California Civil Code §5305 under the new Davis-Stirling Act, effective January 1, 2014, requires that every association whose gross income exceeds $75,000 for the fiscal year receive a Review of Financial Statement. The review must be prepared annually in accordance with generally accepted accounting principles (GAAP) by a licensee of the California Board of Accountancy (CBA) independent of the association. The review must then be distributed to owners within 120 days of the end of the fiscal year, unless the association documents have a more stringent requirement. 

Required Documents

Along with the Financial Statement, which includes balance sheet and income statement to help identify the association’s assets and liabilities for the fiscal year, the association must submit the following documents to the licensee in charge of preparing the Financial Statement review:

Most Recent Accountant’s (or Auditor’s) Report

The association will be required to provide the most recent (previous year’s) prepared Financial Statement, along with the other documents listed here. 

Statement of Changes in Fund Balances

This report, usually included at the end of the Income Statement, shows the changes in fund balances arising from operating, investing and financing activities. The report outlines the balance of funds at the beginning of the period and the net income at the end of the period.

Cash Flow Statement

This financial statement outlines income and expenditures, broken down by operating, investing and financing activities. 

Notes to Financial Statements

In this document, the association should describe in greater detail the nature of both mandatory and optional financial disclosures included in the four basic financial statements: the balance sheet, income statement, changes in fund balance, and cash flow statement. Common notes include:

  1. Summary of significant accounting policies
  2. Assessments receivable
  3. Income taxes
  4. Future major repairs or replacements
  5. Related party transaction
  6. Commitments/contingencies

Supplemental Information

The American Institute of Certified Public Accountants in their audit and accounting Guide for Common Interest Realty Associations requires additional disclosures for future major repairs and replacements. This typically comes from the reserve study and is an additional financial disclosure required as a part of the financial statements in addition to the disclosures required by CA Civil Code with the annual budget information.