Financial statements are usually prepared by the committee or the manager and adopted at an AGM. However, are there extra requirements to make sure that the financial statements are audited?
Owners corporations that consist of more than 100 lots must cause their financial statements to be audited each year in accordance with Section 35 of the Owners Corporations Act 2006. That audit must be conducted by a registered company auditor, a firm of registered company auditors or a person who is a member of CPA Australia, Chartered Accountants Australia and New Zealand or the Institute of Public Accountants Australia and New Zealand and is authorised to conduct the audit by one of those bodies.
A Tier one OC may apply to seek an exemption to audit its financial statements by making an application to the director. This might be done in circumstances where records are destroyed or lost.
Owners corporations with more than 50 but less than 99 lots must cause their financial statements be reviewed by an independent person who is a member of and holds a current practising certificate from CPA Australia, the Institute of Public Accountants or Chartered Accountants Australia and New Zealand.
The purpose of an audit of financial statements is to provide an independent reasonable assurance that the Owners corporation’s financial statements present a true and fair view of the accuracy of the Owners corporation’s financial statements. A standard audit may not necessarily provide an assurance that the financial statements are free from all misstatements.
So what about other owners corporations?
Other owners corporations are entitled to resolve by ordinary resolution that their financial statements, which must be presented at each Annual General Meeting, are to be audited or reviewed.
Are there any other requirements?
A person who audits or reviews the financial statements of an owners corporation must provide the owners corporation with a written report of that audit or review.
Financial statements must be prepared in accordance with the Australian Accounting Standards (which has the same meaning as in the Associations Incorporation Reform Act 2012, which are the standards adopted by the Australian Accounting Standards Board from time to time).
Annual financial statements prepared may either be General Purpose Financial Reports or Special Purpose Financial Reports as defined by the Australian Accounting Standards Board.
Can a lot owner who is an accountant audit or review the financials?
No, section 35 (8) of the Owners Corporations Act 2006 states that a person must not be engaged to audit or review the financial statements of an owners corporation if a person has a direct or indirect personal or financial interest in the owners corporation.
Summary
Some owners corporations require an audit or review of their financials each year. Owners corporations can also elect to have their financials reviewed and audited. If the owners corporation has a significant budget, it is important that they do conduct audit or reviews regularly to ensure that everything is being done correctly.
A person who performs an audit must provide a written report of the audit to the owners corporation, which then forms part of the owners corporation’s records and may be inspected free of charge by any lot owner who arranges an inspection of the records at any reasonable time.
Make sure the person or company doing your owners corporation’s audit is independent and qualified.
This post appears in Strata News #790.
Phillip Leaman
Tisher Liner FC Law
E: ocenquiry@tlfc.com.au
P: 03 8600 9370
This article has been republished with permission from the author and first appeared on the Tisher Liner FC Law website.
A normal audit is clearly limited in its analysis focussing on “a true and fair view of the accuracy of the Owners corporation’s financial statements”, and “may not necessarily provide an assurance that the financial statements are free from all misstatements.”
It would seem sensible for an OC to commission a more thorough forensic Financial and governance audit of the strata manager’s financial governance from time to time.
Could the need for such forensic audits be examined in a future article please? And are there accounting firms who have sufficient knowledge of strata management practices to conduct such an audit?
Hi Peter
Please take a look at our Directory site for relevant service providers: Vic Financial Auditors.