When you are looking to purchase a condominium it is important to make any offer subject to your review and approval of the condominium corporations documents. Part of those documents will include the year end financial statements along with the most current unaudited monthly balance sheet. If you are not an accountant by trade, what do all these numbers mean? And do they really matter?
The year end financial statement looks at the financial health of the condominium corporation over the past 12 months, comparing the year end figures to those of the previous years. The amount of income generated through condo fees and other sources is compared to the total expenses (budget) of the corporation. Any shortfall or surplus is noted. The amount contributed to the reserve fund is also noted along with whatever was spent during the year and disclosing the total amount present in the fund.
It should be noted that not all year end financial statements need to be audited by an accountant. The Alberta Condominium Property Act does not specify this requirement. A condo corporation bylaws will dictate if this is a necessity, although even if the bylaws don’t require it, it is a good idea for transparency to have this done. It is not unusual for smaller, self managed buildings to not have the year end financials audited. Also keep in mind that year end financials can take several months to be reviewed by an accountant and the final report prepared. If the corporation’s year end is December 31, the financials for that year may not be available until March!
Given that the year end financials can be several months out of date, it is important to verify the financial health of the corporation by reviewing the most current monthly unaudited balance sheet. This document will outline how much cash is in the corporation’s general operating account as well as the reserve fund account balance, what bills are outstanding (liabilities) and what accounts receivable are outstanding.
As with many things, looking at only one or two documents alone will not give you the full picture. The year end financials and monthly balance sheet must be viewed in the context of the entire package of documents provided. For instance, the balance in the reserve fund may look like a lot, but if the amount is less than the reserve fund plan specifies, you may want to ask further questions. A low operating account balance may not be as alarming if a special assessment has been called to address the shortfall.
As always, it is prudent to utilize the services of condominium specialists, both in the buying and selling of condominiums and in the review of the condo corporation documents. Good luck with your condo purchase!