Thinking Inside the Box

A Paddocks Sectional Title Lifestyle Blog

Appointing an auditor

paddocks_auditor

By Dr Carryn Melissa Durham

I was inspired to write this article after reading a recent post on the Paddocks Facebook page.

paddocks_fb_post

What does the legislation say in this regard?

Prescribed Management Rule (“PMR”) 40 deals with the appointment of an auditor and states that:

“At the first general meeting and thereafter at every ensuing annual general meeting, the body corporate shall appoint an auditor to hold office from the conclusion of that meeting until the conclusion of the next annual general meeting: Provided that where a scheme comprises less than 10 units, an accounting officer may be appointed for that purpose and the auditor or accounting officer, as the case may be, must sign the financial statements.”

The question is then threefold:

In schemes that have less than ten units…

  1. Can an owner audit the annual financial statements?
  2. Can a trustee audit the annual financial statements?
  3. Can the managing agent of the scheme audit the annual financial statements?

The auditor or accounting officer must sign the annual financial statements. PMR 56(c) states that one of the compulsory annual general meeting (“AGM”) agenda items is the appointment of an auditor or an accounting officer. At the first general meeting and at every AGM of the body corporate thereafter the owners must appoint an auditor who is to hold office from the end of that meeting until the end of the AGM. PMR 40 states that schemes that have less than ten units do not need to be audited by an auditor, but only by an accounting officer who is appointed by the owners to perform the duties of an auditor.

However, the accounting officer should be an independent outsider, and should not be an owner or trustee of the body corporate. Furthermore, a firm of auditors that acts as a managing agent should also not audit the books of the scheme it manages. Audit principles and ethics require that the audit be done by someone who is independent. An owner votes on the approval of the budget at the AGM; and a trustee is involved in preparing the annual financial statements. If the owner is good with accounting, then I suggest he or she be nominated and elected as the treasurer trustee, and that he or she be involved in preparing the annual financial statements. The body corporate should then appoint an outsider accounting officer to audit and sign the annual financial statements.

If you have any queries in this regard, please contact us at consulting@paddocks.co.za.

Image source: qualifiedspecialists.com

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2 comments on “Appointing an auditor

  1. Rodney Flugel
    April 7, 2016

    Thank you. This also applies to Home Owners Associations

    Rod Flügel

    • Paddocks
      April 7, 2016

      Hi Rodney,

      No this article does not apply to HOAs as it was written in terms of the Sectional Titles Act. Should an HOA be a non-profit company, in terms of the Companies Act, the Companies Act and the HOAs MOI would regulate the appointment of an auditor. Should an HOA be a common law association, its constitution would provide this information.

      Thanks,
      Paddocks

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