Governance

July 25, 2024 Published by Manitoba Chapter - By Alan Fobes

Condo Conversation Corner

From the CCI Manitoba Summer 2024 Condominium News and Views Magazine

In this edition, we have four topics of interest:

• Property tax fairness for condos (or lack thereof)
• Mandatory director training
• Presidents’ Forum
• Financial audit versus financial review

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If you want to contribute to the discussion, you can make a submission via our website or send us an email.

Disclaimer

CCI Manitoba is unable to provide specific legal advice. We recommend that you speak to a lawyer regarding the challenges or problems you may be experiencing. For your information, a list of lawyers who are Professional Members of the Manitoba Chapter of the Canadian Condominium Institute is available on our website.

Note that frequent references are made to Manitoba’s Condominium Act and regulations.

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Property tax fairness for condos (or lack thereof)

We had an inquiry from a member about property taxes.

Q: I recall the CCI contacted the provincial government regarding unfair property taxes on condos. What was the result? Was this done through the assessment branch? If there was an article in the newsletter containing the results of past issues, I could not find it.

A: Over the years, CCI has been in contact with the provincial government on the issue of property taxes, although not in the last few years. Contact was primarily at the political level and, at one time, involved a presentation to the cabinet. The decision to lower condominium taxes would require reducing the portioning applied to condominiums, which is a political decision, not an administrative one.

For additional information, have a look at the pertinent statutes and regulations

THE MUNICIPAL ASSESSMENT ACT (C.C.S.M. c. M226) Introduced in 1990 and last updated in 2023.

Classification of Property and Portioned Values Regulation Introduced in 1998 and last updated in 2019.

• Property classification:Residential 3: condominiums and co-operatives, see page 6
• Historical percentages of assessed value by class: Starting on page 10

To better understand the political aspect, the chart below shows when the portioning started to change and when all residential portioning converged. Ensuring fairness for condo owners would require their portion to be less, and other property owners would have to pay more.

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Mandatory director training

We had another submission suggesting there is a need for mandatory director training. 

“I think mandatory training should be enforced not only for directors but property managers as well. I have seen instances of ‘new' rules being added to an updated document that were not identified as ‘new,’ as required by the Condo Act. Whose job is it to ensure compliance with the act? I think new directors and, at times, old directors who followed procedures from 20 years ago still think those procedures are applicable today.”

We agree that all directors should have basic director training and strive to keep their knowledge updated. We have developed an online introductory director course, monthly education events (at least eight annually), and forums for condo presidents and treasurers. 

As we often say, there are no condo police to ensure compliance with the Condo Act. Ontario has had a provincial regulatory authority for several years, with good results. Other provinces followed suit, but Manitoba needs to catch up.

Regarding new rules, the Condo Act’s clause 169 outlines the powers and responsibilities of boards to make rules. In contrast, clause 170 outlines how boards must communicate rule changes and implement rule changes.

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Presidents’ Forum

An in-person Presidents’ Forum was held June 26. Attendance was down from the 40 who attended the forum in March. Registration was down by 20 per cent, with some cancellations and no-shows. Regardless, those who attended seemed to get value out of the evening. 

The audience was engaged, and many discussions were memorable. While CCI directors fielded some questions, many were answered by other presidents. Topics included security concerns, communication strategies, property management, director education, board governance, maintenance and infrastructure, financial management, electric vehicles, construction problems in new developments, community building, networking, and resources.

Several participants also attended the March forum and inquired about the Facebook Group for condo board presidents. For those interested in joining the online discussion, click this link to the group page and click the Join group button. 

Numerous attendees were interested in having their board’s treasurer attend our Treasurers’ Forum planned for Aug. 14. Here is a link to register. 

Interested in developing benchmarking data to allow condo corporations to compare their expenses and reserves against those of their peers? If you are, click here to send an email request to participate. 

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Financial audit or financial review?

We have started a dialogue with the provincial government department responsible for the Condo Act about whether the act allows for a financial review engagement instead of an audit. CCI Manitoba published an article in the May 2016 newsletter (available in the newsletter archive) expressing the opinion that review engagements were acceptable, but that opinion has been called into question. We are now reviewing this opinion and hope to provide an update soon.

As part of the process, we surveyed the other provincial jurisdictions to see what their requirements are. The results indicate the lack of a national authority.

Jurisdiction	Comments
British Columbia	There are no audit requirements.
Alberta	There are no audit requirements.
Saskatchewan	Financial statements must be audited, but with the following exceptions: For corporations with fewer than 12 units: No audit is required A financial review is required unless waived with the written consent of 80 per cent of owners. For corporations with 12 to 50 units: An audit is required unless waived with the written consent of 80 per cent of owners. A review is required unless waived by 100 per cent of owners.
Manitoba	TO BE CLARIFIED The provincial condo regulation mentions “auditor” in 11 places and “audit” in four but mentions "audit or review engagement” only in the context of report requirements in Section 34, where it references the CICA Handbook, implying a review engagement is an option. The Condo Act, on the other hand, mentions “audit” 16 times and “auditor” 51 times but does not say “review engagement.”
Ontario	Audits are required for corporations with 25 or more units. For corporations with fewer than 25 units, audits are required unless waived by all unit owners.
Quebec	Difficult to determine because of its civil law.
New Brunswick	There is no requirement for corporations of 10 or fewer units. For larger corporations, a review by a qualified person is required without mentioning “audit” or “auditor.”
Nova Scotia	Audits are required only if there are at least 10 units.
Prince Edward Island	There are no audit requirements.
Newfoundland and Labrador	Review engagement is not mentioned, just audit and auditor’s report. Requirements don’t apply to corporations of fewer than 10 units

What is the difference between an audit and a review?

