This article discussing auditing and your owners corporation has been provided by Colin Young, Horizon Strata Management Group.
The Owners Corporation Act requires an Owners Corporation to keep proper accounts covering all of its income, expenditure, assets and liabilities and provide for the making of true and fair financial reports. The members/owners or appointed representative management committee are responsible for overseeing the management of the Owners Corporation’s financial records.
In many cases, an Owners Corporation Manager is engaged by the committee to maintain the accounts and financial records of the Owners Corporation. Such records form the basis of the Owners Corporation’s financial accounts and will be produced by the Owners Corporation Manager for audit purposes.
Section 35 of the Owners Corporation Act 2006 sets out the parameters around the requirement to have financial statements audited. In a nutshell, a prescribed Owners Corporation must have an audit, and any other Owners Corporation may have an audit of their annual financial statements. It seems safe to assume the legislators included this section to provide some financial protection for owners.
The audit is performed to provide owners with some comfort that the financial statements for their Owners Corporation present a true and fair view of the results for a particular year. It is conducted by qualified independent professionals who operate in a highly regulated and scrutinised environment. In some cases, however, the only time there is ever mention of the Auditor is via an Audit Report presented with the financial statements and included in the AGM notice.
It is important to remember the Owners Corporation is the client of the Auditor, and they are paid by the Owners Corporation. They operate independently of the Manager and can be an essential source of information for the Owners Corporation. Their role involves checking and commenting on records and procedures conducted by the Manager in accordance with Australian Auditing Standards, yet in most instances, they are appointed by the Manager. Interaction is with the Manager with there being very little or no interaction at all with the Owners Corporation committees.
The Manager’s role includes tasks like
- Preparation of the financial reports
- Implementing appropriate internal controls
- Assessing the Owners Corporation’s ability to continue as a going concern
- Providing Auditor access to relevant information
The Auditor’s role includes tasks like
- Identifying and assessing risks of material mismanagement of the financial reports
- Obtaining an understanding of internal controls
- Evaluating the appropriateness of adopted accounting policies
- Identifying the appropriateness of using the going concern concept
In most cases, an Auditor will initially prepare a letter of appointment which should include the objective and scope of the audit. It should also set out the responsibilities of both the Auditor and management. This letter could also be received and acknowledged by the Owners Corporation. This might extend an opportunity to the Owners Corporation to request the Auditor offer an opinion on other aspects of the financial health and status, and perhaps whether the Manager is complying with the Act and fulfilling all requirements under the Management contract. This could require an additional fee but could give the Owners Corporation further comfort.
In multi Owners Corporation environments, the annual fees for the audit can be in excess of $5,000. Imagine if this expenditure was for plumbing. It is most likely the Owners Corporation would require the Manager to have a scope of works and get 2 or 3 quotes. However, in the audit environment, the Manager may organise the Auditor with the only notice to Owners being the acknowledgment of appointment at the AGM and then the ultimate receipt of an Audit Report.
It could be prudent for the Owners Corporation to ensure that one of the terms of appointment is that the Auditor provides a final report to the Members/Owners of the Owners Corporation. This Report would typically contain an explanation of the audit process and the level of cooperation received from the Manager, Key Areas of Focus such as GST and Income Tax reconciliations, Arrears assessment, weaknesses in systems, etc. This Report can be of far more use to the Owners Corporation because of its detail compared to an Audit Report which just reports on a Qualified or Unqualified basis.
There is certainly no accusation of impropriety here, but Owners Corporation’s or their committees should think about establishing this direct relationship with their Auditor. This enables the Owners Corporation to check and understand the responsibilities of each of the parties, and play an active role in selection of the chosen Auditor. They should then have the opportunity to discuss the audit result with the Auditor and have any questions answered. This would be standard practice in a regular company audit.
This post appears in the September 2020 edition of The VIC Strata Magazine.
Have a question about auditing and your owners corporation or something to add to the article? Leave a comment below.Embed
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