HOA accounting rules play a critical role in protecting a community’s financial health, yet many board members feel uncertain about what those rules actually mean in practice. If you serve on an HOA board, you’re responsible for financial oversight. For most associations, that doesn’t mean handling daily accounting tasks yourself. Some self-managed boards may take a more hands-on role, but in all cases, the board remains accountable for the association’s financial health.
Because of that responsibility, understanding the basics of HOA accounting helps board members ask the right questions, recognize potential red flags, and make informed financial decisions without needing to be an accountant.
At RISE, we work with HOA boards across Texas to support clear, well-structured financial management. Even with professional management in place, having a working understanding of HOA accounting rules helps boards stay engaged, aligned, and confident in their oversight role.
Below, we break down the core HOA accounting rules every board member should understand and why they matter.
What Are HOA Accounting Rules?
HOA accounting rules are the standards and practices associations use to track financial activities, report revenue and expenses, and maintain accurate financial records. These practices help ensure consistency, transparency, and accountability for HOA board members and homeowners.
Strong HOA accounting isn’t just about compliance. It’s about understanding where money comes from, where it goes, and how today’s decisions affect the community long term. Clear accounting supports smarter budgeting, healthier reserve planning, and fewer financial surprises.
Financial Standards HOAs Commonly Follow
Accrual vs. Cash Accounting Methods
One of the first accounting concepts board members encounter is the accounting method their association uses. HOAs typically rely on one of three accounting methods:
- Cash basis accounting, which records income and expenses when money is received or paid
- Modified cash basis, which adjusts cash accounting to better reflect liabilities and prepaid expenses
- Accrual or modified accrual basis of accounting, which recognizes income when it’s earned and expenses when they’re incurred
Each method affects how financial reports look and how accurately they reflect the association’s obligations. While day-to-day execution is handled by the association’s management company and its accounting professionals, board members should understand which method the HOA uses so they can interpret financial reports correctly.
GAAP Guidelines for HOAs
Many associations follow generally accepted accounting principles, often referred to as accepted accounting principles GAAP, especially when required by governing documents, lenders, or auditors. While not every HOA is legally required to follow GAAP, using these standards improves consistency, transparency, and credibility, particularly when HOA financial statements are reviewed by homeowners or external professionals.
Texas Financial Disclosure and Recordkeeping Requirements
Texas HOAs must comply with state laws related to record retention, financial disclosures, and homeowner access to association records. Specific requirements can vary depending on the association’s structure and governing documents.
For board members, the key responsibility is making sure financial records are maintained accurately and that proper procedures are followed when owners request access to financial information.
Documentation and Transparency Obligations
Clear documentation builds trust and protects the association. Maintaining accurate invoices, bank records, an accounts payable report, and reconciliations supports informed decision-making and strengthens financial accountability.
Core HOA Accounting Rules for Budgets and Reserves
Annual Budget Creation and Owner Disclosure
Every HOA should adopt an annual budget that outlines expected revenue and expenses. This budget sets assessment levels and serves as the financial roadmap for the year. Board members are responsible for reviewing and approving the budget and making sure required disclosures are provided to homeowners.
Reserve Fund Contribution Planning
A reserve fund is used to pay for major future repairs and replacements, such as roofs, paving, mechanical systems, and other common elements. Proper reserve funding helps communities avoid unexpected special assessments and supports long-term financial stability.
Board members should understand how reserve contribution levels are determined, how often reserve studies are reviewed, and whether current funding aligns with future obligations.
Restrictions on Reserve Fund Usage
Reserve funds aren’t interchangeable with operating funds. Governing documents, reserve studies, and internal policies typically restrict how reserve money may be used. Boards need to make sure reserve withdrawals align with long-term planning recommendations and approved purposes.
Required HOA Financial Reports
Monthly Financial Statements
Board members should regularly review key financial reports, including:
- Balance sheets, which show assets, liabilities, and reserve balances
- Income statement reports, which detail revenue and expenses
- Cash flow summaries, which reflect the association’s liquidity
Together, these reports provide a snapshot of the HOA’s current financial position.
