Selecting Professional Accounting and Tax Services

Written by David T. Schwindt, CPA RS PRA Published: 05 January 2006

Board members are often asked to decide on specific services to be performed by accountants. This article will discuss various services commonly performed by accountants.

Tax Return

Preparing an annual tax return is required by federal and state (Oregon) taxing authorities for all associations. Aside from wanting to know the fee associated with tax preparation, board members should be comfortable with their accountant’s expertise in the homeowner’s association industry. Accountants should be familiar with the following:

  1. Election to file form 1120H or Form 1120 and the reasons for filing one over the other.
  2. Segregation of member activities from non-member activities.
  3. Use of member net operating losses when filing form 1120.
  4. Use of non-member expenses to net against non-member income to reduce taxable income.
  5. Use of year and tax elections to apply member net income to either specific reserves or the following year homeowner assessments.

Financial Statements

There are three types of assurances CPA’s place on financial statements. These assurances in order of reliance are as follows:


When a CPA compiles financial statements for a client, the CPA presents information obtained from the client in the form of financial statements in accordance with generally accepted accounting principles. The CPA does not audit or review the information and thus places no assurance on the statements. However if, in the course of this preparation, the CPA notices anything peculiar about the information, the CPA is required to investigate to satisfy himself/herself that the information would not be misleading to a user.


A review consists of compiling the information into the form of financial statements prepared in accordance with generally accepted accounting principles and applying analytical review procedures to the information to provide limited assurance that nothing came to the attention of the CPA that would lead him/her to believe the statements were not fairly presented. This analysis would include both not be limited to vouching balance sheet amounts to supporting documentation and comparing current year income and expense amounts to prior year and budgeted amounts. This type of assurance is far less than an audit in accordance with generally accepted auditing standards. If the CPA becomes aware of a peculiarity as a result of this review, it is incumbent upon the CPA to perform additional procedures.


Audited financial statements require the CPA to perform such auditing procedures as promulgated by generally accepted auditing standards to enable the CPA to express an opinion as to the fairness of the financial information. This basically means the CPA will tell you if he/she believes the amounts reported in the financial statements are materially correct. An audit also requires the CPA to document and analyze the system of internal controls inherent in the accounting system. Any weaknesses in internal controls and other operational efficiency comments are normally communicated via a management letter to the board of directors.

Oregon Statute

Under Oregon statute, associations with $75,000 or more in annual budgeted assessments are required to have an annual reviewed financial statement within 180 days after year end.

Which Form of Reporting Should You Use

In my opinion, associations that are not required to have an annual review should require at least a yearly compilation. Most larger associations require either a review or an audit at year end. Factors in requiring a review or audit are frequently:

  1. The time period elapsed from the last audited report.
  2. Familiarity with the management company and on-going financial information.
  3. A change in management companies.
  4. A change in board of directors.


Board members have a fiduciary responsibility to ensure that their association is paying the least amount of federal and state income taxes in accordance with all IRS code sections and revenue rulings. This responsibility also includes ensuring that the financial data they use in making decisions is accurate.