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Who is our client? A CPAıs Perspective
By Gayle L. Cagianut, CPA
Who exactly is the client in an audit, review or tax engagement? The
engagement letter is usually written to the board of directors of an
association. Often, it is signed by the management company, as an agent for
the board. However, it is the actual membership of the association to whom
the board is accountable.
Primary client the membership
It is our firmıs strong belief that even though we are generally ³recruited²
for bids by the management company, and may report to the board of
directors, we serve the members of an association. It is these members who
pay their dues each month and rely on the honesty and reliability of the
board to oversee the proper utilization of those funds. It is to these
members that the state of California has legislated that a copy of the
year-end report must be distributed within 120 days of the fiscal year end.
It is these members who live in and use the common areas of the association
and who will elect the next board of directors based upon their performance.
However, the CPA must also interact with the board of directors and the
management company. This is another very important aspect of the engagement.
In some facets of the review or the audit, we feel that the board and the
management company are ³sub-clients². Let me explain further.
Our main objective is to ensure that the financial statements are complete,
accurate and properly reported. In this instance, our client is the
association membership. This is the primary focus of the audit or review
engagement. We want to ensure that the members are properly informed of the
financial status of their association.
Obligation to the board
However, another objective in our firm is to educate the board of directors
and assist them through the complexities of association management. This is
a secondary focus of our engagement, and these issues we direct to the
board. There are items which are not of such significance whereby they must
be disclosed in the actual audit or review report. Instead, they are matters
relating directly to the boardıs role in an association. We use a
³management letter² to communicate these points to the board. These may be
suggestions concerning internal control, civil code compliance,
documentation, or other items which come to our attention. Since the
association is run by volunteer boards of directors, some of whom have
little experience or expertise in the area of community associations, we
feel that these recommendations are useful to them as they learn better how
to manage their association.
The importance of the management company
Lastly, we are concerned about the management company itself. As we are
engaged to audit or review an associationıs financial statements, we work
closely with the manager, who generally has all the records and has had a
history with the association. As we are working with the management company,
we also provide suggestions to allow them to be better managers. Such
suggestions may be in the area of internal controls, accounting procedures,
Civil Code compliance or other items as they come to our attention. The
manager has the responsibility to be a bit of everything accountant,
attorney, landscaper, construction manager, etc. Thus, it is impossible for
them to know everything about everything. Laws and procedures change quickly
and we feel that it is our responsibility to inform managers of these
changes. So, in this instance the manager is also our client. Additionally,
we as CPAs have the opportunity to work with many management companies and
by doing so we can see what works and what doesnıt, and may be able to share
some of these ideas.
Put priorities in order
The scenario Iıve just presented can cause some problems. It is difficult to
have three distinct groups of individuals with whom you work, and to whom
you are accountable. Then, what is known as a ³conflict of interest² can
arise. It is important that the CPA firm have a policy as to whom their
client really is, and set priorities as to what influence each of these
factors will have on an engagement. When a board of directors or management
company has too much control over an accountant, it is possible that the CPA
loses objectivity and independence. It is then that the CPA starts to worry
more about getting the job, rather than getting the job done correctly. It
is unfair to put undue pressure on the CPA not to disclose any information.
Luckily, most CPAs will not allow their integrity to be jeopardized in such
a manner.
As the financial watchdogs of society, it is our responsibility to properly
report and disclose an associationıs financial position. This is a very
important function which should not be taken lightly. The individual members
of the association should be assured that the CPA is working on behalf of
them. The direction and assistance of the board and management company is
invaluable, but must be put in perspective with the goals of the engagement.
Printed in Condo Management, March 1994
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Who is our client? A CPA=?ISO-8859-1?B?uQ==?=s Perspective
