Audit Preparation
Preparing for an HOA financial review in California
California requires a review, not an audit, above $75,000 gross income, distributed to members within 120 days.
What the statute requires
California Civil Code §5305
Unless the governing documents impose more stringent standards, a review of the association's financial statement, prepared in accordance with generally accepted accounting principles, is required for any fiscal year in which the association's gross income exceeds $75,000. The statute requires that review to be performed by an outside accountant who is qualified under California law to perform it.
The review must be distributed to the members within 120 days after the close of the fiscal year, by individual delivery under §4040.
Two details worth being precise about
It is a review, not an audit. Those are different engagements under different standards at materially different prices. An association that commissions an audit when the statute requires a review has bought considerably more than the law asks for.
The trigger is gross income, not assessments, not budget, not reserves. $75,000 of gross income is a very low bar, it catches effectively any association above a couple of dozen doors.
Wago Pop does not perform the §5305 review. We prepare the association for it: reconciled operating and reserve accounts, assessment and delinquency schedules, the year-end financial statements for the reviewer to work from, and answers to the reviewer's questions.
Check the CC&Rs before assuming a review is enough
The statute says *unless the governing documents impose more stringent standards*. Many CC&Rs require a full audit, sometimes annually, sometimes at intervals or above a size threshold of their own.
The governing documents override the statutory floor. Read them before commissioning anything: a board that produces a review where the CC&Rs demand an audit has not discharged its obligation.
Which engagement, and when
| Situation | What is required |
|---|---|
| Gross income $75,000 or less, CC&Rs silent | No statutory requirement. Many boards commission a compilation or review voluntarily for member confidence. |
| Gross income above $75,000, CC&Rs silent | Review, distributed within 120 days of fiscal year end |
| CC&Rs require an audit | Audit: the governing documents override the statutory floor |
| Litigation, construction defect claim, or a transition from developer control | Boards frequently commission an audit regardless of the statutory position |
| Suspected misappropriation | An audit, and usually a conversation with counsel first |
What we get in order before the reviewer starts
- Assessment income and receivable balances, including delinquencies
- Operating and reserve fund separation: a frequent area of confusion
- Reserve fund transactions, with the board authorisation behind each transfer
- Vendor payments and the approval trail behind them
- A cross-check against the association's own governing documents
- Year-end statements presented in accordance with GAAP for common interest realty associations
Take this with you
What a California association has to produce each year
Civil Code sets out what the board must prepare, what has to be reviewed by an independent accountant, and when each item goes to members. The checklist puts the dates and the citations in one place.
- The Civil Code section 5305 review threshold, and what triggers it
- The annual budget report and the annual policy statement, with their delivery windows
- Reserve study timing and the disclosures that go with it
- What the board signs off on, and when