Reviewing the Association's Financial Reports: What a Director Should Actually Look At

Jason Hamilton Mikes, JD, MBA
Founder & Managing Shareholder

• Published September 25, 2026
• Reviewed by Jason Hamilton Mikes, JD, MBA, September 26, 2026
• Florida Statutes as of July 1, 2026
• Applies to: Condominiums · HOAs · Cooperatives

Most directors are handed a packet of financial statements each month and a bound report once a year, and very few were trained to read either. The good news is that a director does not need to be an accountant. A director needs to know which report the association owes and when, how to read four documents against each other, and which patterns are worth a question. That is a learnable list, and it is below.

Which report your association owes

All three chapters set the level of financial reporting by the association's total annual revenues, and the dollar bands are the same. What differs is the deadline and some of the surrounding machinery.

Chapter 720 adds one rule the others do not have: an HOA with at least 1,000 parcels must prepare audited financial statements regardless of revenue. Work out which band your association is in using actual revenues for the fiscal year just ended, not the budget, and remember that special assessment collections and insurance proceeds can push an association into a higher band in the year they are received.

A compilation, a review and an audit are three different levels of work. In a compilation the accountant assembles the statements from the association's records and expresses no assurance. In a review the accountant performs analytical procedures and inquiries and expresses limited assurance. In an audit the accountant tests balances and transactions, confirms bank balances directly, and expresses an opinion. The board is buying a different product at each level, and the price difference reflects it.

The deadlines, which are not the same

This is the most common error in Southwest Florida board packets, and it comes from applying the condominium figure to every community a manager handles.

The 180-day condominium window was extended from 120 days by HB 913 in 2025. The HOA and cooperative deadlines were not changed, and they remain 120 days. A management company that moved all of its clients to a 180-day calendar has put its HOA and cooperative boards in default.

The waiver deserves care. In a condominium the association may prepare a lower-level report on a majority vote of all the voting interests, and may not do so for consecutive fiscal years. That is a real constraint: an association cannot simply vote every year to avoid an audit. The board should also ask whether saving a few thousand dollars on an audit is worth the loss of the only independent examination of the association's money.

Reading the balance sheet

The balance sheet is a snapshot on one date. A director should look at five things and can ignore the rest.

• Cash, split by fund. Operating cash and reserve cash should be shown separately. If they are combined into one line, ask why.
• Assessments receivable. The total owed by owners. Compare it to one month of assessments. A receivable equal to two months of billing is a problem that has not yet been named.
• Allowance for doubtful accounts. The portion of the receivable the association does not expect to collect. An association with a large receivable and no allowance is reporting an asset it does not have.
• Liabilities. Accounts payable, any loan balance, and prepaid assessments. Prepaid assessments are a liability, not income, because the association owes the service.
• Fund balances. Operating fund balance and reserve fund balance, stated separately.

Then do one piece of arithmetic. Divide the operating cash by the average monthly operating expense. That number is the association's runway in months. Boards that track it notice trouble a quarter before it arrives.

Reading the income statement and the budget variance

The income statement covers a period and should be presented against the budget, with a variance column and a year-to-date column. Read the variance column first.

Small variances in both directions are normal. What matters is the pattern. A line that is over budget every month is a budget error or a control failure, and either way it will not correct itself. A line that is dramatically under budget in the middle of the year is often deferred work, which means the expense is still coming. Insurance, utilities, and repairs and maintenance are the three lines that most often move enough to break a budget.

Ask what the association is doing about a material variance, not merely what caused it. A treasurer's report that explains variances but proposes nothing is a narration. Where the variance is structural rather than timing, the board is looking at a budget amendment, a transfer, or a special assessment, and the earlier that conversation starts the more options exist. Our guide to annual budget planning covers the forward-looking side of the same question.

Two presentation points. Insist on year-to-date columns as well as month columns, because a single month tells you very little. And insist that the reserve activity be shown separately rather than buried in operating lines.

The reserve schedule and restricted funds

The reserve schedule is the document that tells a director whether the association is solvent over the long run, and it is the one most often skipped. It should list each reserve component, the estimated remaining useful life, the estimated replacement cost or deferred maintenance expense, the current balance, the annual contribution, and the projected balance at the point of replacement.

A condominium budget must include reserve accounts for roof replacement, building painting and pavement resurfacing regardless of cost, and for any other item with a deferred maintenance expense or replacement cost exceeding $25,000 or the Division's inflation-adjusted amount, whichever is greater. The amount reserved is computed on a formula using estimated remaining useful life and estimated replacement cost. For buildings three stories or more, the Structural Integrity Reserve Study drives the list, covering roof, structure, fireproofing and fire protection, plumbing, electrical, waterproofing and exterior painting, and windows and exterior doors.

