Financial Transparency in Condominiums
From the Spring 2020 issue of the CCI Toronto Condovoice Magazine.
Complete Financial Transparency is Obtained Only When Two Very Different Types of Information Needs are Met
At Annual General Meetings (AGM's) recently, a couple of owners raised concerns about the "transparency" of the annual audited financial statements. They felt that the statements should, but did not, provide all the detailed information they wanted. While their requests for additional information were legitimate, the annual financial statements alone do not (and cannot) achieve that level of transparency. Complete financial transparency is obtained only when two very different types of information needs are met: a) information that meets needs common to all owners and b) information that meets needs of individual owners. Both are discussed below.
Only common information needs can be met by the annual audited financial statements. The accounting profession defines these statements as "General Purpose Financial Statements (GPFS)" and they are specifically designed to meet only common (and not individual) information needs. GPFS, by their very nature, are summaries; that is, they summarize transactions of a similar nature into groupings and disclose only material abnormal transactions separately. Information in these financial statements cover topics of general interest such as;
a) In the Balance Sheet under Assets; how much cash and reserve investments does the condominium have; how much do owners and others owe to the condominium; what is the amount and nature of any other assets
b) In the Balance Sheet under Liabilities; how much is owed to vendors/supplies for contract and services incurred to the date of the financial statements, mortgage debt and any other liabilities.
c) In Fund Statements. The Statement of Reserve Fund sets out the annual allocation, interest earned on reserve investments, other income (if any) and a list of the costs of reserve projects undertaken during the year. The same types of information are presented in the Operating and other fund statements, as applicable to each condominium.
d) In the Statement of Revenue and Expenditures which presents budget, actual and prior year amounts of: common element assessments, other income, allocations to reserve and other funds (if any), the categories of expenditures incurred to operate the condominium and the excess or deficiency of revenues over expenditures for the year. Also typically included are schedules that provide the significant components of expenditure categories such as utilities, contracts, on site personnel, repair and maintenance and administrative costs.
e) In the footnotes to the financial statements, notably are the accounting policies followed, a comparison of reserve fund information with that contained in the latest reserve fund study (including future increases in reserve contributions), explanations where required of information included in the financial statements, commitments for contracts, long-term utility purchases, lawsuits, shared facility information and other significant events that may affect future operations.
Individual information needs, by contrast, reflect the particular interests of specific owners who seek detail in addition to that included in the audited financial statements and footnotes. Their concerns include, but are certainly not limited to such matters as; why expenditures are different from budget and/or last year; what is the detail of specific expenditures; what are future fee increases likely to be; and concerns over the quality and quantity of services (such as security, cleaning and landscaping) and how various decisions were made.
Almost all individual information needs can be addressed at the AGM or shortly thereafter. The auditor presents the financial statements and answers questions related to them, providing details of account groupings that are significantly different from budget or last year and answers owner's
questions on the balances in the financial statements and the information in the footnotes. Directors and management respond to questions outside the scope of the audit, most often questions related to quality and lifestyle concerns. Even with the best of preparation, however, it is not possible to have at the AGM all the information necessary to be able to answer every question that might be posed. When this happens, either the Auditor, Directors or Management, as appropriate to the question, will arrange to provide the details requested subsequent to the AGM.
In addition, under the Condominium Act, owners have access to corporate records not subject to privacy or other constraints and if there is a dispute over what information can be provided, owners can submit the matter, at nominal cost, for adjudication by the Condominium Authority Tribunal, an agency of the Government of Ontario.
It is worthy of note that, in addition to the information discussed above, further information is provided to or available to owners throughout the year through such vehicles as: newsletters and websites, the Notice of Future Funding of the Reserve Fund (issued with every reserve fund study update), budget documents for the next fiscal year; Periodic Information Certificates, New Owner Information Certificates and information contained in AGM Notices and Status Certificates.
In summary, annual financial statements provide common information to enable owners to evaluate the financial position and operations of the corporation and the stewardship of the Board and Management. To satisfy their individual information needs, owners can pose questions at the AGM; have access to other information throughout the year and have access to corporate records not subject to privacy or other legal constraints. In our opinion, when viewed in its totality, the annual audited financial statements and other information provided to or available to owners meets all common and individual needs for financial information and "transparency" is indeed possible.
DISCLAIMER, USE INFORMATION AT YOUR OWN RISK
This is solely a curation of materials. Not all of this information is created, provided or vetted by CCI. Some of the information is only applicable to certain provinces. CCI does not make any warranties about the reliability or accuracy of any information found in the materials on this website. The information is not updated to reflect changes in legislation or case law and therefore may not always be current and up-to-date. We suggest you seek professional advice with respect to your specific issues or regarding any questions that arise out of the material. We will not be liable for any losses or damages in connection with the use of any of the material found on the website.