Bank Reconciliation Requirements
Monthly bank reconciliations confirm that internal records match bank statements. This is a critical internal control that helps catch errors, discrepancies, or irregularities early.
Annual Reporting and Member Disclosure
Most HOAs prepare annual HOA financial statements for homeowners. Depending on governing documents, association size, and lender requirements, this may include a financial compilation, review, or audit prepared by a certified public accountant.
Budget vs. Actual Variance Reports
Variance reports compare budgeted figures to actual results. Reviewing these reports helps boards spot overspending trends, revenue shortfalls, and areas that may need adjustment before issues escalate.
Assessment and Collection Rules
Billing Procedures and Required Notices
HOAs must follow proper billing procedures for assessments, including timing, delivery methods, and notice requirements outlined in governing documents and state law.
Late Fees, Interest, and Compliance
Late fees and interest must be applied consistently and in line with established policies. Clear documentation and uniform enforcement help ensure fairness and legal compliance.
Escalation Steps for Delinquent Accounts
Boards should understand the general escalation process for delinquent accounts, which may include pre-lien notices, liens, and foreclosure actions. Execution is typically handled by the association’s management company with support from legal counsel. Boards remain responsible for approving collection policies and ensuring they’re applied consistently.
What HOA Board Members Are Responsible For
Oversight and Financial Review (Not Daily Accounting)
Board members provide governance and oversight, not bookkeeping. Reviewing financial reports, asking informed questions, and approving key financial decisions are central to the board’s role.
Budget Approval and Reserve Monitoring
Boards approve annual budgets, monitor reserve fund balances, and make sure the association is financially prepared to meet future obligations without unnecessary strain.
Ensuring Financial Controls
Internal controls such as dual signatures, restricted account access, and separation of duties reduce risk and help protect association funds.
Delegating Daily Work to Professionals
Effective HOA financial management relies on clear delegation. Day-to-day execution is handled by RISE through its association management and accounting teams. Boards focus on governance, oversight, and long-term direction.
Why Choose RISE for HOA Financial Management
At RISE, HOA accounting is about more than accurate reporting. Along with transparent bookkeeping, consistent financial statements, and clear communication, RISE places a strong emphasis on financial planning and long-term stability.
Our team understands HOA finances at a deeper level, helping boards see how today’s decisions affect future budgets, reserve funding, and overall financial health. By combining expert guidance, strong accounting practices, and thoughtful financial planning, RISE helps associations stay organized, prepared, and positioned for secure, sustainable futures while keeping boards informed and confident in their oversight role.
Frequently Asked Questions
What accounting rules must an HOA follow?
HOAs must maintain accurate financial records, follow an approved accounting method, comply with governing documents, and meet applicable state disclosure and recordkeeping requirements. These rules help promote transparency and financial accountability.
Do HOA board members need to understand accounting?
Board members don’t need to be accountants, but they should understand how to read financial reports, ask informed questions, and recognize potential red flags. Their role is oversight, not day-to-day bookkeeping.
Are HOAs required to follow GAAP accounting standards?
Not all HOAs are required to follow GAAP. Requirements may come from governing documents, lenders, or audit standards. Even when it isn’t required, GAAP can improve consistency and credibility in financial reporting.
What financial reports should HOA boards review regularly?
Boards should review balance sheets, income statements, cash flow summaries, bank reconciliations, and budget-to-actual variance reports to maintain proper financial oversight.
Can an HOA use reserve funds for operating expenses?
Reserve funds are generally restricted by governing documents, reserve studies, and internal policies. Using reserves for operating expenses is typically discouraged and only allowed under specific, documented circumstances.
How often should an HOA conduct a financial audit or review?
The frequency depends on the HOA’s governing documents, size, and state requirements. Many associations complete annual financial reviews or audits to strengthen transparency and internal controls.
