September 2009 Developments - 60

HOAs Governing Your Timeshare Association and Your Audit n an effort to provide additional transparency in the auditing process, The AICPA issued Statement of Auditing Standards (“SAS”) 114—“The Auditor’s Communication with Those Charged with Governance.” It is effective for years ending December 31, 2007, or later. This statement broadens the applicability of prior pronouncements to include all audits and requires the auditor to communicate with “those charged with governance” certain pertinent issues dealing with the audit. This standard was primarily issued as a response to perceived audit weaknesses and scandals of recent years and to ensure better communication between auditors and “those charged with governance.” So, the question is: who are “those charged with governance” in a timeshare association? Let’s start with deﬁning the term. The SAS deﬁnes them as individuals in the organization that are charged with the responsibility for overseeing the strategic direction of the entity and the obligations related to the accountability of the entity, including overseeing the entity’s ﬁnancial reporting process. In a timeshare owners association, those charged with governance could include the following: (1) Board of Directors; (2) management company personnel; (3) Audit or Finance Committee; (4) on-site manager (self-managed resorts); (5) on-site accountant (self-managed resorts); and (6) outsourced accounting personnel. Once the appropriate group or groups have been identiﬁed, the auditor will be communicating the following key items. Steven M. Brettholtz, CPA I their responsibilities. This communication is usually provided through the engagement letter to those charged with governance. Overview of Planned Scope and Timing of Audit This type of communication provides a summary of the scope and timing of the audit, including describing the concept of materiality used in planning, as well as performing the audit. • Disagreements with management. If applicable, there would be a paragraph detailing any disagreements with management regarding the application of accounting principles, scope limitations, disclosure issues, and any other signiﬁcant items that could affect the auditor’s report. • Independence. If appropriate, this would include anything in the auditor’s judgment that could affect the appearance of independence. • Material corrected misstatements. Any misstatements that arise out of the auditor’s procedures. • Representations requested from management. A copy of the representations from management would satisfy this requirement. • Management’s consultation with other accountants. What, if any, consultations occurred and what the accounting or auditing items that were being consulted on. • Signiﬁcant issues discussed with management. What, if any, issues were discussed with management, either dealing with accounting principles or auditing standards, economic conditions, or plans that could affect the risk of any material misstatement. Even with the addition of SAS 114, the following additional communication requirements still exist if applicable: • The auditor is required to communicate any illegal acts by the association. (SAS 54) • The auditor must make inquiries regarding the risks of fraud and the knowledge of any fraud or suspected continued on page 69 Any Signiﬁcant Findings Found in Audit With regard to signiﬁcant audit ﬁndings, the auditor should communicate the following: • Qualitative aspects of entity’s signiﬁcant accounting policies. This will include whether or not the accounting policies were appropriate for the association, what management’s internal policies were for identifying and establishing the signiﬁcant estimates, and the required disclosures in the ﬁnancial statements. If the auditor found an accounting practice to be incorrect, this should be communicated along with the suggested changes. • Signiﬁcant difﬁculties encountered during audit. This would include scope limitations imposed by management, whereby the auditor was precluded from obtaining the necessary evidential matter— including delays in receiving information, lack of management’s cooperation, and unrealistic time constraints imposed by management. • Uncorrected misstatements. This would include disclosing any uncorrected misstatements and what effect they would have on the auditor’s opinion; including the implications of management’s failure to correct them. Auditor’s Responsibilities under Generally Accepted Auditing Standards While the auditor is charged with forming an opinion on the ﬁnancial statement taken as a whole, it does not relieve those charged with governance of 60 Developments • September 2009

September 2009 Developments

Table of Contents for the Digital Edition of September 2009 Developments