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Your Financial Statements – The First Thing You Should Read

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As the reader of your condominium’s financial statements, you want to rely upon the statements to assess the health of the corporation and the stewardship of the board of directors. Before you rely on them, you should read the auditor’s opinion to find out if the auditor concluded that the statements are credible. 

As a unit owner, the most important part of the Independent Auditor’s Report is the Opinion, as stated in the first section of the report. Thumbs Up And DownThe auditor’s opinion is the conclusion reached by the auditor after examining the condominium’s records provided by the condo’s management. The audit is completed using the records: testing, examining and proofing many of the numbers and checking to see if the numbers and methodology used comply with Canadian Accounting Standards for Not-for-Profit Organizations and the policies disclosed in the Notes section of the statements.

Auditing standards allow us to select one of four opinions:

Standard audit opinion (Unqualified opinion)

Qualified audit opinion

Disclaimer of opinion

Adverse opinion

What do each of these opinions really mean? 

Standard audit opinion (Unqualified opinion)– This is the most common opinion and the one a unit owner wants their financial statements to reflect. The report page displays this opinion by stating that the statements present fairly the financial position of the corporation at year end and the results of its operations and cash flows for the year in accordance with Canadian Accounting Standards for Not-for-Profit Organizations. We generally refer to this as a “clean opinion”. What does this mean? With this clean opinion, you, as the reader of the statements, can rely on the statements. 

Qualified audit opinion – This second most common opinion will tell you that you got a “clean opinion” except for one item that cannot be verified. The next section labeled “Basis for Qualified Opinion” will provide the explanation for the lack of a “clean opinion”. An example would be the collection of cash. Cash does not leave a trail and cannot be audited. Usually cash collection is minor so overall the auditor can conclude the statements are clean, except for the impact of cash. 

Another example would be when a condominium has not been audited before, their records may include an unsupported item, such as accounts receivable. We cannot find any documentation to support the amount, but the board is certain that it exists and will be collected. In this case we are likely to qualify our opinion based on not finding audit evidence to support the accounts receivable. Except for the possible impact of this amount if it is incorrect, we find the rest of the statements to be fairly stated.

Disclaimer of opinion – This option is chosen when the auditor is unable to find sufficient audit evidence for financial transactions or a closing financial position and the amount is both material and pervasive. In our practice we have had to choose this option a handful of times, and it is not chosen lightly. In the section “Basis for Disclaimer of Opinion” it will outline the specific reasons for this opinion. Generally, this opinion reflects a lack of cooperation from management or other service providers.

Adverse opinion – This is an extremely rare opinion where the auditor finds sufficient audit evidence to conclude that there are misstatements that are both material and pervasive. This is a case where the reader should not place any reliance on the statements. 

The auditor’s opinion sets the prism through which you read the statements. When you read your financial statements, start with the Independent Auditor’s Report to understand the full picture. 

 

Gwen Story 2018

 

Gwen Story, B.Com(Hons), CPA, CGA 
Senior Manager at RLB LLP 

 

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