Many Association governing documents require an annual audit.  In order for an audit to be meaningful in the Community Association context it must be performed by an independent certified public accountant. The only way to fulfill the requirements is to hire a CPA who is not a member of the Board or even an owner in the community.  While your documents may specifically require an audit, you need to be aware that a CPA can do one of three levels of financial examinations to determine if the accounting work is being done properly: a compilation, a review or an audit depending on the requirements set forth in the governing documents. In a compilation, the accountant simply puts the association’s numbers in a proper financial format. The accounts are not examined for accuracy. A review determines if the financial statements require any material modifications. It consists of inquiries into the association’s bookkeeping practices.  The audit is the most detailed level of review and, if done properly, it will offer reasonable assurance that the records are free of misstatements. The auditor also looks for irregularities or illegal acts. It is significantly more expensive than the other two reviews.


The American Institute of Certified Public Accounts has standards for doing audits on community associations. By adhering to these standards, an auditor can express an opinion on the association’s financial health.

The board should take the issue of liability seriously. Many insurance policies for directors and officers ‑‑ not to mention state law ‑‑ exempt from protection “willful acts.” A board that doesn’t have an audit done, when the governing documents require that it do so might find itself without insurance or legal protection. As a result, the board members might have to pay for any losses or judgments against it. Consequently you may wish to require a lower level of review in your governing documents with the allowance for the board to request an audit periodically.

When choosing auditors, find out if they have done other association audits. You may wish to call other associations to obtain recommendations. An experienced auditor familiar with community associations is preferable and generally will save some cost.

A growing number of associations are trying to save money by not doing an audit at all or choosing one of the lesser forms of accounting reports. A board which chooses to do less than an audit should seek legal counsel to draft the proposed amendment to the governing documents to allow the board to do so. Such an amendment requires the consent of the number of owners set forth in the governing documents and recorded in the land records.

You may wish to have the CPA prepare and file your taxes.  Community associations are neither tax‑exempt nor non‑profit. Most associations are incorporated as a non‑stock corporation under the Virginia statutes. They must file a tax return annually.  Congress has allowed associations to file tax returns in two ways.  You should ask your accountant to calculate your taxes both ways each year and choose the filing method that minimizes the tax liability.

Please contact us if you have any questions about this information or any other association issues.