Understanding Financial Statements
What is an Operating Statement?
An operating statement summarizes the day-to-day income and expenses of a condominium corporation.
Common components include:
Revenue (e.g., condominium fees, special assessments).
Expenses (e.g., maintenance, utilities, insurance, condominium management fees).
Surplus or Deficit (showing whether the corporation made or lost money during the reporting period).
What is a Reserve Statement?
A reserve statement tracks the financial health of the reserve fund, which is used for major repairs and replacements.
Common components include:
Opening balance (previous year’s reserve fund total).
Contributions (funds allocated from condo fees).
Withdrawals (money spent on major repairs).
Closing balance (remaining reserve fund amount).
Comparison of Statements
Financial Report | Purpose |
Operating Statement | Tracks monthly income & expenses |
Reserve Statement | Tracks reserve fund contributions & withdrawals |
Financial Report | Covers |
Operating Statement | Utilities, management fees, maintenance, insurance |
Reserve Statement | Major repairs (roofing, elevators, HVAC systems) |
Reserve Fund Studies & Capital Planning
What is a Reserve Fund Study?
A professional assessment conducted every five years to determine the long-term repair and replacement needs of common property.
Must include:
An inventory of common property components (roofing, HVAC, elevators).
Estimated lifespan and replacement costs of each component.
Required annual contributions to maintain the reserve fund.
Decision Criteria for Boards Reviewing Reserve Fund Studies
Legal Compliance: The CPA requires a reserve fund study every five years.
Financial Planning: Does the reserve fund have enough to cover projected repair costs?
Contribution Strategy: Are unit owners contributing the recommended amount?
Expenditure Control: Are reserve funds being used appropriately?
Legislative Reference
A corporation shall not use money in the reserve fund except for major repairs or replacement of depreciating property.
Case Study: Reserve Fund Study Review
Scenario: A condominium’s reserve fund study recommends annual contributions of $200,000, but the board has only allocated $120,000.
Discussion Questions:
Does this meet CPA requirements?
What are the risks of underfunding the reserve?
How should the board adjust its contributions?
Reserve Fund Contributions & Financial Compliance
How Reserve Fund Contributions are Calculated
Contributions should be based on reserve fund study recommendations.
The Condominium Property Regulation requires boards to make "reasonable" contributions to prevent shortfalls.
Analyzing a Financial Statement for Compliance
Key questions to ask:
Are the reserve fund contributions consistent with the latest study?
Has money been improperly withdrawn for operating expenses?
Does the corporation have a plan for unexpected shortfalls?
Financial Compliance Checklist for Condominium Managers
Is there an up-to-date reserve fund study (completed within five years)?
Does the reserve statement show consistent contributions?
Have any withdrawals been used only for major repairs?
Application Exercise
Scenario: A condominium financial report shows a reserve fund balance of $500,000, but the study indicates that $750,000 is needed for roof repairs within three years.
Question: What actions should the board take to prevent a funding shortfall?
