How to Read Your Condo's Financial Statements

Financial statements are the corporation's record of what it held, collected and spent. Owners who read them tend to find answers to questions that a fee notice leaves open: why costs rose, whether the reserve fund is receiving what the board's plan says it should, and how many owners are behind on fees.

You do not need an accounting background. You do need to read the statements in order, keep the two funds apart and compare one year with the next. This guide explains what the statements show. It does not tell you whether your corporation's statements are right, and it is not an accounting opinion.

How to get the statements

Use the prescribed Request for Records form. The most recent financial statements approved by the board, the most recent auditor's report and the current budget are core records (O. Reg. 48/01, section 1). Earlier years' statements are generally non-core, so a fee may apply. The board must respond within 30 days on the prescribed response form, and the response period is not necessarily the deadline for delivering every record.

Ask for the current statements and the previous two years so you can compare trends. The article on corporation records explains how to word the request and what to do with the answer.

What an Ontario condo corporation must prepare

Section 66 of the Condominium Act, 1998 says the statements must include:

• a balance sheet;
• a statement of general operations;
• a statement of changes in financial position;
• a statement of reserve fund operations and prescribed information about the reserve fund study and the operation of the fund;
• the total remuneration paid to directors and the total paid to officers; and
• any additional statements or information the regulations require.

O. Reg. 48/01 adds the two reserve fund comparisons shown in the line-by-line table below and requires a short description of any contract in which a director or officer has disclosed an interest. The regulation also points to the accounting and auditing standards in the Handbook of the Canadian Institute of Chartered Accountants, now published by CPA Canada.

The board approves the statements before the annual general meeting, and two directors sign the balance sheet. The corporation must attach the statements and the auditor's report to the notice of the annual general meeting (sections 66 (3), 66 (4) and 69 (2)). If a material error comes to light after the meeting, the board must amend the statements and the auditor may amend the report (section 71).

Operating fund, reserve fund, surplus, deficit, cash and accounts receivable

These five terms are easy to mix up. Terminology varies a little between accountants, so use the notes and ask when a label is not clear.

A surplus and cash are different things. A corporation can show an operating surplus and hold little cash, or show a deficit and hold plenty of cash, because of timing, unpaid bills and amounts owed. Ask which fund holds the cash before drawing any conclusion from it.

What to look for, line by line

A worked example (fictional): budget against actual

The numbers below are invented to show how to read the operating statement. They do not describe any real corporation and they are not a benchmark for yours.

Check: revenue difference +$11,000 minus expense difference +$80,000 gives -$69,000. Expense lines: $42,000 + $48,000 - $2,000 - $12,000 + $4,000 = $80,000.

Revenue came in $11,000 above budget, but expenses came in $80,000 above, so the year ended with a $69,000 deficit against a budget that expected to break even. Fees and the reserve contribution were exactly as budgeted.

The table shows what happened. It does not say why. Possible explanations the manager could confirm or rule out: utility rates or consumption higher than assumed; an insurance renewal that cost more than the figure used when the budget was set; interest income higher than expected; a repair that was budgeted but has not yet been done, so the underspend is a delay rather than a saving.

The follow-up questions matter more than the arithmetic. Is the deficit a one-time event or a trend? How will it be recovered: from a prior surplus, from next year's budget, or another way? Does next year's budget use the new insurance and utility costs? A deficit is not proof of poor management, and a surplus is not proof of good management.

The auditor's report and the notes

The auditor examines the statements and reports on them each year (section 67 (1)). In a typical audit report, the auditor states whether the statements present fairly, in all material respects, the corporation's financial position and results under the accounting standards that apply. If the statements do not meet the requirements of the Act and regulations, the auditor must say so (section 67 (4)). The auditor must also say whether the statement of reserve fund operations and the related reserve information do not fairly present the information in the reserve fund studies the auditor received (section 67 (5)).

Is an audit required? Yes in nearly every case. Section 60 requires the owners to appoint an auditor at each annual general meeting. The only exception is a corporation that has held its turn-over meeting, has fewer than 25 units, and has the written consent of every owner to dispense with the audit until the next annual general meeting. An owner who is 30 days or more behind on common expenses cannot give that consent until the arrears are paid (section 60 (5) to (7)). If your statements are not audited, ask which consent was given and for which year.

The notes sit behind the statements and are often where the explanation lives: how amounts were measured, commitments the corporation has signed, matters that may affect future years, and events after year end. Read them with the statements, not after.

• An unmodified (clean) opinion means the auditor found no material misstatement in the statements. It does not mean the board's decisions were wise.
• The audit does not assess whether the reserve fund is enough for the building's future repairs. That is the job of the reserve fund study.
• The audit is not an engineering opinion on the building's condition, and it is not legal advice.
• A qualified opinion, a disclaimer of opinion, or a paragraph that draws attention to a matter is worth asking about.

Section 70 gives the auditor a right to attend owners' meetings, and the corporation or an owner can require the auditor to attend a meeting by giving written notice at least five days before it. An owner who gives that notice must also give a copy of it to the corporation (section 70 (4)). At the meeting, the auditor must answer inquiries about the basis on which the opinion was formed (section 70 (3) and (6)).

Questions about how a number was prepared belong with the auditor or a licensed accountant. Questions about what a charge means legally belong with a licensed Ontario lawyer or paralegal. Questions about the physical condition of the building belong with a qualified engineer.

Why a reserve fund balance alone does not show whether funding is enough

A balance is a snapshot of money held on one date. Whether it is enough depends on what work is coming, when it is coming, and what the corporation will add in the meantime. Four documents answer different parts of that question:

• The reserve fund study estimates the work, its timing and its cost.
• The board's funding plan says how much the board will collect to meet those needs.
• The annual budget sets the contribution for the current year.
• The financial statements report what was actually collected and spent, including the comparison with the funding plan.

Here is a fictional comparison. Two corporations each hold $1.0 million in their reserve funds. The first expects about $200,000 of major work over the next five years and is collecting what its funding plan requires. The second expects about $2.4 million of work over the same period and has been collecting $100,000 a year less than its plan requires. The balances match, but the positions differ.

This is an illustration, not a benchmark. Ontario sets no single balance or percentage that shows adequacy for every established building. The reserve fund study guide explains how the study, the plan and the budget connect.

Where Fee & Reserve Check and a personal review fit

Fee & Reserve Check is automated. You upload your budget, your Reserve Fund Study and your audited financial statements. Software reads them and shows how your monthly fee compares with what those documents support. It is not an audit of your corporation's financial statements, and it is not legal advice, legal representation, an engineering opinion or a physical inspection.

If you want a person to look at your situation, Condo Owner Advocate offers personal document reviews. Alexander Baraz reads the documents you send and explains what they say, what may be missing and what to ask next. Neither service tells you whether your corporation's statements are correct, and neither replaces a licensed accountant, lawyer or engineer.

Official Ontario sources

• Ontario Condominium Act, 1998Sections 60 to 71 cover the auditor, the financial statements, the audit, delivery of the statements to owners and their amendment. Section 55 covers owners' access to records.
• Ontario Regulation 48/01 under the Condominium Act, 1998Section 16 sets the accounting and auditing standards and the reserve fund comparisons. Section 1 lists the core records. Sections 13.1 to 13.11 set the records request process.
• Condominium Authority of Ontario: Ask for recordsThe prescribed request form and the steps that follow.
• Condominium Authority of Ontario: Annual condo requirements guideLists preparing and approving financial statements among a corporation's yearly obligations.

What to check first

Common mistakes owners make

Documents to gather

When to get a closer look