Accounting, Budgeting and Financial Statements

Question 1

What the two major account types that a condo corp must have?

Answer 1

• Operating Account

- Reserve Fund Account

Question 2

what are the two methods to opening an account on behalf of the corporation?

Answer 2

1. The account is opened in the name of the condominium

2. The account is opened in the name of the condominium manager in trust for the condominium corporation

Question 3

Trust Money

Answer 3

(2) Where the corporation is in receipt of money ….. the corporation shall
(a) except as otherwise authorized in writing pursuant to a resolution of the board,

(i) deposit all the money into a separate account at a bank, trust corporation, credit union or treasury branch within 3 days, exclusive of holidays and Saturdays, from the day that the corporation received the money, and
(ii) designate the account as a trust account registered in the name of the corporation.

Question 4

Can a corporation make investments with funds not immediately required?

Answer 4

Yes, the CPA provides that a corporation may invest any funds not immediately required by it only in accordance with the Regulations. CPR further provides that any investments must be those as set out in Schedule 2 to the Regulations, which are generally what are known as “Trustee” securities.

Question 5

When determining whether an item would fall into the operating or the reserve budget, what does the CPA outline as a criteria for an item that would fall under the reserve budget?

Answer 5

any “major repairs and replacement … where the repair or replacement is of a nature that does not normally occur annually” are to be treated as part of the reserve budgets.

Question 6

TRUE or FALSE?

The operating budget must be approved by the owners .

Answer 6

FALSE.
An operating budget will be adopted by the board—it does not need the consent of the owners, but does need to be shared with them.

Question 7

Who is involved in the process of creating the annual budget?

Answer 7

Creating the budget is a cooperative exercise involving the condominium manager and the board. Usually, the first draft is prepared by the manager and then possible revisions are discussed with the board until the final numbers are settled.

Question 8

What would a bare minimum budget look like?

Answer 8

The bare minimum would be a budget that sets out each line item with a total.

Question 9

What are some items a detailed budget include?

Answer 9

• The actual results for the preceding fiscal year.

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The anticipated results for the current fiscal year.

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The budget for the current fiscal year.

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The budget for the coming fiscal year.

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Notes to explain any major changes from the last budget.

Question 10

What are some items a detailed budget include?

Answer 10

• The actual results for the preceding fiscal year.
• The anticipated results for the current fiscal year.
• The budget for the current fiscal year.
• The budget for the coming fiscal year.
• Notes to explain any major changes from the last budget.

Question 11

Can the Board do an assessment agaisnt a specific unit (subjefct to bylaws) for monetary sanctions made under the bylaws?

Answer 11

NO.

Section 39(2) of the CPA states that an assessment may not include any amount for monetary sanctions made under the bylaws. Collections of fines are dealt with under the Act, which requires a separate court application for that purpose.

Question 12

When is the Board required to disclose the details of the operating budget?

Answer 12

The CPR requires the operating budget to be given to the owners at least 30 days prior to the start of the fiscal year covered by the budget. If the bylaws require a longer period than 30 days, then that longer period will apply.

Question 13

How often does the Board need to provide a reserve fund plan?

Answer 13

The CPR provides that once the reserve fund plan has been adopted by the board, it must be circulated to the owners before any fund may be collected to fund that plan. As reserve fund plans must be redone at least every 5 years, this may not be an annual disclosure.

HOWEVER, The condominium must prepare an annual REPORT on the reserve fund for each fiscal year

Question 14

What needs to be included in the annual reserve fund report?

Answer 14

(a) the amount of the reserve fund as of the last day of the
immediately preceding fiscal year;
(b) all the payments made into and out of the reserve fund for
that year and the sources and uses of those payments;
(c) a list of the depreciating property that was repaired or
replaced during that year and the costs incurred in respect
of the repair or replacement of that property;
(d) the amount of the reserve fund projected for the current
fiscal year;
(e) total payments by ordinary or special resolutions into, and
payments out of, the reserve fund for the current fiscal
year;
(f) a list of the depreciating property projected to be repaired
or replaced during the current fiscal year a

Question 15

How many days prior to the AGM does the Board need to release financial statements, the reserve fund report and the budget?

Answer 15

The annual report on the reserve fund and the budget, together with the financial statements, must be delivered to the owners at least 14 days prior to the date of the annual general meeting.

Question 16

Do you require an onwers resolution to approve a special levy?

Answer 16

Not unless it is a capital improvement. The board has the authority to pass a special levy(through Board resolution) without needing the consent of the owners, unless the funds are being used for a capital improvement.

Question 17

What needs to be set out to owners once the special levy is approved by the board?

Answer 17

(a) the purpose of the levy;
(b) the total amount to be levied;
(c) either
(i) the method of determining each unit’s proportionate
share of the levy by unit factor, or
(ii) subject to the regulations, and if provided for in the
bylaws, the method for determining each unit’s share of
the levy on a basis other than the unit factors of the
owners’ respective units;
(d) the date by which the levy is to be paid or, if the levy is
payable in instalments, the dates by which the instalments
are to be paid.

