Everything You Need to Know to Unlock the Financial Statement

Over the past week, we’ve given you the keys to unlocking the audited financial statement. After starting with the Auditor’s Opinion and Operating Results, we moved on to Reserves and Security Deposits. Today we complete the key chain that will enable every co-op and condo board member to understand the financial statement and, more importantly, explain it to shareholders and unit-owners at the annual meeting. Here are the last two keys: 

ACCOUNTS PAYABLE. The balance sheet has a line item for accounts payable, which means outstanding bills. Compare this year’s figure with last year’s. If it’s substantially higher, it’s prudent to explain the increase in a note, says Carl Cesarano, a principal at the accounting firm Cesarano & Khan. “Things can have variances,” he adds. Maybe this was the year the building started to undergo major facade repairs or an elevator replacement. “But the explanation needs to makes sense. If we don’t have enough cash to pay our bills, that’s a major problem.” 

COMMERCIAL RENT. In buildings that rely on commercial tenants for revenue, board members should check the notes for details on existing lease agreements, paying particular attention to when those leases expire, says Michael Esposito a CPA at WilkinGuttenplan. The notes should give the approximate minimum rents for the next five years. If an agreement is close to expiration, the board will want to discuss whether it wants to renew the tenant’s lease, and if so, whether the rent should remain the same, rise, or come down. The prevalence of vacant retail space in the city might come into play in this conversation.

“I’ve had some co-ops that have gone a significant amount of time without rental income, either because they couldn’t find a new tenant or were being very picky about who they wanted for a tenant,” Esposito says. “Shareholders have to pick that up.” This is one area, among many, where boards need to be realistic.