Generally Accepted Accounting Principles
In Alberta, the Condominium Property Act, section 30(3) requires that every corporation prepare financial statements in accordance with generally accepted accounting principles, and that it distribute copies of the financial statements and annual budget to each owner.
Generally accepted accounting principles are established in Canada by the Canadian Institute of Chartered Accountants. The short form is GAAP.
These principles provide specific guidance regarding acceptable financial statement presentation, the requirement for note disclosure, and the use of accrual accounting.
An audit opinion and a review engagement opinion, given by a qualified professional, CA, CGA, or CMA, will give an opinion as to whether the financial statements are presented in accordance with generally accepted accounting principles.
It is important that generally accepted accounting principles are employed, because these principles ensure, to the best of the accounting profession’s ability, that the true financial position of the corporation is presented as at the fiscal year end, and that the results of operations are presented as fairly as possible to the underlying economic events as they transpired in the year.
For example, suppose at the year-end a significant payable was not recorded in the financial statements. The work had been done by the contractor, but not paid yet. If the payable was not recorded, accrued, the operating surplus for the year presented in the statements would be misleading to the owners. This is only one example.
As auditors, we do from time to time run into situations where the Board tries to manipulate the financial results, and sometimes they will try to record expenses that have not even been incurred yet. However, the strict adherence to generally accepted accounting principles must be observed, whether or not the Board feels it is appropriate, because this is the standard of the Condominium Property Act, and the expectation of owners. If the Board believes it wants to present significant expenses that are to occur shortly after the year-end, the Board should do this in the notes to the financial statements.
Special assessments should be recorded as revenue when due from the owners, and not when approved by the Board.