What do you mean by "extra audit process ?"

Re: building financials, I think it's a huge hidden "trap door" that many prospective buyers, especially non-NYers, simply don't understand. In some buildings I have seen, the brokers simply refuse to send me the building financials. That, to me, is a huge red flag. And the ones that I have seen, they are not great. You have huge complex with reserves in the low hundreds of thousands. They are one roof repair or one water leak away from placing an assessments on the tenants. It's scary how little some folks think about building financials.

http://streeteasy.com/nyc/building/61-oliver-street-brooklyn

The managing agent keeps the books. (In a small co-op, the treasurer does.)

The independent CPA then takes those books and cranks out the annual financial statements, certifying that they accurately reflect the co-op's financial position in all material respects, that there're adequate internal controls, etc. It's all spelled out in the cover letter.

The CPA does not examine every bill paid and every check written. If you want that then you have to hire a team of forensic accountants. That's very expensive, so would be done only if there're signs of some kind of fraud.

Every set of co-op or condo financials I've seen (hundreds of them) includes a letter from the CPA saying they've audited the books. That letter is often titled "Independent Auditor's Report". They all say pretty much the same thing, with minor variations in language.

E.g., look at the financials for a typical co-op: http://350bleecker.com/sites/all/files/finance2011.pdf

That's all in accordance with the typical offering plan and other controlling documents, which'll specify under the heading "Reports to Shareholders|Owners" that the co-op/condo must provide annual financials, with the word "audited" in there somewhere.

Aside from that annual audit, board members "audit" the accounts receivable, checks written, etc., every month. That's part of the normal process of internal controls.

If that's not what you're asking about, then please clarify.

I am not sure what you are asking. If an accountant issues a report it will always state something, compilation, review or audit. If it is a compilation then they will have done nothing but put together the financials and disclaim any opinion as to presentation and numbers. If it is a review they will do analytical procedures and discussions with management. Then there is the audit where they actually do some detail of the underlying numbers and issue an opinion.

A typical fee from the shops that do the condo/coop audits is around $8,000. You will then find some for less, normally sole practioners or small firms, and then of course you will have larger firms that will charge more.

The $3000 charge sounds more like they are taking care of the tax return and potentially given you compilation financials.

Mikev, that makes sense, the cost corresponding with services rendered. Ours cost us $6850 last year.

No. It's just the one I know of that has its current stuff online.

Stevejhx was on the board there many years ago.

Looks OK to me, but I don't know all the metrics an accountant would use to analyze that stuff. The underlying mortgage isn't bad, as $30K-$40K per unit.

Lawyers' fees were high in 2011, but apparently they settled a sponsor dispute, so those'll go back down.

Look at the cash flow, not just the Net Income(Loss). The latter includes non-cash stuff like depreciation.

Some years the budgeting was a hair off, so they'll spend down cash a bit. In hindsight, they could've raised maintenance by another 1% at the beginning of 2010.

It's difficult to make the numbers nice and tidy year after year. You might see cash-at-end-of-year creep up for a while, then go way down the year a project is paid for.

Or you might see cash dribbling away over the course of years. On the one hand, that means they should jack up maintenance. On the other, it could mean they think the reserve is more than sufficient and are spending it down some.

Some co-ops like to keep a big reserve, while others keep it smaller, figuring their shareholders can take care of cash better than the co-op can. One tack isn't necessarily better than the other.

Also keep in mind that it is possible that real estate taxes which go up mid year went up more than estimated. The amount that they were over budget is small considering the amount of fees collected. The goal in most buildings is to breakeven, this to me was breakeven or as close as you are able to get as long as you have the reserves in the bank to cover if you are overbudget.

don't forget about maintenance arrears

Mikev, right, perspective is important.

E.g., at our annual meeting last month, the board announced plans to spend $300K+ on discretionary projects: build a roof deck, replace the sidewalk and redecorate the hallways.

I got all het up because I don't want any of those things, or rather I don't want to spend my share ($4800) of the $300K. (For something I do want, of course it'd be perfectly OK for everyone else to cough up their share.)

In the end, though, even if those things don't add more to value than they cost, it's no big deal.

You all need to read the accountant's letter carefully, often a financial statement audit is not performed in accordance with GAAP, that is was NWT is describing above. I am a CPA (also treasurer of my building) and would be surprised to see audited financials in anything other than vary large buildings.

Audited, but not audited to GAAP or FASB standards. For that the co-op or condo would have to estimate the future costs of major repairs and replacements, and as you say, it's not worth the trouble for most.

No that is not audited, the accountants just compile the financial statements, they have no duty to check anything, they go on management's representation. The way it really works is they take all of the building's bank statements and create the financials for the building, no verifying of the numbers goes on unless something is really out of whack. I don't mean to be difficult, but audit has a very specific meaning with respect to financial statements. Treasurers or management companies could do it themselves but it's a pita and looks better coming from an accounting firm that will also handle taxes.

My co-op's accountant's cover letter to the financials says:

1. We audited.
2. This is what we mean by audit.
3. In our opinion, the statements present fairly, in all material respects, the co-op's financial position.
4. Our opinion is not affected by the fact that the co-op's statements are not supplemented by the additional information the FASB says is good to have.

Nobody expects anything exhaustive for a lousy $6850. It's just a spot check.

NWT, in you co-op's accountant's letter, what do the accountant mean by audit ? If it's what jms8 described, i.e., paper gathering and putting then a financial statement "format" without some due dilligence as in verifying the number, then is it very useful ?

In other words, what's the usefulness to see it in a neat and simplified financial statement format if the numbers are "garbage" if I were to use an extreme case ? Like a model, garbage in, garbage out ? I rather that the accountants actually verifies the number and let an "intern" put the financial statements together :) Function (due dilligence) over form (financial statement format) ? Quality (due dilligence) over quantity (gathering many bills to construct the financial statement) ?

As Mikev said, there's a range of services the independent accountant could perform: compile, review, audit. If an audit, then they say so and issue an opinion.

Here's the exact language:

"We conducted our audits in accordance with auditing standards generally accepted in the United States of America. These standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion."

If they were just compiling or just reviewing or just formatting, they wouldn't issue an opinion.

Again, the managing agent keeps the books, the treasurer keeps tabs on them, and the independent accountant is the triple-check.

That triple-check may or may not be useful, but that's another story.