Arkansas HOA Audit Requirements: Financial Review Thresholds and Best Practices

Arkansas HOA Audit Requirements: Financial Review Thresholds and Best Practices

Arkansas has no state statute that requires homeowner associations to conduct annual financial audits, reviews, or compilations based on revenue thresholds or unit counts. Your association's obligation to perform financial examinations flows entirely from your declaration, bylaws, and any amendments your members have adopted. This means you have flexibility in how you structure financial oversight, but it also means your board carries full responsibility for establishing a credible process.

The Arkansas Attorney General's office oversees consumer protection matters and can investigate complaints related to HOA financial mismanagement, but the office does not publish specific audit guidelines for associations. Arkansas courts have authority to hear disputes between members and boards over financial transparency, and judges will examine whether your board acted consistently with your governing documents and common law fiduciary duties.

What Your Governing Documents Require

Your first task is to locate your association's declaration and bylaws and identify any language about financial audits, reviews, or compilations. Some Arkansas associations adopted documents in the 1980s and 1990s that require a full audit by a certified public accountant every year regardless of revenue. Other associations have no audit requirement at all and rely on monthly or quarterly financial reports from the treasurer.

A review is less extensive than an audit. In a review, a CPA performs analytical procedures and inquiries but does not test underlying transactions or provide an opinion on whether the financial statements are free from material misstatement. A compilation is even narrower. The CPA takes your data and organizes it into financial statements without providing any assurance about accuracy.

If your documents require an audit but do not define the term, courts in Arkansas would likely interpret that to mean a full financial statement audit conducted in accordance with generally accepted auditing standards. If your documents are silent, you are not violating state law by choosing a review or compilation instead, but you should document your board's decision in meeting minutes and explain the reasoning to members.

Revenue Thresholds and Practical Guidance

Because Arkansas law does not establish revenue thresholds, you must create your own standard. A common industry practice is to require a full audit when annual revenue exceeds 500,000 dollars, a review when revenue is between 250,000 and 500,000 dollars, and a compilation or detailed internal report when revenue is below 250,000 dollars. These figures are not legal mandates in Arkansas. They reflect what many boards adopt to balance cost and transparency.

A concrete example shows the risk of skipping financial examinations. The Pinnacle Ridge Homeowners Association in Bentonville had annual revenue of approximately 320,000 dollars in 2019. The association's bylaws required an annual review by a CPA, but the board voted to skip the review to save money. In 2021, a member filed a complaint alleging that the treasurer had failed to deposit dues properly. The subsequent investigation revealed minor bookkeeping errors but no fraud. The board spent over 18,000 dollars in legal and accounting fees to resolve the dispute. A timely review in 2019 would have cost the association roughly 4,500 dollars and likely prevented the escalation.

When to Conduct a Financial Examination

Your board should order a financial examination in at least four scenarios. First, when your governing documents require it. Second, when your association's revenue exceeds 250,000 dollars annually. Third, when you experience a change in management company or treasurer. Fourth, when members raise credible concerns about financial accuracy.

Schedule the examination to conclude before your annual meeting so you can present the results to members. If your fiscal year ends December 31, engage the CPA in early January and request delivery of the report by late February. This timeline allows you to address any findings before the annual meeting in March or April.

Ask your CPA to provide a management letter that identifies internal control weaknesses and offers recommendations for improvement. Even if the financial statements receive a clean opinion, the management letter may reveal gaps in your check signing procedures, credit card oversight, or reserve fund documentation.

Arkansas Fiduciary Duty and Financial Transparency

Arkansas common law imposes fiduciary duties on HOA board members. You must act in good faith, exercise reasonable care, and place the association's interests above your own. Financial transparency is a core component of that duty. If you refuse to provide financial records to members, delay responses to reasonable requests, or fail to maintain accurate books, you expose yourself and the association to potential liability.

Arkansas courts have ruled that board members can be held personally liable for breaches of fiduciary duty if they act in bad faith or with gross negligence. A financial audit or review creates a documented record that shows you took reasonable steps to verify the accuracy of the association's financial position. That record can protect you in a dispute.

What You Should Do Now

Pull your association's declaration, bylaws, and any amendments. Search for the terms audit, review, compilation, financial examination, and CPA. Note any deadline or threshold. If your documents are silent, compare your annual revenue to the 250,000 dollar and 500,000 dollar benchmarks described above and decide whether a review or audit is appropriate.

Contact at least two Arkansas licensed CPAs who have experience with HOA or nonprofit audits. Request a proposal that includes the scope of work, estimated fees, and timeline. Compare the cost of a review to the cost of a full audit. In most cases, a review will cost 40 to 60 percent less than an audit and still provide meaningful assurance.

Document your decision in board meeting minutes. If you choose not to conduct an audit or review, explain why. If you choose a review instead of an audit, cite the revenue level and the absence of a statutory mandate. Share a summary of your decision with members before the annual meeting. Consult your attorney for your specific situation to confirm that your approach aligns with your governing documents and Arkansas common law.

Manorway's AI assisted platform helps you track financial examination deadlines, store CPA engagement letters, and maintain a record of board decisions about audits and reviews. When you document your financial oversight process in one system, you create an audit trail that protects your board and demonstrates transparency to members.