Most condominium corporations in Ontario have an audit completed annually and the resulting financial statements are provided to owners, typically, in the Notice of Annual General Meeting.
But what about those condos that have less than 25 units and have received unanimous, written consent to waive the audit – do they still have to provide financial statements to the owners?
The answer is YES.
It is a common misconception that financial statements are prepared by the auditor but really, in addition to managing the operations of the condo and the maintenance of the common elements, the Board of Directors are responsible for preparing financial statements. Often a professional management company is hired to assist with this function, among many other duties. It is the auditor’s responsibility to issue an opinion on the statements stating whether they are materially correct and accurately reflect the activity for the period.
Financial statements are meant to provide the user, primarily owners but also potential purchasers, lawyers, engineers, mortgagees, lending institutions, and banks, with information they can use to assess the stewardship of the board and the health of the corporation. It is vitally important that condominiums of all sizes provide their owners with this information.
Section 66 of the Condominium Act, 1998 (the Act) requires that financial statements be prepared, regardless of whether or not an audit is completed. These statements are to be approved by the board and provided to owners in the Notice of Annual General Meeting.
If a corporation meets the threshold to waive the audit requirement, they must still prepare financial statements in accordance with generally accepted accounting principles – this means statements prepared on the cash basis of accounting are not compliant with this regulation. They also need to ensure the statements include all the required information listed below:
- A balance sheet (more commonly called a statement of financial position)
- A statement of general operations
- A statement of changes in financial position (more commonly called a cash flow statement)
- Statement of reserve fund operations
- Prescribed information relating to the reserve fund study and the operation of the reserve fund
- Indication of remuneration paid to directors and officers
- Any additional statements or information that the regulations require (currently there are none)
Most accounting firms will offer an alternative to an audit called a Compilation or Notice to Reader. If a corporation chooses not to have an audit completed, they should investigate these alternate engagements, which will provide them with a set of unaudited financial statements that meet the regulations of the Act.
The bottom line is that complete financial statements must be prepared, approved, and provided to owners annually.
Manager at RLB LLP