While we’re trying to determine whether the provincial Condo Act allows financial reviews in place of audits, here is some information for condo corporation treasurers, especially those who don’t have a formal accounting background.

Note: This article segment was created using an artificial intelligence program you have probably heard of in the news — OpenAI’s ChatGPT 3.5. https://chat.openai.com. It took five minutes to generate the article, copy, paste and reformat. The article was created with ChatGPT by giving it the instruction: “Compare and contrast the process, scope and rigour of an audit engagement versus a review engagement for a Canadian condominium corporation, such that a layperson would understand. An explanation using examples would be useful.” 

Additionally, the following AI Disclaimer was created by Chat GPT with the instruction: “Provide a disclaimer for viewers of your generated responses.” Notably, Chat GPT refers to itself in its response using a “first person” narrative approach.

AI Disclaimer: The responses generated by this AI are for informational and educational purposes only. While I strive to provide accurate and up-to-date information, I cannot guarantee the content’s completeness, accuracy, or reliability. Always verify the information independently and consult with a professional or expert in the relevant field before making decisions or taking action based on the responses provided.

Chat GPT’s view of differences between audits and reviews

Understanding the differences between an audit engagement and a review engagement for a Canadian condominium corporation can be likened to varying levels of scrutiny in evaluating financial health. Here's a simplified comparison:

Process considerations

• Audit engagements are more in-depth — auditors thoroughly examine the financial statements, including verifying financial records, testing internal controls, and gathering evidence to support the financial figures. Procedures include detailed testing of transactions, confirmations with third parties (e.g., banks, suppliers), and physical inspection of assets. Imagine auditors are detectives. They don't just take the financial statements at face value; they dig deep, cross-checking every piece of information and interviewing relevant personnel to ensure everything is accurate and compliant.
• Review engagements are limited. Reviewers perform a less extensive examination than an audit. They primarily use inquiry and analytical procedures to assess the plausibility of the financial statements. Procedures include discussions with management, comparisons of financial data over time, and analyzing ratios and trends. As opposed to detectives, think of reviewers as inspectors. They review the financial statements to see if they make sense based on what they know about the business, but they don't verify every detail.

Scope considerations

• Audit engagements are more comprehensive and cover all aspects of the financial statements, including income, expenses, assets, liabilities, and equity. They look at the corporation's internal control systems and compliance with accounting standards. For example, an audit would involve verifying the condo corporation's bank balances, ensuring that maintenance fees collected from owners are accurately recorded, and confirming that all expenditures are legitimate and properly authorized.
• Review engagements are limited and focus on ensuring the financial statements are plausible and free from apparent material misstatements. They cover less ground than audits. For example, in a review engagement, the accountant might check that the total maintenance fees recorded match the expected amount based on the number of units but won't necessarily verify each payment individually.

Considerations of rigour

• Audit engagements are more rigorous. Since audits are more detailed, they provide a higher level of assurance. Auditors must follow strict standards (e.g., Canadian Auditing Standards) and gather substantial evidence to support their opinions. Auditors will check multiple sources and use detailed testing methods to ensure, for instance, that the cost of a new roof for the condominium is accurately recorded and backed by invoices, contracts, and physical inspection.
• Review engagements could be more rigorous. Review engagements provide moderate assurance. Reviewers rely on management's representations and perform analytical checks to spot inconsistencies or anomalies. In a review, the accountant might assess the reasonableness of the repair expenses by comparing them to prior years or industry averages but won't verify each transaction's supporting documents.

Summary

The audit process is detailed and comprehensive, involving thorough testing and verification. The scope covers all financial aspects, with a deep dive into internal controls and compliance. The rigour is high, providing a high level of assurance.

The review engagement process is limited and mainly involves inquiry and analytical procedures. The scope needs to be narrower, focusing on the overall plausibility of financial statements with less rigour and only providing limited assurance.

Practical implications

Audit Engagement

• Audit Engagement is more expensive and time-consuming but offers greater confidence to stakeholders.
• Suitable for situations requiring high reliability, such as when securing a large loan or during significant financial decision-making.

Review Engagement

• It is less costly and quicker but offers less assurance.
• Suitable for regular reporting needs or when full audit assurance is not required.

By understanding these differences, condominium boards and owners can make informed decisions about the level of financial scrutiny needed for their corporation's financial health.

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Alan Forbes is a director and vice-president of CCI Manitoba. He serves on the Membership Committee, the Education Committee, and the Communications Committee.