Flashcards in Chapter 5 Deck (11):
Define financial audit.
a formal review of an organizations financial records.
Describe the purpose of the audit function.
To verify the credibility of a firm's financial information.
Define the following terms:
*sampling-process to gather data needed for an audit
*audit trails-record of every financial transaction associated with a property
*audit opinions (qualified vs unqualified)-written statement regarding financial records. qualified=concerns; unqualified=no concerns
*GAAP-standards and procedures for treating and recording accounting transactions
GAAS-(Generally Accepted Auditing Standards)-policies and procedures governing audits
audit points-a formal letter from an auditor that lists deficiencies in a companies accounting records or controls
Identify and describe the three categories of auditors.
1) internal-company's own employees conduct audit
2) independent-contracted auditors
3)other- governmental, regulatory, credit agencies
Identify four of the more common types of audits that management firms commonly use, and describe their purpose.
compliance audits-verify if complying with policies and procedures
tax audits-review of records for tax compliance
utility audits-audit of utility usage
tenant audits-make certain tenant is reporting sales
List the six basic steps used by asset managers to audit property management companies, and describe the components of each step.
pre-audit letter-establishes date, location, and subject of audit.
pre-audit interview-develop positive relationship, discuss concerns, segregation of duties, and mitigating circumstances
audit-lasts one to two weeks. review of documentation
exit interview-discussion of audit points
post-audit letter and audit report-formal listing of audit points
audit response-management's response to audit letter with defense or explanation of audit points and commitment to correct any problems.
What are some other types of auditors you have encountered in your role in the real estate industry?
In addition to internal and independent auditors, other types of auditors may be governmental auditors, regulatory auditors, and credit agency auditors.
Discuss examples of items asset managers may need to audit in relation to the property management function.
Audits related to property management may include a review of a property manager's record-keeping ability, a review due to the sale of a property, or as a response to an operational issue-such as suspected incorrect billings.
How does a tax audit differ from a compliance audit?
Compliance audits focus on whether or not a firm is complying with policies and procedures.
Tax audits focus on classification of expenses and income.
Why is the exit interview portion of the audit process so important?
Because sometimes management can eliminate audit points from being formally listed on a post-audit letter by clarifying organizational issues.