Reserve funds and the interest on them must remain in the reserve accounts and may be used only for authorized reserve expenditures. Using them for anything else requires approval in advance: a majority vote of all the total voting interests in a condominium, and a majority vote at a meeting at which a quorum is present in an HOA. A cooperative follows the condominium pattern, and for cooperatives with SIRS obligations the statute restricts voting to divert reserves for the listed components.

Commingling is a related but separate point. All funds collected by a condominium association must be maintained separately in the association's name, and reserve funds may be commingled with operating funds for investment purposes only. A board that finds reserve cash paying an operating bill should stop and call counsel the same week. Our chapter guides on reserve funding requirements and the Structural Integrity Reserve Study go through the funding rules in detail.

The delinquency report

The delinquency report is not required by statute in the form most associations use, but it is the single most useful management report a board receives. It should show each delinquent account by unit or parcel number, the balance, the age of the oldest unpaid charge, the last payment date, and the collection step the file has reached.

1. Compare the total to the assessments receivable line on the balance sheet. The two should agree. If they do not, someone is keeping two sets of numbers.
2. Look at the aging. A few accounts at 30 days is normal. Accounts at 180 days that have not been referred to counsel mean the collection policy is not being followed.
3. Check that the steps match the policy. Every account past the referral trigger should show a referral date.
4. Watch for accounts that keep making partial payments and never clear. Payments apply first to interest, then late fees, then costs and attorney fees, then the assessment, so an owner paying slightly less than the full amount each month will remain delinquent indefinitely.
5. Ask whether any delinquent unit is rented, which opens a separate remedy, and whether any account is in bankruptcy, which stops collection activity immediately.

Review it by number, not by name, in the open portion of the meeting. The board's job is the pattern and the policy, not the individual conversation, which belongs with counsel. The mechanics are in our guide to writing and following a collection policy.

The audit letter and the management letter

An audit produces two documents, and boards routinely read only the first.

The opinion letter states whether the financial statements present the association's financial position fairly in accordance with generally accepted accounting principles. An unmodified, or clean, opinion is the normal outcome. A qualified opinion, a disclaimer or a going-concern paragraph is a significant event and the board should meet with the accountant about it.

The management letter, sometimes issued as a communication of significant deficiencies and material weaknesses in internal control, is where the accountant says what is actually wrong: bank reconciliations not performed, one person handling both deposits and disbursements, reserve transfers not documented, supporting invoices missing, assessments receivable not reconciled. A material weakness means a misstatement could occur and not be caught.

Handle it properly. The board should receive the management letter, minute that it received it, assign each finding to someone with a date, and check the next year's letter to see whether the finding recurs. A repeated finding is a governance failure, not an accounting one. Keep both letters in the official records; the accounting records and reports are part of the association's official records and have their own retention requirements.

Red flags and the questions to ask each year

• Reserve cash that fell during a year with no reserve expenditure approved.
• Assessments receivable growing faster than the number of delinquent accounts, which usually means existing delinquencies are aging rather than new ones appearing.
• Bank reconciliations more than a month behind, or not performed by someone other than the person writing checks.
• A vendor paid without an invoice, or paid from the reserve account for operating work.
• The same amount appearing as a round-number entry every month in a miscellaneous or contingency line.
• An insurance proceeds deposit with no matching restricted account or project ledger.
• A budget that balances only because a reserve contribution was reduced, without the owner vote the reduction required.
• A management letter finding that has appeared two years running.

Then ask the accountant five questions at the annual meeting with the board. What level of report did you perform and what does it not cover. Did you confirm the bank balances directly. Are the reserve funds intact and reconciled to the reserve schedule. What is in the management letter and what would you fix first. And, if we were your own association, what would you want the board to change this year. That last question produces more useful information than the rest combined.

Directors are entitled to rely on reports and financial statements presented by an accountant the board reasonably believes to be competent, but reliance is not the same as inattention. A director who reads the packet, asks the question and records the answer in the minutes has done the job. Our guide to director fiduciary responsibilities covers the standard of care.

Contact Hamilton Mikes

Hamilton Mikes advises association boards in Lee, Collier and Charlotte Counties on financial reporting obligations, reserve restrictions and what to do when an audit or management letter raises a problem. Call 239-594-7227 or visit our Budgeting and Financial Reporting page.