FINANCE Advice
serVIceCHARGE accounTInG:The
GreaTDEBATE
nickBullentakes a look at the recent consultation on service charge accounts and explains howit could affect anyone dealing with block finances
Anyone involved in the financial aspects ofmanaging theirblock is likelytobeaware of the ongoing debate surrounding the format and content of the statutory accounts of ResidentManagement Companies (RMCs). The2010draft guidance Accountingfor Service
Charges (ICAEWTechnical Release 01/10 TECH 01/10) wasissued jointlybythe Instituteof Chartered AccountantsinEngland andWales (ICAEW),the AssociationofResidential Managing Agents (ARMA) and the Royal InstitutionofChartered Surveyors(RICS)and wasthe subjectofmuchdiscussionatlast year’s ARMAconference.
TrusT concepT One of the key aspects of the 2010 draft guidance,isthatitre-emphasised this fundamental point: that service charges paid by residents are regarded as being held on trust for the benefit of the flat owners themselves, forthe purposeofpayingfor validservice charge expenditure. Best practice requires that servicecharges
received fromtenants, andthe payment of service charge expenditure, should be excludedfrom thestatutory limitedcompany accounts forbothRMCsand RighttoManage (RTM) companies. The2010draft guidance wasfollowedin2011
by the release of final guidance. Residential Service Charge Accounts,which again re-iterated theneed forresidential servicecharges,and related expenditure, to be excluded from thestatutory accounts ofRMCand RTM companiesasaconsequence of thestatutory trustnatureofthose transactions.
sTaTuToryaccounTs TheTECH 03/11guidancedid,however,refer to the professional accounting bodies Urgent Issues Task Force(UITF) in order that clarity couldbegiven as towhether, andhow, servicecharges andexpenditure should be incorporated into thestatutory accounts of RMCs that deal with transactionsonbehalf of tenants. Thedraft UITFAbstract issuedinJune2012
stated that theneed to include servicecharges andrelated expendituredependedupon whetherthe companyisactingasanagent
Flat Living Autumn2012
(and thereforeactingonbehalf of someone else,iethe tenants) or acting as aprincipal (acting on its own account).
Does TheDrafTaBsTracT
chanGeanyThInG? The UITF indicates there are three scenarios: nWhere thecompany is acting as agent-it
should notrecord in itsstatutory accounts transactionsentered into in that
capacity.In somecases,itcouldmean that thecompany is
dormant. nWhere thecompany is acting as principal-it should record in itsaccounts alltransactions
entered into in that capacity. nWhere the company is acting as an undisclosedagent -itshouldaccountfor transactions as if it were a principal. Thedraft Abstract also drawsattention
to an earlierlegal counsel’s opinion that the cash balanceheldbyacompany representing contributionsfrom tenantsinaccordance with the terms of their lease, is not an asset of the company. This is irrespective ofwhether the company is acting as principal or agent with regard to theservice chargetransactions. The third scenario as described abovemay be
themost common. It would lead to a different accounting treatmentfrom that originally set outinTECH 01/10which indicatedthatservice charges andrelated expenditureshouldbe excluded fromRMCs statutory accounts. Where acompany enters into acontract
servicecharge accountingisthe subject of much debate
with a supplier, it has an obligation to pay for thegoodsorservices
received.The company also has a right to recover thatamount from the trust account held on behalf of the tenants.
This seems tomean that: nExpenses will be recognised as normal on an
accruals basis; nRevenuewillbedeterminedbythe expenses incurred rather than by theamountofservice
charges actually invoiced to thetenants;and nThe company will have a debtor fromthe trustfor anyamounts disbursedbut notyet recovered, rather than aclientbankaccount.
sowherearewenow? TheUITFdraft documentconsultation period endedinJune2012and theintention is that any changesmade to the rules on service charge accounting will be applied to accounting periodsendingafter 31 December 2012 although earlyadoptionwillbepermitted. TheUITFisstilladraft documentwhile
TECH03/11isregardedasbeing currentbest practice having been released in final format. Accountantshavebeenadvised that they should notmake any changes to theway accounts of RMCs and RTMsare preparedunder TECH03/11 until any final Abstract is issued.●
nick Bullen is a Partner atWhitley Stimpson and a specialist in service charge accounting
Accountingforservicecharges
chargesin thepropertyindustryisaspecialisedarea
thatrequiresexpertiseandanunderstandingof thesector. WhitleyStimpson isable toprovideexpertadviceonallaspects ofservicechargeaccounting aswellascontentandformat of statutoryaccounts forRMCsand RTMCos.WhitleyStimpsonareRegisteredAuditorsthusenabling thefirmtoactasauditorsorIndependentAccountants inrespect
ofservicechargeandstatutoryaccountsmatters.Formore information,contactnickBullenonnickb@whitleystimpson.
co.ukor01295270200orgotowww.whitleystimpson.co.uk
nick Bullen 25
Page 1 |
Page 2 |
Page 3 |
Page 4 |
Page 5 |
Page 6 |
Page 7 |
Page 8 |
Page 9 |
Page 10 |
Page 11 |
Page 12 |
Page 13 |
Page 14 |
Page 15 |
Page 16 |
Page 17 |
Page 18 |
Page 19 |
Page 20 |
Page 21 |
Page 22 |
Page 23 |
Page 24 |
Page 25 |
Page 26 |
Page 27 |
Page 28 |
Page 29 |
Page 30 |
Page 31 |
Page 32 |
Page 33 |
Page 34 |
Page 35 |
Page 36 |
Page 37 |
Page 38 |
Page 39 |
Page 40 |
Page 41 |
Page 42 |
Page 43 |
Page 44 |
Page 45 |
Page 46 |
Page 47 |
Page 48 |
Page 49 |
Page 50 |
Page 51 |
Page 52 |
Page 53 |
Page 54 |
Page 55 |
Page 56 |
Page 57 |
Page 58 |
Page 59 |
Page 60 |
Page 61 |
Page 62 |
Page 63 |
Page 64 |
Page 65 |
Page 66 |
Page 67 |
Page 68