All landlords or appointed agents holding service charges in trust for tenants and managing them on their behalf are required to prepare annual, certified service charge accounts in accordance with the leases and the Landlord and Tenant Act 1985.
It is usually the lease that determines the service that you will require from us, as if a residential lease is dated post 1980 and it refers to ‘audited accounts’ then best practice as outlined in (TECH 03/11) stipulates that an ISA 800 audit should be undertaken. If however any other terms, such as certification, are used then a Factual findings report should be produced by the independent accountant. Publication of the first Auditing Standards and Guidelines were introduced in 1980, hence all leases prior to this date which may still refer to ‘audited accounts’ do not follow the same guidelines. Commercial leases now also adhere to similar guidelines following the recent TECH 09/14.
Leases can often be confusing documents so we are more than happy to provide advice on the accounting service that is appropriate for each development. A tenant does however have the right to request for a Section 21 report to be prepared which is a summary of relevant costs. A section 21 report can only be made by a registered auditor.
We are therefore on hand to provide the level of support that you need and there are four areas that we can do this for you: these are
- Accounts preparation
Whatever accounting package you use, whether it comprises of basic manual records through to a sophisticated computer system, we can interpret your information to produce annual accounts which comply with the leases and follow generally accepted accounting principles. We understand that all service charge accounts are different depending on the types of costs and structure of the development which in turn create schedules (or cost centres) within the accounts and this is critical to ensure each tenant is being correctly charged. Whilst there is no recognised accounting framework we always include an income and expenditure report, a balance sheet and explanatory notes. We also ensure accounts are prepared on an accruals basis unless the lease instructs otherwise as we believe this to be best practice and in the interest for all users. We ensure our accounts are transparent but also clear and easy to understand as we appreciate that they are distributed to many tenants who may or may not have an accounting background.
If the terms of a lease require, or are construed as requiring an audit, or the landlord or agent has made a specific request for an audit then the Haines Watts Service Charge Team have lots of experience to provide the services required to meet the International Standards on Auditing 800 (ISA 800). Where economies of scale exist, the Haines Watts Service charge Team would recommend we undertake a systems audit of the Landlord or agents accounting systems. This will spread the cost over many sets of service charge accounts, which will benefit the tenants.
- Factual Findings Report
If the residential lease of the development does not specify that an audit is to be undertaken, and no other request has been made, best practice guidance (TECH 03/11) is for a Factual Findings Report to be included within the service charge accounts. Whilst a Factual Findings Report does not follow International Auditing Standards, so is less expensive, our work programme has been written using similar methods to ensure the key areas within the service charge are examined to provide comfort and assurance from an experienced qualified firm of chartered accountant that is independent from the Landlord or agent. Our work for a Factual Findings Report is mainly focused on two areas: the income and expenditure of the service charge which dictates the costs charged to the tenants from the landlord; and the bank to ensure the funds held are as reported and in accordance with the relevant regulations. If the commercial lease of the development does not specify that an audit is to be undertaken, and no other request has been made, best practice guidance (TECH 09/14) is for an Independents Accountants Review Report to be included within the service charge accounts. This reporting follows the same principles as the Factual Findings Report. As a professional firm, the Haines Watts Service Charge Team will not allow their trusted name to be associated with any misleading financial information, so although we may not specifically report on other areas of the balance sheet, we will always ensure their accuracy.
- Section 21 Report
This service includes producing an accountants report following the requirements of Section 21 of the Landlord and Tenant Act 1985, performed by a registered auditor, if specifically requested by a tenant for residential properties that include more than four separate dwellings. This method of reporting does not follow International Auditing Standards, and our work is limited to the income and expenditure. Section 21(5) of the Landlord and Tenant Act does request for a specific summary of costs report to be included which is the main distinguishing difference from an ISA 800 or Factual Findings Report. Since the implementation of (TECH 03/11) this reporting is now rarely used.