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Publications Understanding Your Co-op's Audit Return to Bookstore Understanding Your Co-op's Audit   Every year you get a copy of the audited Financial Statements of your co-op. The members discuss and approve them at the Annual General Meeting. An accountant (called the auditor) has gone through the co-op's books. The "audit" is the report telling the members what the auditor found. The Auditor's Report On the first page is a short report from the auditor to the members. The first paragraph of the report tells members that the financial statements are the responsibility of the board of directors. The auditor's responsibility is to audit the statements. The second paragraph tells the members the tests that the auditor made. The third paragraph gives an opinion on whether the statements show fairly the co-op's financial position and operating results. If there is a fourth paragraph, ask questions. The auditor may be pointing to a problem. Sometimes auditors also point to a problem by saying "except that . . ." . The Balance Sheet The Balance Sheet shows the co-op's position on the last day of the financial year. Usually it is on two pages. On the first page is a list of what the co-op owns (assets). On the second page is a list of • what the co-op owes (liabilities) • what the members have contributed (for example, membership fees) • what the co-op has earned since it started (retained earnings). If the Balance Sheet is on one page, this list will be on the bottom of the page. It is called a Balance Sheet because the total on page 1 equals the total on page 2. They balance. Start by looking at the assets on page 1. (If the Balance Sheet is on one page, the assets will be at the top.) This is what the co-op owns. Key things to look for are: (a) Cash and investments. Is there a good balance between cash and investments? Where is the co-op's money? Is it only in a savings account? Is it in term deposits or treasury bills? Could it be getting a better rate of interest? (b) Accounts receivables - members. These are members' arrears. What is the co-op doing to collect them? (c) Reserve Funds. The balance should match the one under liabilities on page 2. If they do not match, ask why. Note that the co-op needs permission to use the Replacement Reserve. (d) Fixed Assets. If they are higher than the previous year, the co-op has probably made some major purchases. Ask for details. Then look at Liabilities. This lists what the co-op owes. Key points to look at are: (a) Accounts payable. This should be a low figure. If it is high, ask why. (b) Reserves. This should equal the total of Reserve Funds on page 1. Also on page 2 (or the bottom of the page), look at Members' Equity (or Net Assets). You will see these lines: ILM deficit. This line is for a co-op that: • receives its subsidy from Canada Mortgage and Housing Corporation (CMHC), and • borrowed mortgage funds through an Index Linked Mortgage (ILM). It shows the mortgage interest charged by the mortgage company. The co-op will pay this interest sometime in the future. Contributed Surplus. This shows membership fees and members' donations. Retained Earnings. This shows the surplus (or loss) that the co-op made since it started. Was there a large increase or decrease last year? This will tell you how accurate the budget was last year. If there is a surplus, you could ask about plans to use it. Some auditors say "Operating Fund" instead of "Retained Earnings". If there is an "accumulated deficit" (loss), the co-op should plan to make up the loss through higher housing charges. Statement of Subsidy Reserve If your co-op was built between 1979 - 1986 under the 56.1 agreement, you will find this statement on the next page. It shows what Canada Mortgage and Housing Corporation (CMHC) gave to the co-op for "geared-to-income" subsidies, and how much the co-op used. Check how much is in the Reserve. More or less than last year? Co-ops under the 56.1 agreement may keep $500 per unit, plus interest, in the Reserve. They must send the excess back to CMHC. Statement of Reserve for Future Capital Replacement This Reserve holds money the co-op will need for replacements for its building and appliances. This statement shows how much was added or spent last year, and the total in the Reserve at year-end. Does the co-op have enough in the Reserve? Are there plans to use any of the Reserve this year? What has the co-op done to be sure that its Reserve is big enough? Statement of Contributed Surplus This shows how much members have paid in membership fees. If the amount increased by much last year, it means that the co-op has a number of new members. Statement of Retained Earnings This statement shows the surplus, or loss, of the co-op last year, plus the total of surpluses and losses from previous years. If a co-op is planning its annual budget well, there should not be any big surprises in Retained Earnings. If there are, the co-op should look at how it prepares its budget. The Retained Earnings belong to the co-operative. It is a good idea to have a plan for using them. They can be put into a Reserve, or used for special projects. Statement of Income and Expense (may be called "Revenue and Expenditures") It shows how much the co-op received and spent during the year. It also shows the surplus or loss for the year. Look at each line and compare the figure for the last year with that of the previous year. Compare the figures also with the budget. Check that the Housing Charge Income matches the budget figure. If the budget figures are not shown, ask why. You will find the bottom line figure (Net Operating Surplus/Loss) also in the statement of Retained Earnings. Note: Co-ops with several properties may have figures for each property. Administrative Expenses Usually the auditor attaches a list to the Statement of Income and Expense. This is a breakdown of the expenses of the administration of the co-op. Compare the actual figures to the budget. Ask about any big differences. Statement: Due to and from the Ministry of Municipal Affairs and Housing This statement is for co-ops that receive their subsidy from the Ministry of Municipal Affairs and Housing. It shows how much the co-op received, and how much is left over at the end of the year. The co-op has to pay back to the Ministry any subsidy money it did not use. Check when and how the co-op must pay if it owes money to the Ministry, or when the co-op will receive any money due from the Ministry. Statement of Changes in Financial Position This statement shows how the co-op got funds during the year and how it used them. The co-op needs "current assets". That is, cash or assets that can be changed into cash within 12 months. It needs "working capital" to supply cash when needed. Look to see that there is a good "cash position", or "current assets" at the end of the year. Notes The auditor makes a number of notes that refer to items in the statements. If you do not understand any of the notes, ask questions. If possible, write your questions about the audit and send them to the office a few days before the meeting. 24 hour housing information (416) 465 - 1309 Email: info@coophousing.com