Two keys to unlock the financial statement



Understand – and explain – the audited financial report can be one of the most daunting jobs faced by co-op and condominium board members. Of course, the board can count on the building manager, with the an accountant who performed the audit, to be present at the annual meeting to present to residents the balance sheet, cash flow breakdown and other documents that make up the statement. But the board will most likely still have to help with explanations.

It makes sense to spend time reviewing the statement before the meeting. Certainly, for any board member with no business or finance background, reading financial documents that can be tens of pages long can be a frustrating exercise at best. But even if they don’t understand all the math, boards can assess the statement by focusing on six areas that audit experts identify as top concerns. Here are the first two:

The listener’s opinion. The first page of the statement is an auditor’s note with a lot of boilerplate language on the role and responsibilities of the auditor. Look for the marked section “Opinion,” which is the auditor’s overall judgment as to the fairness and precision financial statements prepared by management.

Carl Cesarano, director of the accounting firm Cesarano & Kahn, said council members should read this notice carefully. Ideally, this should be an unqualified approval. If it is qualified in any way – for example, noting that the financial statements are not in accordance with generally accepted accounting principles – the board will want to read the details in the Remarks and possibly follow-up with management. In rare cases, the opinion will be unfavorable, signaling that the auditor suspects some sort of willful wrongdoing such as fraud, Cesarano says.

God is in the details, and the details are in these notes. “The thing I always say to blackboards is to read the notes”, says Michael A. Esposito, chartered accountant at the Kleiman & Weinshank division of WilkinGuttenplan, which gives seminars on how to read the financial statements of co-ops and condominiums. “Notes tell a story.

Operating results. The goal is always to ensure that your assets cover your Liabilities. It can be more complicated than what is immediately clear to the inexperienced eye. But one thing you should be looking at is your operating cash flow and Reserve fund balance sheet accounts. Financial statements generally show results for the past two years. “You have to compare from year to year what’s going on with these accounts,” Cesarano says. “If you find that operating cash is running out, the question should be, are we taking less money than we are spending on day-to-day operations? ” he says. ” And if so, why ? ”

You should also watch the Status of the results, which breaks down income and expenses and shows totals for the past two years. “It might not be that simple,” Esposito explains, “but basically you’re looking to see if your income is more than your expenses.”

If you are generating losses, a question should arise. “Does that mean you aren’t charging enough for maintenance?” ” he says. “Likewise, if you run a large surplus, you might be overcharging or keeping maintenance flat. ”

Soon, steps three and four: Reserves, and Security deposits.


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