By Clint Riddin
It is that time of year again, when many audit practices start auditing clients whose year-end is February. As the prescribed management rule in sectional title defaults a body corporate year-end to February, this means that by and large an overwhelming number of bodies corporate have February financial year-ends.
Given the need to hold an annual general meeting within four months of the annual financial year end and the concentration of clients that auditors have with February year-ends, trustees should consider changing the financial year-end of the body corporate; it is a relatively simple process, but we will deal with this in a later article.
Prescribed management rule (PMR) 37(1) of the Sectional Titles Act is the rule that requires a body corporate to have annual audited financial statements prepared and reads as follows:
|(1) The trustees shall cause to be prepared, and shall lay before every annual general meeting, for consideration in terms of rule 56(a), a financial statement in conformity with generally accepted accounting practice, which statement shall fairly present the state of affairs of the body corporate and its finances and transaction as at the end of the financial year concerned.|
It is very important to note that the rule refers to the trustees, not the owners or the managing agent; all responsibility and accountability starts and stops with the trustees. As such, trustees cannot then look to hold the managing agent or even the accounting officer or auditor responsible for any failure or defect that may occur with these financial statements.
Apart from the normal generally accepted principles associated with drafting financial statements, which we now refer to as International Financial Reporting Standards (IFRS), the Sectional Titles Act has a number of specific requirements that must be met. These are often overlooked by auditors as they draft financial statements in terms of IFRS and International Standards on Auditing.
One of these specific requirements is that PMRs 37(2)(a) to (c) need to be complied with. This rule and sub-rules read as follows:
|The financial statement shall include information and notes pertaining to the proper financial management by the body corporate, including:|
|(a) an analysis of the periods of debts and the amounts due in respect of levies, special levies and other contributions;|
|(b) an analysis of the periods and the amounts due, owing by the body corporate to the creditors and in particular to any public or local authority in respect of rates, taxes and charges for consumption or services, including but not limited to, water, electricity, gas, sewerage and refuse removal;|
|(c) the expiry dates of all insurance policies.|
There are a number of other specific aspects that need to be checked, complied with or reported on, such as:
|(a) establish that his or her firm’s appointment is reflected in the minutes of the annual general meeting; a suitable engagement letter should also be in place;|
|(b) check whether any management or conduct rules have been added, amended or deleted, to enable the auditor to give the confirmation required by PMR 56(i), that is to confirm that a notification of any such change has been submitted to the Registrar of Deeds for filing;|
|(c) ensure that any restrictions imposed on or directions given to the trustees by the members at any general meeting in terms of section 39(1) of the Act have been complied with;|
|(d) ensure that all documents and contracts have been signed by at least two trustees or a trustee and the managing agent and, where appropriate, are supported by a resolution of the trustees that has been formally and correctly minuted; and|
|(e) ensure that the levies have been determined correctly in terms of the Act read with the scheme’s rules, i.e. either in accordance with the participation quotas or any rule made under section 32(4) of the Act, and that persons who hold exclusive use rights to areas of common property have made additional contributions as required by the proviso to section 37(1)(b) of the Act;|
|(f) confirm that all the required minutes have been kept and that they record the transactions underlying the accounting entries, e.g. the approval of the budget at the AGM and the trustees’ raising of levies; and|
|(g) ensure that all accounting has been carried out in terms of the Act and the scheme’s rules.|
The above is a synopsis of the many aspects that must be carefully considered when appointing the professionals involved in carrying out functions like the audit, which invariably also includes preparing the annual financial statements on behalf of the trustees, but which cannot take the responsibility from the trustees; so it is vital that the trustees work closely with professional firms who specialise in sectional title matters and also take cognisance that to meet all accounting, auditing, tax and sectional title needs may mean that higher accounting and auditing fees may be necessary.
Article reference: Paddocks Press: Volume 6, Issue 3, Page 3
Clint Riddin of Clint Riddin & Associates is a sectional title accountant specialised in accounting, income tax and secretarial services to bodies corporate. Clint will be offering a free talk to interested persons/trustees about the audit process and what to expect from the accounting officer or auditor on the 10th May in Cape Town, and in June in Port Elizabeth. For more details or to book your seats please contact Melissa on 021 939 9874 or email@example.com.
This article is published under the Creative Commons Attribution license.