Question 18

What items can you apply a special levy to raise funds for?

Answer 18

• Unexpected and urgent maintenance, repair or replacement of the real and personal property of the corporation, common property or managed property.
• Unexpected shortfalls in the operating account.
• Increasing the balance of the reserve fund to meet the requirements in a reserve fund plan required under the Regulations.
• The payment of a capital improvement. (Owner’s resoution required)
• To satisfy a judgment against the corporation.

Question 19

The board has the power to borrow monies without needing a resolution of the owners, but there is an upper limit established under the CPR. Owners’ approval is required if the amount of the loan and all outstanding loans during that fiscal year is more than:

Answer 19

1. 15% of the condominium’s revenues as set out in the most recent financial statements, or
2. An amount set out in the bylaws, or
3. The maximum amount permitted for borrowing as set out in any previous resolution approving borrowing.

If the borrowing exceeds that amount, then an ordinary resolution of the owners is required, unless the bylaws require a special resolution of the owners.

Question 20

The CPA, which provides that the corporation shall prepare financial statements in accordance with which form of principles for the corporation’s preceding fiscal year?

Answer 20

Canadian generally accepted accounting principles (GAAP)

Question 21

One requirement for GAAP is that the accounts will be prepared on an accrual basis rather than a cash basis, which means what for expenses and revenues?

Answer 21

If an expense has been incurred but not yet paid, it will be included as part of the costs. On the revenue side, if funds are due but not yet received, they will be included as part of revenues.

Question 22

Does the CPA or CPR require condos to have their accounting audited?

Answer 22

There is no requirement in the Act or the Regulations for a condominium to have its accounting audited, but there may be an obligation in the bylaws. If the bylaws are silent on the question, then before an audit or accounting review can be done, there must be a review of a number of factors.

Question 23

What statements will an accountant provide you with following an audit?

Answer 23

Typically, the accountants will provide a:

• balance sheet
• a statement of income (profit and loss)
• a statement of cash flows.
• Attached to this set of statements will be extensive notes that explain the entries, particularly if there are unusual transactions during the course of that year.
• A cover letter that will set out any recommendations from the accountant as a result of their review/audit. These notes need to be examined carefully, and in many cases will need follow-up action

Question 24

What internal statements must the Board be provided with on a monthly basis by the condo manager?

Answer 24

An income statement (profit and loss statement) for the month, with cumulative totals to date and a comparison to the budget.

• Balance sheet as of the end of the month.
• A copy of the bank reconciliation for each of the accounts owned by the condominium.
• A general ledger showing all monies into and out of each of the accounts.
• Where practical, copies of invoices paid during the period (as often invoices are available in digital format).
• An accounts receivable listing, aged.
• An accounts payable report, aged.
• A report of the condominium manager, setting out what activities they have accomplished and noting any outstanding issues that need to be dealt with in the future.
• A listing of investments held by the condominium, giving essential details of each of them.

Question 25

What is a trial balance?

Answer 25

Shows the balance in each of the accounts as at that point in time. It will be for the accountant to review that report and ensure that there are in fact matching debits and credits and that it appears that the postings have been made to the proper accounts.

In addition, some of the values in the trial balance will need to be verified against external reports/statements. For instance, the trial balance will show an amount in the bank account that should match the amount shown on the statements from the bank (after reconciliation of outstanding cheques or deposits). If the trial balance is accurate, then that information will be used to prepare other accounting reports such as balance sheets.

Question 26

What is a balance sheet?

Answer 26

It shows the status of the various accounts of the condominium at a particular point in time. Specifically, assets such as the bank accounts, reserve fund accounts, accounts receivable, accounts payable, as well as any deposit accounts, will show on the balance sheet as of the date it was prepared, such as at month end.

Question 27

What is an income statement/report?

Answer 27

Summarizes the total amount of monies received over a period of time, typically monthly or from the start of the fiscal year to the date of the statement. It also sets out all of the expenses over the same period of time broken out by the individual expense accounts, such as utilities, bank charges, maintenance and repair, etc.

The report then subtracts the expenses from the revenues for the month end shows the net income (or loss) for the month. The same statement will also show the totals for the year to date in addition to the monthly total.

Question 28

What is a sinking fund?

Answer 28

The essential feature of a sinking fund is that monies are paid into the fund on a regular and even basis, but disbursements from the fund are made at irregular intervals. The contributions into the fund may escalate on an annual basis, or not, depending on the circumstances. The most common implementation of this concept relates to the reserve fund plan. Under that plan, payments are contributed on a monthly basis but the expenses come out as the individual components of a common property need to be replaced.

Question 29

Which of the following needs to be reported to owners on an annual basis?

A) Operating Budget
B) Reserve Fund Plan
C) Reserve Fund Report

Answer 29

A & C
An operating budget and annual report of the reserve fund must be distributed annually. A reserve fund plan must be circulated to the owners before any fund may be collected to fund that plan, but this does not necessarily happen annually.