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New audit requirements for sectional tittle schemes explained

07 Nov 2016

In the past, where the Sectional Titles Act of 1986 rules and regulations were in force, it was only those sectional title schemes with ten units or more that had to have their schemes audited.

“One noteworthy aspect of the new audit requirements is that the registered auditor must be independent of the scheme and must not have been involved in the preparation of the annual financial statements, nor should he or she have advised on any aspect of the body corporate’s accounts during the period been reported on,” says Bauer.

If there were fewer than ten units, the financial statements could be signed off by an auditor or accounting officer, and the choice was left to the body corporate as to which to employ.

Now that the new Sectional Title Schemes Management Act is in force, however, replacing the old, all sectional title schemes - no matter the size - must have their financial records audited each year, and these must be presented at the Annual General Meeting, which should be held within four months of the end of the financial year, says Michael Bauer, general manager of property management company IHFM. 

This is according to The Sectional Titles Schemes Management Regulations, 2016, where the Management Rules in Annexure 1 state:

26(5) The audit of a body corporate’s annual financial statements:

1. Must be carried out by an independent auditor who has not participated in the preparation of the annual financial statements or advised on any aspect of the accounts of the body corporate during the period being reported on.

2. Need not be carried out in accordance with any recognised framework of guidelines for financial accounting.

3. Must include opinions as to whether or not:     

3.1. The annual financial statements accurately reflect the financial position of the body corporate for the financial year under review, with such qualifications and reservations as the auditor considers necessary.

3.2. The body corporate has complied with the accounting requirements set out in rules 21, 24 and this section, with a specific description of any failure to comply with such requirements;

3.3. The books of account of the body corporate have been kept and its funds have been managed so as to provide a reasonable level of protection against theft or fraud; and

3.4. The financial affairs of the body corporate appear to be effectively managed; ?

4. Must be completed within four months of the end of the body corporate’s financial year.

“One noteworthy aspect of the new audit requirements is that the registered auditor must be independent of the scheme and must not have been involved in the preparation of the annual financial statements, nor should he or she have advised on any aspect of the body corporate’s accounts during the period been reported on,” says Bauer. 

“This requirement may seem onerous and perhaps unnecessary, particularly in smaller schemes where the cost of an auditor might be quite high in comparison to the amount of money being handled, but this provision has been included to protect the integrity of the financial reports of any body corporate, where hundreds of thousands of rands, if not millions, is handled each year.” 

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