What is Strata?
The term Strata refers to apartments that lie on different levels. The strata scheme is an Australian innovation in the real estate business which defines individual ownership of part of a property, along with combined ownership in the remainder of the property through a body corporate called Owners Corporation. Strata auditing is applied to many different styles of properties like apartments, townhouses, commercial offices, warehouses, etc.
Strata Auditing is an examination of the financial record of a body corporate for a specified period of time by an independent auditor. In normal circumstances financial record means:
- Statement of income and expenditure related to administrative funds
- Statement of income and expenditure related to the sinking fund
- Balance sheet of the legal entity
- Summary of accounting policies and notes to the accounts
Rules for Audit of Strata Financial Statements and Accounts:
The following are the rules specified by the law for the audit of the strata financial record.
- Under the strata schemes management act 2015-sect 95, all the Owners Corporation or strata schemes whose annual budget exceeds $250,000 are required to ensure that their accounts and financial statements are audited by an independent auditors in Dubai before presenting in the annual general meeting.
- The audit of financial statements under this section should be carried out in accordance with current applicable accounting standards.
- The government regulation bodies may specify the manner in which the annual budget of a strata scheme is to be determined under this section.
Appointment of Auditor:
Under section 153, a body corporate must include the appointment of the auditor on the agenda of the meeting. This process normally starts after the majority votes for “No” to the motion of not to audit.
The three main elements related to the appointment of auditor motion are
- Name of the auditor must be mentioned.
- The auditor must be qualified according to the law.
- The right to choose the auditor lies with body corporate and only with the body corporate. It means that these rules restrict the committee from choosing an auditor.
Duties of a Corporate Auditor:
Following are the duties of corporate auditor
- The auditor ensures that independence prevails between corporate management and the committee.
- Determine the internal control of the body corporate.
- Review and give his opinion on the financial statements, bank statements, taxation record including income tax and sale tax liabilities, insurance, important ledgers and supplier’s invoices.
- Ensure the credibility of receivables and payables through external confirmation.
- Making an independent assessment of the internal controls of the body corporate, identify weaknesses and propose remedies.
Audit Process of Body Corporate:
Strata Auditing or audit of a body corporate Process starts with the appointment of auditor by the members in general meeting. The further procedure can summarize in the following steps.
- The body corporate manager prepares the financial statements on behalf of the body corporate committee for a given period and presents them to the appointed auditor. It must be ensured by the corporate manager that the reports are prepared according to the current rules and regulations.
- After the auditor has assessed the internal controls of the body, the corporate manager will execute the audit program. At this stage, the auditor may demand for specific documentation and confirmation notes from the corporate manager and accounts team.
- The auditor examined the reports submitted by management with supporting documents and identify the risky areas. For further clarification, the auditor may proceed with advance investigation techniques.
- On the basis of investigation, financial record and supporting documents the auditor determines whether the financial statements of body corporate provide a true and fair view or not according to the government legislation.
- The auditor of body corporate will issue a stamped set of audited financial statements bearing the auditors opinion about the true and fair view of body corporate financial record which will be presented to the owners in the coming AGM.