Annual Financial Statement: HUD's Audited Reporting Rule

Key points

• Prepared in accordance with GAAP and HUD's supplemental guidance.
• Audited by an independent licensed CPA under both government auditing standards (GAGAS) and generally accepted auditing standards (GAAS).
• The CPA also performs agreed-upon procedures comparing the electronic submission to the audited report.
• Due within 90 days of fiscal year end under form HUD-92466M, or another period HUD sets in writing.
• If the borrower fails to comply, HUD may order a forensic audit without first giving notice of violation.

What the Regulatory Agreement requires

Section 18 of the multifamily Regulatory Agreement requires the borrower, within 90 days after the end of each fiscal year (or another period HUD sets in writing), to prepare a financial report based on an examination of its books and records in accordance with GAAP, in the form HUD specifies under the Uniform Financial Reporting Standards at 24 CFR 5.801. Partial-year reports are required for the period after an owner takes over or before a permitted transfer.

Unless waived or exempt, the borrower must engage an independent licensed CPA to audit the report under GAGAS and GAAS, engage a CPA to perform agreed-upon procedures comparing the electronically submitted financial data to the audited report, and furnish the audit and related reports to HUD. Certain nonprofit borrowers may have modified requirements, but those do not relieve them of the rest of the section. Confirm current deadlines and filing procedures with the servicer, since HUD can set periods in writing.

What the statement includes

Because the auditor tests compliance as well as numbers, findings such as unauthorized distributions or undocumented expenses will appear in the report HUD reads.

• Balance sheet, statement of operations and cash flows for the borrower entity.
• Supporting schedules HUD requires, including reserve activity and accounts payable.
• The surplus cash computation for the fiscal year (and mid-year, if used).
• Disclosure of related-party transactions, identity-of-interest payments and owner advances.
• The auditor's reports, including any findings on compliance with HUD requirements.

Why it matters beyond compliance

The annual statement is the record HUD and future lenders will rely on. A 223(a)(7) refinance, a supplemental loan, a Transfer of Physical Assets or a future sale all draw on these reports. A clean audit history shortens each of those processes, while late filings or repeated findings can complicate previous participation review for the principals on later deals.

Late or missing filings are also visible. The agreement lets HUD initiate a forensic audit of the borrower's books if the borrower fails to perform, at HUD's election and without first giving notice of violation, and the borrower still owes the audited report.

Preparing during the bridge period

The HUD application itself relies on financial statements: the MAP Guide requires the most recent full year to have a third-party CPA or IPA review. Owners who use the bridge period to set up HUD-ready accounting (a chart of accounts that maps to HUD reporting, monthly closes, separate property bank accounts, documented related-party charges) find both the application and the first post-closing audit easier.

Pick a fiscal year end deliberately. Some owners align it with tax reporting; others choose a date that avoids the auditor's busiest season. Either way, the choice determines when surplus cash can first be distributed.

What borrowers should watch for

Choose an auditor with HUD experience; the HUD-specific procedures and electronic submission differ from a standard commercial audit. Start the audit early enough to meet the deadline. Keep invoices for all expenses, since undocumented expenses are ineligible under the Regulatory Agreement. And confirm that the property's management agent maintains records in the form HUD requires, because the agreement makes those records available to HUD and requires them to stay with the borrower if the agent is terminated.

How it connects to other HUD terms

The annual financial statement is the reporting arm of the Regulatory Agreement. It carries the surplus cash calculation, shows replacement reserve activity, and supports the underwritten NOI for any future HUD transaction. Section 232 operators and borrowers have parallel reporting requirements under their own regulatory agreements and ORCF guidance.

Where to go next

For common post-closing questions, see HUD loan FAQ.

Related guides: After the HUD Closing: Asset Management Obligations; Bridge-to-HUD Document Checklist by Stage; The First-Time Borrower’s Guide to a HUD Exit.

Related terms: Surplus Cash: How HUD Limits Owner Distributions; Regulatory Agreement: The HUD Contract That Governs Operations; Replacement Reserve: How HUD Sizes and Controls It; Previous Participation (2530) Review in HUD Lending.

For portfolio figures by state, metro and program, see the HUD multifamily data hub. Bravo Capital’s record: all 26 HUD firm commitments received since April 2022 have closed, totaling $526.0 million (HUD Closing Scorecard).