If thelease requires an auditthen this iswhat should be done


what theleasesmaystate.RMCos should discussthe choices availablewiththeir agents and external accountants.


timescAles forAnnuAl stAtements of Account


expenditureiftheyare awarenofunds are available, perhapsbecauseofarrears built up by lessees, or if they areaware that that expenditureisnot allowedunder theterms of the leases. If a schemeis forecast to be overdrawn,


then theagent should discussthe situation with theRMCdirectorsand take instructions. Someleasesmayauthorise that thecostsof taking an overdraftagainst servicecharges is an allowableexpense,but it is difficultfor an RMCtoobtain an overdraftifithas no assets other than service charge income.


AnnuAl stAtements of Accountfor


servicechArges An illustrative example of howtoset outthe annual statementiscontained in Appendix C of thejoint guidance referred to above. Annual statements should contain an incomeand expenditure account, a balance sheet and schedule(s)showingmovement on reserves. Thestatement should be prepared on an accruals basis.Anotetothe statementshould explain thetypeand nature of thedesignated bank accountinwhich servicechargemonies are held.


Audit, certificAtion or AccountAnt’s report


forservice chArges Thefirst thingthattheRMCoragent should do is checkwhat thelease requires.Ifthe lease requires an auditthenthatiswhatshouldbe


Flat Living Winter 2011


done.Ifthe leaserequirescertificationbythe landlord or agentoraccountant,thenthatis what should be done. If thelease refers to theneed foran‘audit’


or thelandlord orRMCrequiresanaudit, then thejoint guidance recommends,as aframework,anaudit to International Standard on Auditing 800(ISA800)entitled SpecialConsiderations–AuditsofFinancial Statements Prepared in Accordance with SpecialPurpose Frameworks.Moredetail on theapplication of ISA800 to theaudit


Aself-managingrmc should open a bank account for service chargemonies


of servicechargeaccounts is includedat Appendix E of the joint guidance. If thelease does notprescribe an auditthen


thejoint guidance offersanalternative form of engagement forthe independentexamination which is more appropriate and should be less costly.Thisformiscalledareportonfactual findingsand Appendix Fofthe guidance sets outthe work programmefor theindependent accountant undertaking such a report. In theend it is achoicefor eachRMC


to decidewhat levelofcheckingbyan independentaccountant if anyitrequires, subjecttothe contractualrequirement to do


forservice chArges Thereisnostatutory requirementfor annual statements within atimescale although someleasesmayset them.Best practice is thatRMCs andtheirmanaging agents should have issued all annual statements of accountfor servicecharges within six monthsofthe endofthe financial year. This waswhatwas proposed in thenow abandoned government regulations. In additionthe requirements of S20B of the1985 Actprovide forpenalties if costsofservices arenot notifiedtolessees within 18months of being incurred. It is notalwayseasytoensurethatannual


statements of accountfor servicecharges are issued within this timescale. There has been much misunderstandingaboutwhichparty ‘approves’the annual statement.Where leases areclear abouthow theannualstatement shall be audited, examined or certified, then thereisnoreasonwhy alandlord, developer, RMC directors or the shareholders ormembers of anRMCshouldholdupthe issuing of annual statements of account for service charges.The leases putthe responsibility for approval with thepartynominated in those leases. It is helpful for the directors of anRMC to


checkthe figures before issue butnot to delay themif they have beenreporteduponbythe independentaccountant.●


TheRICSService Charge Residential Management Code is availabletobuy fromthe RICS atwww.ricsbooks.com


Accounting forService charges-Technical Release03/11 is availablefromARMAat: www.arma.org.uk


AssociationofResidentialManagingAgents Limited(ARMA) Tel02079782607 Email info@arma.org.uk Websitewww.arma.org.uk


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