Legal

March 16, 2023 Published by Grand River Chapter - By Stephanie Giovinazzo

Audits to AGMs: What’s the Connection?

Your condominium’s fiscal year has just come to an end and now it is time to start gathering the information to send off to the auditor. Now you may start wondering: Why do we even need an audit? Great question!

Your condominium’s fiscal year has just come to an end and now it is time to start gathering the information to send off to the auditor. Now you may start wondering: Why do we even need an audit? Great question!

The Condominium Act, 1998 (the “Act”) requires a financial audit to be completed annually for all condominium corporations with more than 24 units. The Act also requires all condominiums, regardless of number of units, to hold an annual general meeting (AGM) within 6 months of the fiscal year end.

Benefits of an audit:

Not only does having an audit completed satisfy the Act requirement, but there are also many additional benefits that an audit can provide!

Audits provide your condominium with a set of audited financial statements prepared by an independent, licensed third-party who must adhere to a code of ethics. The statements are prepared in compliance with Canadian generally accepted auditing standards, which can be relied on by third parties, such as potential purchasers of units. These statements are often also required to secure loans or other borrowing and can be included in Status Certificates to demonstrate that the Board of Directors are doing their due diligence in following the Act. The auditor will also file your corporation’s income tax return and any other necessary returns, ensuring you are compliant with the Income Tax Act.

Auditors also review accounting procedures and systems of internal controls and will highlight areas of interest that might be beneficial to management to know but do not affect the audited financial statements overall, as they are minor items. The auditor will typically address these concerns to management and the board of directors through a management letter.

When searching for an auditor to engage, it is important to find one who specializes in auditing condominium corporations. This ensures that they are auditing in accordance with the financial aspects of the Act and provides assurance that your condominium is operating in accordance with the Act.

Not everyone can interpret financial statements as easily as an auditor. Fortunately, you can invite your auditor to attend your AGM and present the financial statements to the owners in a way they can understand. This also gives the owners an opportunity to ask the auditor any questions they may have regarding the financial statements.

Your condominium unit is likely one of your largest investments and having an audit completed can help protect your investment. It can shed light on cashflow issues, the overall health of the corporation and the stewardship of the Board and management.

Auditors’ tips for a smooth audit process:

If the auditor has not provided you with a list of the documents that they require to complete the audit, it is a good idea to reach out to them to ensure you have everything they need before sending the documents off. This reduces the back and forth with the auditor, which could delay the process. This becomes extremely important when the 6-month deadline to hold the AGM is approaching.

Another useful tip for a smooth audit is to have invoices ready for the auditor. This may mean giving them access to your electronic data sites, scanning invoices to PDFs, or giving the auditor paper copies of the invoices related to the fiscal year they are auditing.

If using the same auditor as the prior year, it is good practice to review any questions they may have asked in the previous audit and prepare answers ahead of time. This will help to ensure a quicker turnaround time. Below is a list of some common questions auditors may ask to ensure that their audit documentation and financial statement disclosures are complete. It is a good idea to prepare responses to these questions as well.

The general ledger, invoices and minutes can provide the auditor with some ideas of what could have caused variances, but only provide limited information. Detailed explanations allow auditors to make more accurate analyses of variances. Property managers and Boards members have a direct relationship with the condominium and they can often add information on variances that is not readily apparent from review of the financial records.

Frequently asked questions from an auditor:

Can you explain the variance between the actual expenses and budget?

Can you provide the minutes from the Board of Directors meetings?

The auditor will use the minutes to help with variance explanations, to search for expense approvals, legal issues, or possible commitments, and to ensure the board is approving financial statements monthly. The minutes also provide valuable evidence to the auditor that the corporation has strong internal controls in place to prevent fraud or error.

Are there any related parties?

Auditors are required to disclose related party transactions in the notes of the financial statements. It can be difficult for the auditor to catch related party transactions if they are unaware of companies that board members may own or be affiliated with.

Can you please provide copies of the subsequent bank statements, subsequent general ledger and invoices for work received after the year end?

The auditor will use this information to ensure that expenses are recorded in the correct fiscal year and that accruals accurately reflect actual expenses.

Annual General Meetings:

As noted above, per the Act, the AGM must be completed within 6 months of the condominium’s fiscal year end. If invited, the auditor will present the audited financial statements they have prepared in a way that owners can understand them. To ensure the auditor is available to attend the AGM, it is important that they know the date, time, and location in advance. It is a good habit to send out the AGM details to the auditor at the same time the Preliminary Notice is sent out to the unit owners.

Communication with your auditor is critical before, during and after the audit. Be prepared to supply the auditor with the information they need to prepare the audit and answer any questions they may have in a timely manner. This will ensure the audit process goes as smoothly and as quickly as possible!

---

Stephanie Giovinazzo
Staff Accountant
RLB LLP