Accounting News

Unless you have a background in accounting, all the different accounting jargon can be confusing. Notice to Reader (NTR), Compilation, Review, Financial Audit, Real Estate Trust Audit, Forensic Audit. What do these words mean? Which one does the council or owners choose? How do you know which one will give you the assurance you need?

There are varying levels of assurance that relate to each engagement and that is what separates them from each other.

A compilation engagement, also known as a Notice to Reader (NTR), provides no assurance to the user of the financial statements. The accountant has not audited, reviewed or otherwise attempted to verify the accuracy or completeness of the information disclosed in the financial statements.

The purpose of a compilation engagement is to prepare financial statements based on information received from the property management firm or the council if the strata is self-managed. The format of the statements do not need to be in accordance with Canadian generally accepted accounting principles (GAAP) and readers are cautioned that the statements may not be appropriate for their purposes. Users of the statements need to understand the limited use of the statements. They should not be used if assurance is required or if the statements are required to conform to Canadian generally accepted accounting principles.

A review engagement offers limited assurance. Analytical procedures are done and the management and/or client are queried. Analytical procedures that are done include variance analysis where the figures are compared to prior year actual results and current year budgets. The purpose of conducting the analytical procedures is to identify if the figures appear to be reasonable. Management is queried on the internal controls that are used when recording and receiving the financial information in addition to other queries the accountant may have based on their professional judgment. Minutes of council and general meetings are also reviewed to help inform the accountant of any major issues that may affect the Strata Plan. Third party confirmations are also sent to financial institutions, insurance brokerages and lawyers to confirm the balances of accounts, insurance coverage and any legal issues.

A review does not constitute an audit and accountants state that nothing has come to their attention that causes them to believe that the financial statements are not in all material respects, in accordance with Canadian generally accepted accounting principles.

A financial audit offers the highest level of assurance. The procedures conducted in an audit include those that are done in a review engagement and additional procedures such as testing of both revenues and expenditures.

A financial audit reassures the owners that the financial statements are reasonably presented. Revenues and expenses are examined from the perspective of their compliance with the Strata Property Act, the Strata Plan's bylaws and whether or not the financial statements are presented in accordance with Canadian generally accepted accounting principles. Although not the principal purpose of an audit, the procedures could also uncover coding errors, double payments to suppliers, incorrect payments and insure that expenditures have been carried out according to authorizations given by council, owners and through the budget process or vote resolutions.

The auditor will express an opinion on the financial statements and the statements of operations and changes in fund balances and cash flows for the period audited. Audits are conducted in accordance with Canadian auditing standards (CAS). Those standards require that an audit is planned and performed to obtain reasonable assurance whether the financial statements are free of material misstatement.

Real estate trust examinations are required to be done on management companies that hold trust funds for clients. An independent accountant analyzes the internal controls of the management company, reviews trust reconciliations and ensures the management company handles the trust funds properly and in accordance with the rules set by the Real Estate Council. The accountant follows procedures set out by the Real Estate Council and no professional judgment is used. A sample of the brokerage's portfolio is tested and your particular Strata might not be analyzed. The sample chosen by the accountant is considered to reflect the entire portfolio of the brokerage.

A forensic audit is basically an audit done for a situation that has legal consequences. For example a forensic audit might be done to investigate an incident of fraud or presumptive fraud, with a view to gathering evidence that could be presented in a court of law. Forensic audits are very time consuming and costly. Unless there are reasonable grounds to expect that a fraud has occurred and legal action will be taken, a forensic audit is not usually recommended due to the high costs associated with such an audit.

If you have any questions or would like additional information, please contact Reid Hurst Nagy Inc., CGAs and we will be more than happy to assist you or provide you with an audit quote for your Strata or Property Management Company.

Originally published in the CHOA Journal July 2007, revised May 2013.

About Venus Duplin, CGA

Venus joined the RHN family in 1998. She received her CGA designation in 2008, her CAFM in 2011, and she currently manages one of RHN's dedicated strata teams, as well serves as a director for the firm. Venus spends a large part of her time working on strata corporation, First Nation and not-for-profit audits, in addition to their associated tax returns. She also works on corporate engagements, preparing compilations, reviews and audits.

Because she enjoys sharing her knowledge with others, Venus' articles on Strata accounting have been featured in leading industry publications including the BC Strata Property Practice Manual and the Condominium and Home Owners' Association (CHOA) Journal.

In 2011, Venus became a member of the Discipline Committee for CGA-BC and continues to volunteer her time in support of the organization's growth and development.

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