Audit of Body Corporates and Homeowners’ Associations
Difference between body corporates and homeowners’ associations
While both body corporates and homeowners’ associations fall under Community Schemes Ombud Service (CSOS) regulations, homeowners’ associations are not established under the Sectional Title Schemes Management Act (STSMA), but rather under the Companies Act (as non-profit companies) or under their own Constitution and Memorandum of Incorporation (MOI), in accordance with Common Law.
Therefore, homeowners’ associations are required to be audited in terms of the Companies Act, and body corporates are required to be audited in terms of the Sectional Title Management Schemes Act.
Body Corporate Rules to be Reported on
In accordance with Annexure 1 of the Regulations of the STSMA, the auditor must report on Rules 21, 24 and 26. This does not, however, exempt the auditor from auditing all the financial information related to the other rules in the Act, in accordance with ISA 250 (Revised) and Section 45 of the Auditing Professions Act, as these are a broader scope than the STSMA. If the auditor finds, or suspects an instance of non-compliance with any law or regulation, this must be investigated further and reported on. Should an instance of non-compliance with the STSMA or its regulations and rules have a material effect on the financial statements, the auditor should refer to ISA 705 (Revised) for further consideration of possible qualification of the opinion.
The appropriate section in the auditor’s report for including such findings, is under the separate heading, ‘Report on Other Legal and Regulatory Requirements’, which follows the ‘Report on the Audit of the Financial Statements’ section of the Independent Auditor’s Report.
Irregularities, Including Contraventions of the Law
Body corporate contraventions of the law, and irregularities are addressed through the dispute resolution process. Disputes that cannot be resolved internally must be referred to the CSOS for their alternative dispute resolution services. This allows for dispute resolution outside of court. The complainant will complete a form and submit it to CSOS, after which it will go to conciliation and, if needed, adjudication. Adjudication orders are enforceable in court.
The only actions required from the auditor are the submission of a reportable irregularity to the IRBA, and the qualification of the audit report accordingly.
In the case of a homeowners’ association, an auditor can still report an irregularity to IRBA and qualify the audit report. Because homeowners’ associations are not enforced under the STSMA, they fall under either the Companies Act as non-profit companies, or their own MOI and Constitution. As such, this dispute procedure will follow the CSOS process, as well as being reported to the Companies Tribunal for these disciplinary proceedings.
Managing agents who need to be reported on, are reported to the Property Practitioners Regulatory Authority for their relevant disciplinary procedures.
Accounting Framework
Body corporates do not have to use IFRS or IFRS for SMEs, and may adopt a suitable framework, which must be evaluated for its appropriateness and suitability by the auditor.
Homeowners’ associations will use the IFRS for SMEs framework because they are incorporated under the Companies Act. If not incorporated, in terms of the Companies Act, the accounting framework, in terms of the MOI and the Constitution, is to be used, and must be evaluated by the auditor for its appropriateness and suitability.
Bank Accounts
In terms of Prescribed Management Rule 21, the body corporate must deposit all monies in a credit interest-bearing account with a registered financial institution, in the name of the body corporate. This means it does not have to be a trust account, as in the case of a legal or property practitioner. However, if the account is opened as a trust account, it must be in accordance with the Property Practitioners Act or the Legal Practitioners Act. If a managing agent is appointed, the managing agent may open a centralised trust account into which members deposit their levies and contributions, as outlined in the 2021 CSOS Circular.
Conclusion
It is important to understand the legal and accounting framework applicable to the body corporate or homeowners’ association, as it has a direct impact on the audit. Non-compliance must be duly considered and reported as required.
References
1. Sectional Titles Schemes Management Act (Act 8 of 2011)
2. Sectional Titles Schemes Management Regulations, 2016
3. Companies Act (Act 71 of 2008)
4. Auditing Profession Act (Act 26 of 2005)
5. Regulations on the Community Schemes Ombud Service, 2016
6. CSOS website: https://csos.org.za/how-to-complain/
7. CSOS Circular on the opening of a bank account, 2021
8. CSOS Presentation: HOA Mixed-use Scheme Developments
9. SAICA Communication: Auditor Opinions in terms of Management Rule 26(5)(c) of the Sectional Titles Schemes Management Regulations, 2016 (Revised 2024)
10. SAICA Communication: Audit requirements in terms of the Sectional Titles Schemes Management Regulations
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