The HOA financial statements are an essential part of responsible association management. Every homeowners association and condo board needs them to stay transparent and financially sound. These reports enable the board to monitor income, expenses, and the overall financial health.
Understanding HOA Financial Statements
Homeowners association financial statements are records that show how an HOA is managing its money. These statements help board members make informed decisions. They give homeowners a way to see how dues are being spent.
Condo association financial statements serve the same purpose. They track how funds are collected, where money is going, and whether the association is staying on budget.
Financial statements are important because they build trust. Homeowners want to know that their dues are being used correctly. Board members rely on these documents to guide financial planning.
Lenders and insurance companies may ask for them during loan applications or policy renewals. In short, HOA financial statements are essential tools for daily operations and long-term stability.
What are the HOA Financial Statements?
The HOA financial reports provide a comprehensive view of an association’s financial activities. While not all associations have the exact reporting requirements, most maintain a standard set of documents.
The typical HOA financial statements include the balance sheet, the income statement, the cash flow statement, the general ledger, the delinquency report, the cash disbursements ledger, and the accounts payable report.
Let’s break these down below.
1. HOA Balance Sheet
A homeowners association balance sheet shows what the HOA owns and what it owes. It includes assets like cash reserves, equipment, or property. It also lists liabilities such as unpaid bills or long-term loans. The balance sheet gives a snapshot of the financial position at a specific point in time.
The balance sheet follows this formula:
Assets = Liabilities + Equity
2. HOA Income Statements
The income statement is also known as the profit and loss statement. It tracks revenue collected through assessments and other fees. It also shows expenses related to maintenance, insurance, management, and other related costs. This statement helps the board understand whether the HOA is operating at a profit or a loss.
3. Cash Flow Statement
The cash flow statement is another critical part of HOA financial statements. It shows how cash moves in and out of the association. This helps the board track liquidity. It reflects whether the HOA can meet its financial obligations as they come due.
4. General Ledger
The general ledger is a detailed record of all financial transactions that have occurred. It includes entries for income, expenses, transfers, and corrections. This document supports the accuracy of other financial statements. It’s often used during audits and financial reviews.
5. Delinquency Report
This report is also part of the regular HOA financial statements. It lists homeowners who have not paid their dues. It includes the amount owed and the duration for which the amount has been outstanding. Delinquency reports help the board manage collections and forecast future cash flow.
6. Cash Disbursements Ledger
This ledger shows every payment made by the association. It covers checks written, electronic payments, and reimbursements. It helps the board track where money is going and ensures that spending aligns with the budget.
7. Accounts Payable Report
The accounts payable report lists all the bills the HOA still needs to pay. This includes invoices from vendors, contractors, and utilities. It helps the board manage liabilities and avoid late fees or service interruptions
How to Read HOA Financial Statements
Understanding HOA financial reporting takes some practice. Board members should begin by reviewing the balance sheet and income statement. These two documents show the big picture.
Are revenues higher than expenses? Are reserves being maintained? These are the critical questions that board members should be able to answer.
Next, associations should review the cash flow statement. This will reveal how well the HOA manages its income and spending patterns. The board can also use the general ledger to verify transactions and clarify any discrepancies. Delinquency and accounts payable reports provide insights into financial risks.
Board members who are unsure can work with an HOA management company or a Certified Public Accountant (CPA). These professionals can explain complex terms, identify potential red flags, and offer practical suggestions for improvement.
How to Request HOA Financial Statements
The HOA financial records are not just for board members. Homeowners may also request them, depending on the state’s laws and the association’s governing documents.
There are several ways to access financial statements, including through the HOA website, the county clerk’s records, and upon written request. Associations also usually provide these statements to new homeowners upon purchase.
Let’s break these down below.
1. HOA Website
Some associations publish financial records on their official website. Homeowners may need to log into a secure portal to access the documents. Commonly posted reports include budgets, balance sheets, and income statements.
2. County Clerk’s Records
In some cases, homeowners may find financial records in public filings. They can check with their county clerk or the recorder’s office. This typically applies to audited financial statements that were included in loan transactions or litigation.
3. Upon Written Request
Many state laws give homeowners the right to view or request HOA financial records. In Texas, Section 209.005 requires associations to provide homeowners access to the HOA’s financial books and records.
Homeowners can request to view the records in person or ask for copies. Associations may charge a fee for the copies, but they must have a production and copying policy that has been communicated to all owners.
To request records, homeowners can do so in writing and send it via certified mail. Associations have 10 business days to respond, with an extension of up to 15 days provided that the association gives proper written notice.
4. Upon Purchase of the Home
When a home is sold within an HOA or condo association, the seller or buyer may request financial documents as part of the disclosure documents. These typically include budgets, reserve studies, and financial statements for the past year. Buyers use these records to evaluate the financial health of the community before closing.
How Long Should HOAs Keep Financial Statements?
Homeowners association financial statements requirements can vary by state, but most recommend retaining records for several years. In Texas, Section 209.005 states that associations should keep financial records for at least 7 years. This includes financial statements, audits, and tax returns.
Associations should have a document retention policy in place. This policy outlines what records to retain, how long to retain them, and how to dispose of outdated records safely.
Maintaining these financial records can help the association in the event of a dispute. They also come in handy in the event of litigation.
A Helping Hand
Understanding HOA financial statements can be a challenge for associations, especially for self-managed boards. Hiring an HOA management company can greatly benefit communities.
Preferred Association Management Company offers exceptional HOA financial services to communities in Central Texas. Call us today at 512-918-8100 or contact us online to learn more!
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