Managing condominiums and maintaining financial transparency is crucial. One essential tool for achieving this transparency is the financial statement. Two stand out among the various financial statements: the monthly financial statement and the audited financial statement. Understanding the differences between these documents is vital for both condominium boards and unit owners. 

Monthly Financial Statements: A Snapshot of Fiscal Health

A monthly financial statement is a regular financial report that showcases a condominium’s financial activity over a one-month period and year-to-date for operations. It presents details, like income, expenses, and fund balances, offering a current overview of the condominium’s financial status. Typically prepared by the property manager and accounting team, these statements are then shared with the condominium board.

Key Elements of a Monthly Financial Statement

Statement of Financial Position Operating/ Reserve (Balance Sheet): This statement shows the condominium’s assets, liabilities, and equity (fund balances) at the end of a particular month. It also provides a snapshot of what the condominium’s funds balances, both operating and reserve, are made up of for past years and the current year-to-date standing of the operating/reserve surplus/deficit positions.

Accounts Receivable Trial Balance: Lists the corporation’s outstanding receivables from owners whether it is for common element fees, special assessment fee and/or repair charge backs. The list often indicates how long each receivable has been outstanding and whether a particular unit is liened.

Revenue/Income Report: This segment outlines all sources of income for the condominium, including common element (maintenance) fees, special assessments, and other revenues. It helps track income generated and compares it against budgeted expectations and projections.

Expense Statement: This details all the expenditures incurred by the condominium, such as utilities, maintenance, repairs, and administrative costs for operations. Comparing expenses with budgeted amounts helps manage overspending.

Reserve Fund Status: Condominiums maintain a reserve fund for major repairs and replacements. The monthly statement includes contributions, interest earned, and expenditures related to this fund often compared against an annual budget

Accruals: Financial statements are prepared on an accrual basis. Accrual accounting, which recognizes revenue and expenses when they are incurred, regardless of when fees are received OR expenses paid. This provides a more accurate representation of the Condominium’s financial situation at any given point, by accounting for revenue and expenses at the time they are earned or incurred, rather than when cash transactions occur.  Accruals on the balance sheet are estimates of those items for which invoices have not yet been received by for which management knows the expense has been incurred.  These are generally liabilities.

Investment: The investment section outlines any investments made by the Condominium, in risk-free financial instruments permitted under the Condominium Act of Ontario. This portion of the statement is essential for understanding the Condominium’s investment activities and assessing the performance and value of these investments over time. It provides insight into the diversification and management of the Condominium’s financial assets beyond its operating and reserve bank accounts.

What Does an Audited Financial Statement Represent?

An audited financial statement represents a third-party review of the Condominium’s financial statements based on generally accepted accounting principles which outline the extent of such review.  The outcome of this review is the ‘clean’ audit opinion in the independent auditor’s report for the fiscal year. It includes components that together provide a complete financial overview:

Statement of Financial Position: This statement shows the Condominium’s assets, liabilities, and fund balances at the end of the fiscal year. It provides a snapshot of what the Condominium owns and owes, as well as the owners’ residual interest.

Income Statement: Like the monthly income statement covering an entire year, this financial document outlines all incomes and expenses, highlighting the net surplus or deficit.

Statement of Operating Reserve Fund: The Statement of Operating Reserve Fund provides details about the condominium’s reserve fund. It outlines the contributions made to the reserve fund throughout the fiscal year and provides information about any withdrawals or usage of the reserve fund for major repairs or replacements. This statement is crucial for assessing the condominium’s financial preparedness for unexpected expenses and long-term financial stability.

Financial Statements Notes: These provide details and background on the numbers in the statements, accounting policies, significant transactions, and potential risks. They are essential for understanding financial statements in detail.

Auditor’s Report: The auditor’s report provides an assessment of whether the financial statements present fairly, in all ‘material’ respects, condominiums’ financial status. If the report is NOT a ‘clean opinion” this report will highlight any areas of concern for this opinion.

Statement of Cash Flows: The Statement of Cash Flows demonstrates how the condominium manages its cash position. It provides an overview of the how sources of cash are recognized, used and have changed over the fiscal year, categorizing the cash flows into operating, investing, and financing activities. This statement helps stakeholders understand the sources and uses of cash, as well as the condominium’s ability to meet its financial obligations and invest in future projects or developments. 

Please click here for Insights into Monthly Financial Statements for Condominiums.

Differences Between Monthly and Audited Financial Statements

• Frequency and Scope: Monthly financial statements are generated monthly with a focus on managing short-term and long-term financial activities., These statements are an effective tool for the Board to assess how operations are progressing and to allow them to make timely and informed decisions regarding spending for the remainder of the fiscal year and what to expect or plan for in future fiscal years – In contrast, audited financial statements are historical statements prepared to allow for an independent review of the condominium’s finances to provide owners with some assurance as to the reliability of the condominiums financial reporting..
• Preparation and Review:  The monthly statements are usually put together internally by the property manager and the accounting team without any independent third-party review for the Board of Directors. Audited financial statements are reviewed and prepared by qualified auditors based on generally accepted accounting principles and are prepared for the owners of the condominium.
• Level of Detail: Monthly financial statements give a MORE comprehensive overview than the audited financial statements as they include additional schedules and analyses that do not form part of the audited financials and are actually required to enable the Board to better assess operations and be accountable for results. The audited financial statements include notes, schedules, and an auditor’s report, offering assurances to owners as to the reliability of the financial statements.
• Regulatory Compliance: While monthly financial statements help in day-to-day management, audited financial statements play a role in meeting regulatory standards and compliance under the Condominium Act of Ontario. They ensure the condominium adheres to financial reporting standards and legal requirements.

Both monthly reports and audited financial statements play roles in managing condominium finances. Monthly financial statements provide timely and ongoing financial oversight, helping in day-to-day decision-making. Audited financial statements offer a comprehensive, verified, and legally compliant overview of the condominium’s financial health, ensuring transparency and accountability. These financial records collectively help maintain the fiscal integrity of condominiums, safeguard the interests of unit owners, and ensure the smooth operation of the condominium community.