Every year, thousands of NSW strata schemes receive an audit report. Many committees glance at it, file it away, and move on. But understanding what a strata audit actually involves, what auditors are looking for, and what the results really mean can make a significant difference to your scheme. In a recent LookUpStrata webinar, Matthew Faulkner from Matthew Faulkner Accountancy walked owners and managers through the process from start to finish.
NSW: Strata audits – what they are, what they cover and why they matter
The auditor works for the owners, not the strata managing agent
Even though the strata manager typically engages the auditor and answers their questions, the auditor’s obligation is to the owners corporation. Their job is to provide confidence that the figures in the financial statements are correct. The focus is on the balance sheet, income and expenditure, levy positions, creditors, and debtors. There are clear rules around what financial information strata managers must provide to owners, and the audit sits within that broader framework of transparency.
One of the first things an auditor checks is whether the agent’s fees match the terms of the managing agency agreement. This contract overrides everything else, including the budget. As Matthew explained, the budget is simply a plan, a rough estimate of what might be charged during the year. Strata managers shouldn’t charge fees not mentioned in the contract. Importantly, auditors check for both undercharging and overcharging. If a manager forgot to apply a CPI increase or a contracted annual fee adjustment, the auditor will flag it. That’s money the agent is entitled to, and a good auditor will find it.
What does the audit process look like?
Matthew described how an audit begins. The strata agent sends a work order, and the auditor gets to work. They download the full general ledger and work through the transactions. Anything over $5,000 gets checked against the invoice and the approvals. Then it comes down to sampling and experience. After 15 years, Matthew said, you can look at a set of accounts and quickly get a sense of when something looks off. That’s where the questions start.
It’s important to remember that audits are not foolproof. The auditor doesn’t check every transaction, and on rare occasions things can be missed. But unusual patterns get questioned, and the process provides a very high level of assurance. The auditor also independently confirms that bank balances are real and that term deposits actually exist. Matthew noted he had encountered one case in which a term deposit that appeared in the financials did not exist.
Tell the auditor what you know before they start
Several attendees raised this in chat during the session. If you’re an owner or a committee member who has noticed that something doesn’t add up, don’t wait until after the audit to raise it. Contact the auditor before they begin.
A general ledger can contain hundreds or thousands of transactions. The auditor uses sampling, not a line by line check, so a specific concern you have may not automatically fall within their scope. If you flag it early, they can make it a focus. That avoids the back and forth later and can reduce the audit’s overall cost.
According to Matthew, the more information owners and managers share upfront, the better the outcome for everyone.
Why should strata managers welcome audits?
Strata managers who encourage audits are demonstrating the kind of transparency their owners rely on. A clean audit result is a genuine tick of confidence for everyone, and it gives owners independent assurance that their scheme is in good hands. Agents who discourage audits raise questions about what they don’t want asked.
There is also a practical benefit that many managers overlook. The audit process can catch issues that would otherwise cause problems later, including incorrect GST treatment, duplicate payments, and unrecorded accruals. Auditors will often suggest journals to fix these things and are generally there to help, not to find fault. Matthew has also written separately about how strata budgets should reflect past expenses, expected increases and owner priorities, which is worth reading alongside this session.
Does your scheme need an audit?
Not every scheme needs an audit, but more do than most people realise. In NSW the trigger is either more than 100 lots, excluding car spaces, or cash at the start of the year plus total revenue during the year exceeding $250,000. Matthew flagged that second trigger as one that regularly catches schemes off guard. Most people assume it refers only to levies. It doesn’t. It includes all income from any source. If you’re not sure whether your scheme qualifies, read more about the process to appoint an auditor and when an audit is required.
The licence audit changes are coming for managers
For strata managers, there is a separate and increasingly urgent obligation. Strata managers must lodge trust account licence audits with NSW Fair Trading by 30 September each year. Late lodgement attracts fines of $550 for individuals and $1,100 for corporations. More significantly, Matthew confirmed he has spoken directly with people at NSW Fair Trading, and the link between trust account audit lodgement and licence renewal is coming. If you have not been lodging, now is the time to get on top of it.
Presentation slides
If you are interested in accessing a copy of Matthew’s presentation slides, please reach out to him directly using the contact details below.
This article is based on the LookUpStrata webinar “Strata Audits: What They Are, What They Cover and Why They Matter” presented by Matthew Faulkner from Matthew Faulkner Accountancy in June 2026.
This post appears in Strata News #797.
Matthew Faulkner Matthew Faulkner Accountancy PTY LTD E: matt@mattfaulkner.accountants P: 0438 116 374