your HOA. Furthermore, it is a good idea to ask them if they have experience dealing with HOA accounting. Homeowners associations have different needs from businesses. Knowing this information from the get-go saves time and trouble for both parties.
3. Consider a Remote HOA Management Company
Some HOAs turn to full-service HOA management companies for help with this matter. But, not all HOAs need help with all aspects of HOA management. Sometimes, you just want someone to handle your HOA finances. If you want all your financial needs (including accounting) taken care of for a fraction of the cost, consider a remote HOA management company. These companies provide virtual assistance with all sorts of issues. Plus, their more affordable pricing makes them an ideal choice for communities with smaller budgets.
Find a CPA Your HOA
The importance of a CPA for an HOA is undeniable. It is clear that a homeowners association simply cannot function without the help of a professional accountant. In addition to filing HOA tax returns, CPAs have extensive knowledge on all things accounting-related. They can save you and your HOA a lot of time, to boot.
Most HOAs seek the help of a remote HOA management company for financial tasks. If you wish to do the same, give us a call or request a proposal today.
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