Annual Financial Statements

Annual financial statements and the audit

By Zerlinda van der Merwe

Two of the prescribed items of business to be dealt with at a sectional title scheme’s annual general meeting, is the consideration of the annual financial statements of the body corporate, and the appointment of an auditor to audit the annual financial statements.

The trustees of the body corporate, with the assistance of the scheme’s managing agent, if any, prepare the annual financial statements for presentation at the annual general meeting, which include analyses of the amounts due to the body corporate by its members, the amounts due by the body corporate to its creditors, amounts advanced to the body corporate, the premiums paid and received by the body corporate and any members, and amounts due to the Community Schemes Ombud Service in terms of the Community Schemes Ombud Service Act 9 of 2011 and its Regulations.

Under the Sectional Titles Act 95 of 1986, no audit was required in a scheme of less than 10 units, but now, under the Sectional Titles Schemes Management Act 8 of 2011 (“the STSMA”), it is a statutory requirement to have an audit conducted annually, unless all the sections in the scheme are registered in the name of one person.

The audit must be undertaken by an independent auditor, who has not taken part in the preparation of the annual financial statements of the body corporate, or offered advice on any aspect of the accounts of the body corporate during the financial year being reported on.

There is no requirement that the audit be carried out according to any recognised framework of guidelines for financial accounting.

The audit must include opinions on whether or not the annual financial statements accurately reflect the financial position of the body corporate, with any necessary qualifications or reservations, and whether the body corporate has ensured compliance with the requirements set out in the Prescribed Management Rules of Annexure 1 of the Regulations to the STSMA, with a specific description of any failure, if necessary. The audit must further confirm the financial affairs of the body corporate have been effectively managed, and that the body corporate has kept its books of account, and managed its funds, in order to provide a reasonable level of protection against theft or fraud.

The audit must be completed within 4 months of the end of the financial year of the body corporate, which runs from the first day of October each year to the last day of September, in schemes established after the STSMA came into operation.

If you are a trustee, a managing agent or an auditor of a sectional title scheme, and have any concerns or queries relating to this topic, feel free to contact us at consulting@paddocks.co.za or on 021 686 3950, for a non-obligation quotation to consult with one of our attorneys in the consulting department.

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