Limitations of Financial Statements
Condominium and strata corporations are unusual entities in the accounting world.
Condominiums and stratas are unlike for-profit organizations which exist to make a profit for their owners. The development of accounting principles are very much geared towards these organizations. In for-profit accounting their is a very careful matching of revenues, that generate profit, against expenses that reduce profit, to accurately measure the amount of profit in the year.
Condominiums and stratas are also unlike other non-profit organizations, which are typically in receipt of grants or donations.
The purpose of a condominium or strata corporation is to maintain assets, which are not presented in the financial statements. The financial statements show how those assets were maintained in the year, but since the value the assets themselves are not presented, the reader has no ability to assess the financial position of the corporation by reading the financial statements. This is a situation much different to for profit and other non-profit organizations.
For this reason our firm includes an "Other Matter" paragraph in the Auditor’s report, simply stating that the reader of the statements should also consider the reserve study and reserve plan, when assessing the financial condition of the corporation.
The deferral of expenses is a significant risk to the reader of the financial statements. For example, the corporation may have significant repairs not done in the current period, but maybe incurred shortly after the fiscal year-end. Generally accepted accounting principles would require disclosure of these if they are significant, however, they may not be known at the time of the preparation of the financial statements.