Academy/Working With Professionals
When to hire a CPA
Know the trigger points before your treasurer asks why the books look thin.
A CPA becomes necessary once your finances need more than a treasurer's report: when your bylaws or state law requires it, or once annual revenue passes a threshold your state sets. California requires a CPA review once gross income exceeds $75,000, distributed to members within 120 days of fiscal year end. Check your own state's rule and your governing documents.
What you're actually buying
CPAs offer three distinct levels of service, and they are not interchangeable. A compilation means the CPA puts your numbers into proper financial-statement format without checking whether they're right. A review adds testing and analysis, producing limited assurance that nothing material is wrong. An audit goes furthest: transaction-level testing and a formal opinion on the statements. The price difference between the three usually tracks how much work the CPA actually performs, not just the letterhead.
"The accountant's objective is to apply accounting and financial reporting expertise to assist management in the presentation of financial statements... without undertaking to obtain or provide any assurance that there are no material modifications that should be made to the financial statements."
Source: A bright line in SSARSs, Journal of Accountancy (AICPA)
When the choice isn't yours
In many states, the level of CPA engagement isn't optional past a certain size. California requires a review, not just a compilation, once the association's gross income for the year exceeds $75,000, and the resulting statement must reach members within 120 days of the close of the fiscal year. Whether your state sets a similar dollar threshold, what level of engagement it requires, and the delivery deadline all vary by state. Read your own statute and governing documents before assuming a compilation is enough.
"A review of the financial statement of the association... prepared in accordance with generally accepted accounting principles by a licensee of the California Board of Accountancy for any fiscal year in which the gross income to the association exceeds seventy-five thousand dollars ($75,000)."
Source: Cal. Civ. Code Section 5305, California Legislative Information
Why hiring one protects the board
A CPA relationship isn't only about the books. When directors make a financial decision, courts ask whether it was made in good faith and with the care an ordinarily prudent person would exercise, and reasonable reliance on a qualified professional's opinion is direct evidence of that care. That protection only holds up if the board reasonably believed the advice fell within the CPA's competence, and if the board actually followed what the CPA told them rather than hiring someone and doing whatever it wanted anyway.
"An important legal defense that would not be available if the board had simply just made those decisions."
Source: Understanding the Business Judgment Rule for Boards, Barker Martin, P.S.
Check yourself
Answer before you read the explanation, recalling it is what makes it stick.
Your outgoing treasurer says the compiled financials are "basically the same as an audit, just cheaper." What is actually true about a compilation?
Your California association's gross income was $82,000 last year. Under state law, what does the board now need to arrange?
The board hires a CPA, gets a report, and approves reserve transfers exactly as recommended. An owner later sues over the transfer. What actually protects the board's decision?
- A bright line in SSARSs, Journal of Accountancy (AICPA)
- Cal. Civ. Code Section 5305, Review of Financial Statement, California Legislative Information
- Understanding the Business Judgment Rule for Boards, Barker Martin, P.S.
- The Business Judgment Rule, Colorado Homeowners Association Law
Related elsewhere in the Academy
Working With Professionals
Next, see what it takes for the board's reliance on any professional's advice, not just a CPA's, to actually hold up.
Whether a CPA review or audit is required at all, the revenue threshold that triggers it, and the report deadline all vary by state and by your governing documents.