Directors receive their corporation’s financial statements for review every month or quarter, depending on the frequency of financial reporting. It can be overwhelming to determine how to best decipher the numbers, but reviewing the financial statements is a major part of any board meeting and requires participation from all directors and the condominium manager.
Breaking it down
Knowing where to look – and what to look for – makes reviewing your financial statements easier. It will also bring to light any areas that require a deeper dive to ensure the corporation stays in a favourable financial position.
Let’s review the main report sections of each statement along with areas of note that can impact your condominium corporation.
Accounts: The Corporation has two bank accounts: an Operating account that deals with the day-to-day operations of the corporation and a Reserve Fund Account that funds major repairs and replacement of existing common element components. The available balances in these bank accounts are shown in the Balance Sheet.
Balance Sheet: This is a report of the corporation’s assets, liabilities, and equity. This part of financial statements gives you a snapshot of the current financial position at the end of a month.
Assets: Any Investments the corporation has along with interest earned, and any accounts receivable that is owed to the corporation (basically, any money owed to the corporation or any asset that has value is listed in this section).
Liabilities: Any funds the corporation owes, including accounts payable, prepaid fees, accrued liabilities, and accrued audit fees.
Equity: Is the term used to describe the combination of the Operating and Reserve Fund account. Each fund’s Opening surplus/deficit, plus the current surplus/deficit and any interested earned, equals the equity in that fund.
Operating deficits: If your balance sheet is showing a deficit, getting to the root cause will be critical in addressing the deficit. Deficits occur for a few reasons: either a one time event occurred that had to be paid from the operating account (and was, therefore, was not considered when the budget was prepared) or the budget did not anticipate or foresee increases in certain categories. The condominium’s budget is set as a zero-based budget, meaning that the corporation intends to spend every cent it collects from the owners.
Budget comparison: This statement identifies both monthly and yearly budgeted amounts for each category, along with expenses incurred and income billed for each category. This budget comparison also has a section that outlines any variances for each category.
A review of the general ledger for that category can confirm why there is a variance. Sometimes, the variance can be explained due to an incorrect allocation or coding error, or it could be caused by a category that was under-budgeted, causing a variance in a category that was not known at the time the budget was prepared. The standard practice is to review each category, verify any increases for the fiscal year, and ensure any mid-year changes are pro-rated so the budget considers known increases and what they may be. This works well until unusual un-budgeted expenses hit and throw your carefully budgeted financial plan a curveball. Having some built-in budgetary contingencies will help soften these events, if and when they occur.
Aged receivables: This statement covers the balance of monies owed to the corporation from unit owners. If an owner is not up to date with their fees, this statement will show the amount they owe, the timeframe, as well as any late fees related to the collection of these fees. Remember to lien before the 90-day deadline to ensure collection.
Bank statement: In the financial statement package, there will be two bank statements: one for the operating account and the other for the reserve fund account. These bank statements will detail every deposit and cheque in that month, debit, credit, and balances, along with amounts for each transaction similar to your own personal bank account.
Investment: If the corporation has investments with a financial institution, there will be a statement outlining the amount invested and date of purchase, along with interest being accrued and the interest rate being earned, maturity date, and the current total value of the investment.
Aged payable summary: All the funds the corporation owes to vendors. It will contain a list of each amount owed along with who it is owed to, and how long it has been owed (0 – 30 days and upwards to over 90 days).
Accrued liabilities: Any funds that are known but no invoice has been received. The corporation will accrue the funds expected to be paid for the expected invoice when it is received. Examples include utilities and insurance payments.
Payment summary: A summary of all payments issued in the current month. Details include the cheque number, the vendor who was paid, the date the cheque was issued, and the amount of the cheque. Some payment summaries will also include a column indicating the month the cheque cleared the bank, which is indicated by the title “Date Reconciled.”
General ledger (monthly): Generally located at the end of the monthly statements, this provides limited details of each expense that occurred that month from each category in the budget. As such, if you see a variance in the budget comparison sheet, you can review the details of those expenses in the general ledger (e.g., the vendor, cost,
and any notes).
This article provides a guide to reading and better understanding your corporation’s monthly financial statements. The financial health of the corporation is of ongoing importance and understanding the corporation’s financial position helps to guide the board and provides greater confidence when making key decisions.
Craig McMillan president of Maple Ridge Community Management and a member of the Association of Condominium Managers of Ontario (ACMO) Communications Committee.