Auditing provides third-party assurance to various stakeholders that the subject matter is free from material misstatement. The law prohibits any person from auditing or reviewing an OC. This applies if they have a direct or indirect personal or financial interest in that OC.
Difference between an audit and a review
A review evaluates financial records but uses limited analytical procedures. Therefore, it is simpler than an audit. A review only provides a moderate level of assurance. In contrast, an audit provides a higher level of assurance called reasonable assurance.
Auditors express their opinion in an audit report as a positive assurance assertion. For a review, the auditor expresses the opinion as a negative assurance assertion. For example, an audit opinion states: “the financial statements are free from material misstatements.” A review report states: “nothing has come to our attention.”
What’s more, a review does not test a company’s internal control system while an audit will perform specific procedures to test a company’s internal control system.
What is a financial audit?
An OC audit is predominantly a financial audit.
There are three main types of audits, including compliance audit, operational audit, and financial audit.
They all have different purposes.
Compliance audit normally tests whether the company has complied with certain regulations and policies.
Operational audit normally assesses operating policies and procedures for efficiency and effectiveness.
Financial audit determines whether the company has prepared and presented true and fair financial statements, and whether the financial statements are in compliance with established financial accounting criteria.
What are the amendments to audit and review requirements from the 1st of December 2021? :
One of the main changes is regarding the implementation of a new five tier system. According to Owners Corporations and Other Acts Amendment Act 2021:
- if the Owners Corporation has 100 or more occupiable lots and is not a services only OC, then it will be a tier one OC.
- If the OC has 51 to 100 occupiable lots and is not a services only OC, it will be a tier two OC.
- If the OC has 10 to 50 occupiable lots and is not a services only OC, it will fall into the category of tier three OC.
- If the OC has 3 to 9 occupiable lots and is not a services only OC, it will be categorised as a tier 4 OC.
- If the OC has a 2-lot subdivision, or is a services only OC, it will be categorised as a tier 5 OC.
Different tiers of Owners Corporations (OCs) have different auditing requirements. The Owners Corporations and Other Acts Amendment Act 2021 sets out these requirements:
- Tier one – The OC must have its financial statements audited after year end. A registered company auditor, a firm of registered company auditors, or an approved professional can perform this audit. Approved professionals include members of CPA Australia, the Institute of Public Accountants, or Chartered Accountants Australia and New Zealand. They must also hold authorization from these bodies to conduct the audit.
- Tier two – The OC must have its financial statements reviewed after year end. An independent person who is a member of CPA Australia, the Institute of Public Accountants, or Chartered Accountants Australia and New Zealand can perform this review. The reviewer must also hold a current practising certificate from one of these bodies.
- Tiers three, four, and five – The OC may choose at its annual general meeting to either audit or review its financial statements.
Additionally, the auditor must provide a written audit report. Similarly, the person conducting the review must provide a written review report. The law prohibits any person from auditing or reviewing an OC if they have a direct or indirect personal or financial interest in that OC.
A tier one OC may apply in writing to the Director for an audit exemption under section 35(1). The Director may grant an exemption if the director thinks fit. The Director may also change or take back the exemption by notice in writing.
A financial audit will help the Owners Corporation obtain an independent and expert opinion regarding the truthfulness and fairness of the financial statements. It can detect the errors in financial statements and ensure the company is in compliance with accounting principles and standards.
As a result of the requirements of Australian Auditing Standards, auditors of the OC are required to report whether in their opinion, the financial reports of the corporation are drawn up in accordance with the Owners Corporation Act 2006, the Owners Corporation Regulations 2018 and Owners Corporations and Other Acts Amendment Act 2021.
From a manager’s point of view: Managers need to organise and provide the requested records. This allows the auditor to form an opinion. Once they do this, they can flaunt an unqualified audit opinion at the AGM.
From a lot owner’s point of view: It offers more than just peace of mind. Everything remains in order. Watchful eyes of an auditor preside over the Owners Corporation’s affairs.