Hybrid Trusts Explained
The purpose of audit
Auditing provides third-party assurance to various stakeholders that the subject matter is free from material misstatement. The purpose of an audit for Owners Corporation is to provide an independent and reasonable assurance that the Owners Corporation’s financial statements are true and fair and do not have a material misstatement.
Difference between an audit and a review
A review is defined as an evaluation of financial records. It is performed with limited analytical procedures, so it is simpler than an audit. As a result, it only provides a moderate level of assurance, while an audit will provide a higher level assurance, which is called a reasonable assurance.
In an audit report, the opinion of the auditor will be expressed as a positive assurance assertion. In a review, the opinion of the auditor will be expressed as a negative assurance assertion. For example, an audit opinion will say “the financial statements are free from material misstatements” while in a report for review, the opinion will be expressed as “nothing has been brought 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 have different levels of auditing requirements. According to Owners Corporations and Other Acts Amendment Act 2021:
- A tier one Owners Corporation must, after year end, have its financial statements audited by a registered company auditor, a firm of registered company auditors, or a person who is a member of CPA Australia, the Institute of Public Accountants or Chartered Accountants Australia and New Zealand and is authorized to conduct the audit by CPA Australia, the Institute of Public Accountants or Chartered Accountants Australia and New Zealand.
- A tier two Owners Corporation must, after year end, have its financial statements reviewed by an independent person who is a member of, and holds a current practising certificate from CPA Australia, the Institute of Public Accountants or Chartered Accountants Australia and New Zealand.
- A tier three, tier four or tier five Owners Corporation, at its annual general meeting, may choose to either have its financial statements audited or reviewed.
In addition, an auditor must provide a written report of the audit and the person who conducts the review must provide a written report of the review. A person is prohibited from auditing or reviewing the OC if the person has a direct or indirect personal or financial interest in the 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, even though they need to be involved with organising and providing the requested record of the OC for the auditor to be able to provide an opinion; they can flaunt an unqualified audit opinion at the AGM. From a lot owner’s point of view, it is more than just peace of mind that everything is in order and there are watchful eyes of an auditor presiding over the affairs of the Owner’s corporation.
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