Q&A: Audit Basics
From the CCI Review 2021/2022—November 2021 issue of the CCI London Chapter
Many Corporations are nearing the end of their fiscal year, so we reached out to some of the expert audit firms who are members of CCI . They carry out this important responsibility. Here are the questions and responses that soften come up at meetings, including the basics of what they do.
Corporations must be audited annually, except where the corporation consists of fewer than 25 units and as of the date of the meeting, all owners consent in writing to dispense with the audit [Section 60(5)] (not recommended). See Auditors and Financial Statements Sections 60-71 of the Act for more on this area of responsibility for the boards on behalf of the owners.
1. What proportion of the Condominium Corporations that you audit have December 31 fiscal year ends?
AJ - We currently have 101 condos on our job list and 71 are December year ends
LM - Approximately 2/3
MW - 61%
2. How long does it take you to complete an audit for a townhouse versus a high-rise complex?
AJ - That is not something we specifically track as we don’t have that many high-rises. On average, a townhouse is 15 and a high rise is 20 hours. However, that can change significantly with exceptionally good or bad property management.
LM - We only audit a few high-rise complexes; however, generally due to their size and categories of expenses, it can take 2-3 times as long as it would take for a townhouse complex.
MW - Generally high-rises take 2 to 3 times longer due to the nature of the expenditures and alternate revenue sources. Of course every corporation is a little different and it depends on number of units and other facilities.
3.What is it that you look for when you are doing an audit?
AJ - N/R
LM - We’re looking to gather sufficient and appropriate audit evidence to satisfy the audit requirements from the Canadian Auditing Standards (CAS), while trying to ensure a risk-based audit approach. This approach focuses the majority of our time on the riskier areas of the audit in order to try and keep the audit fees as reasonable as possible for the owners.
In general, we are obtaining reasonable assurance (i.e., not absolute) that the financial statements are free from material misstatements. Our objective is to provide this assurance to the users of the statements (primarily the owners and Board of Directors) for them to make decisions.
Specific to condo corporations, we’re looking for compliance with the Condominium Act (1998) requirements; for example: the corporation is using its ability to place a lien on delinquent units, the Board of directors are meeting on a regular basis, and the Corporation is making at least the minimum contributions to the Reserve Fund as outlined in the engineer’s Reserve Fund Study. We also compare the Reserve Fund Study recommendations to the actual results, and disclose this information to the users. For example, owners or potential owners would want to know that the Corporation’s Reserve Fund is severely underfunded, as it may result in a significant Special Assessment down the line or imply that the Reserve Fund (or even the Corporation in general) doesn’t have the funds to pay for a significant repair, should it arise.
MW - We look at changes from prior year and changes from budget. We do testing by vouching to source documents in accordance with generally accepted auditing guidelines.
4. Have you seen any trends in the Corporations’ financials that are worrying?
AJ - Definitely.
In general, the quality of record keeping has gone down in the industry. Good bookkeepers are hard to find in any industry and we are seeing that specifically in condominium management. Significant turnover at property management companies are making it very challenging. Half a dozen years ago most audits did not require any adjusting entries. Now it is typical to have a handful or even more.
Insurance rates are increasing across the industry. The significant rain event we are having this week is one element driving that.
We are frequently seeing funds owing from the operating to reserve fund. i.e., funds not transferred to the reserve fund in accordance with the RFS
LM - Generally, the composition and competency of the Board of Directors can be worrying. Namely, some Board members can be biased by their own financial situation and short-sighted as they attempt to minimize increases in common element fees. For example, automatically choosing the lowest provided quote when making a purchase decision can result in poor work being performed and additional costs being incurred later on in the process to remedy the work (often well in excess of the other quotes initially provided from more reputable companies).
MW - Repairs costs for items such as decks and fences have been 2 to 3 times what they have included in the reserve fund study. This is causing larger then normal increases in contributions, when a new study is done. Also, seeing some major repairs that have been suggested by the reserve fund study for the last couple years being delayed due to pricing and lack of contractors to do the work.
Another major pressure being seen is the increase in insurance premiums for condo corporations. I have seen some that have had claims seeing 300 to 400% increase in premiums and difficulty with renewals.
Thanks so much to the contributors to this important topic of discussion.
Contributions by Adrienne James, CPA, CA, LPA of Wilkinson Rogers LLP;
Lisa Madter, LPA, CPA, CA, BAcc of Ford Keast LLP and
Michael Watson, BMath, CPA, CA, LPA of Davis Martindale
Jennifer Dickenson, BSc (Hons), RCM is a condominium manager with Dickenson Condo Management. She was first elected to the CCI Board of Directors in 2016, currently serves as Vice-Present and the chapter’s National Representative. Jennifer is involved in all aspects of the chapter and shares her expertise.
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