| ID | Status | Date | Public/Private | Industry | AHACPA Contact |
|---|---|---|---|---|---|
| #7285 | Closed | public | Multifamily | Les Sparks |
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What I hope is a quick question – we audit 4 For-profit properties. All have the same ownership and are managed by the same third party management agent. We had 1 of the 4 go through a refi this year. The management agent did not and was not able to record the new debt, associated loan issuance costs, accrue interest, etc. They rely on us as auditors to make these entries. We are considering including this as a finding, as the property doesn’t ensure that it has an adequate accounting staff to adjust its books. The question that I have is – does this finding apply to all 4 properties because the other 3 are guilty by association? Or, just the 1 because it’s the only one that required such an entry in the current year? I’ve had a really hard time finding anything through HUD or other resources to guide me. |
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From Les Sparks: In general if the finding has to do with an internal control weakness over its ability to correctly record these complex transactions, then I guess that they do not have it at any other project. I refer to this as the “blind luck” defense. It is only from blind luck that they did not have this transaction at each site. However, I might offer an alternative theory. This theory assumes such transactions are similar to other accounting/bookkeeping items, such as complex cash flow issues. Does the client need to be able to perform it or just have the SKE to accept responsibility for the entry. You propose and they approve. I’ll bet if you describe how you determined the entry, that they will be able to understand and approve. If they do not have the SKE, then you are going to have an issue with independence with or without a finding. I clearly know NOTHING about your circumstances, but we see a lot of these transactions being done without findings. I can only suppose that is how they do it. However, if you decide on the finding, my guess is that it applies to everything. Les |