Florida Community Association Manager Practice Exam

What type of financial report is required for associations with total annual revenue of $500,000 or more?

1. Compilation

2. Audit

3. Review

4. Cash Receipts

The correct answer is: Audit

Associations with total annual revenue of $500,000 or more are required to conduct an audit. This is because an audit provides a comprehensive examination of the financial statements and underlying records, ensuring a high level of assurance regarding the accuracy of financial reporting. Audits are conducted by external, independent auditors and follow strict guidelines that help reveal a true and fair view of the association's financial conditions. The requirement for an audit is designed to enhance transparency and accountability, especially in larger associations where financial statements may be used by various stakeholders, including members, potential buyers, and financial institutions. The rigorous nature of an audit is essential for instilling confidence among members that the financial management is sound. On the other hand, a compilation is a lower-level service with no assurance provided, while a review offers limited assurance but is still less comprehensive than an audit. Cash receipts reports specifically focus on incoming cash and don’t serve as a complete financial statement, which does not meet the needs of members and regulatory requirements for detailed financial oversight.