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Flat Management companies - Be careful

I have just been reading the guidance on flat management companies and it looks like the authorities have  changed the rules.

Historically you had to be a qualified accountant to prepare accounts to make a s21 report. A qualified accountant was a CCAB accountant. Now under s28 you need to be a registered auditor as well. Guidance can be found here.

http://www.arma.org.uk/public/h/home.

s21 is not an Audit, but the reference to a qualified accountant in s21 is totally redundant. You have to be an Auditor neatly changed in S28 (which didnt exist a year ago)

This is just so pathetic, who are the self serving muppets who make it up as they go along?

For the last two years you couldnt get guidance on this for love or money and now they amend the rules without the slightest regards for the users who have already made an appointment.

I couldnt care about the fee, its the whole process you are put through. The rule changes on a whim and there is no accountability. We need a proper regulator because regulation of this industry is quite beyond the capability of the CCAB bodies who are self serving and hopeless.

Why have such incompetence at the top of the profession. There are lifeforms at the bottom of the sea who could do a better job.

The irony is that these bodies repeatedly complain at the incompetence of the HMRC. HMRC is a far more respectable organisation.

Replies

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Are you sure?

I read the ICAEW's version when it came out a few months back.  I'll read it again but it's a guide, it's not law and so I'm not sure who will impose it?

Also in all the cases I deal with I prepare annual service charges accounts, not S21 cost reports, and unless the leases say otherwise, these are independent from any rules under S21.

You refer to management company accounts, remember this legislation refers to the services charges and not the company's own accounts.

As I said I'll re-read it because although I'm OK at the moment, I'm planning to give up audit registration this year.

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09th Feb 2011 10:14

Paul

Hi Paul

I would be really interested to know why you intend to give up audit. Is it because the regulatory requirements are just too much? Risk and reward just does not make it worth while?

 

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09th Feb 2011 10:16

Unhelpful

The ICAEW guidance isn't especially helpful is it. You can quite imagine having to explain to a Court how you came to the decision that the audit referred to in the lease doesn't really mean an audit in the sense of applying ISAs, and then how you communicated that decision to those charged with governance. Ugly scenes.

Ps - Paul, if you're looking at a tie up with a registered audit firm going forward, would be delighted to have a chat.

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09th Feb 2011 12:33

Landlord and Tenant Act 1985

Hi Paul, I am well aware of the difference between the company accounts and the trust accounts for the service charge. Quite frankly for most companies the accounts are pretty much dormant save for the holding of the property.

The only real work is in the service charge accounts and for this reason you would prepare accounts for both as it just wouldnt be cost effective to split the two sets of accounts up.

The point I may have overlooked is this refers to 21(6) and this may not refer to the whole of s21 which are leaseholder accounts, however when I looked at this in conjunction with the Arma report, this implies that only registered auditors can do this work. Which is conflict with the advice given by the professional body.

If you go on the Arma website and look at the new guidance and then go s28 of the landlord and tenant act 1985, this completely overides s21. This was not in force six months ago,  I now quote from the act:

28 Meaning of “qualified accountant”. E+W

 [F1(1)The reference to a “qualified accountant” in section 21(6) (certification of summary of information about relevant costs) is to a person who, in accordance with the following provisions, has the necessary qualification and is not disqualified from acting.

 [F54(2)A person has the necessary qualification if he is eligible for appointment as a [F55statutory auditor under Part 42 of the Companies Act 2006] .]

 F56(3). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

 (4)The following are disqualified from acting—

 F57(a). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

 (b)an officer [F58, employee or partner] of the landlord or, where the landlord is a company, of an associated company;

 (c)a person who is a partner or employee of any such officer or employee.

 F59(d)an agent of the landlord who is a managing agent for any premises to which any of the costs covered by the summary in question relate;

 (e)an employee or partner of any such agent.]

 (5)For the purposes of subsection (4)(b) a company is associated with a landlord company if it is (within the meaning of section 736 of the Companies Act 1985) the landlord’s holding company, a subsidiary of the landlord or another subsidiary of the landlord’s holding company.

 

So for the purposes of flat management effectively you dont need an audit but you need a registered auditor. So the references to qualified accountants in s21 are totally meaningless and this will effectively double the costs for the leaseholders.

It annoys me, the slimy backhanded manner this was brought in.

 

 

 

 

 

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By frauke
13th Feb 2011 14:15

Enforcement?????

Many Flat management companies are run by the flat owners who do thier own accounts, and service charges etc. 

I can't see that changing.

I may be wrong, but from what you say - it seems you may be able to do it if you aren't an accountant with a CCAB body - but if you are you may also be required to be a registered auditor!

This is what it says in appendix E in the technical release:

"there is no statutory requirement to prepare service charge accounts every year. However, the tenants or secretary of a recognised residents association of a property may request a summary of relevant costs in accordance with the provisions of section 21 of the Landlord and Tenant Act (LTA) 1985"

"Where an accountant has been engaged to make a report in accordance with section 21 of the Landlord and Tenant Act, the accountant must be a registered auditor (see section 28, Landlord and Tenant Act 1985)"

If done "in accordance of section 21" rather than "in accordance with the provisions of section 21" then you don't need to be a registered auditor.

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13th Feb 2011 15:40

Response

Forgive if I am wrong here and I would like to be told differently, but my reading of s20b/s21 is that if you dont prepare accounts and send a s21 statement to all tenants then within 18 months these costs will be unenforceable at an LVT. What is the point in preparing accounting information for tenants which has no legal recognition. It would be like me preparing company accounts and then saying I cant send them to companies house.

Therefore although tenants may want to prepare accounts themselves, they are going to leave themselves wide open if a tenant says they are not paying the service charge. The directors wont be able to enforce the non payment of service charges.

On the accounts I confirmed this with one of the big two institutes who stated unequivocally (and I have the email) that a CCAB accountant could produce the accountants report necessary for the enforcement of service charges. However this is clearly not in the legislation any more and it makes a mockery of the whole procedure.

My interest here is not with the job, its with the pensioner who is on a £100 per week and Arma/Accountancy bodies are creating an unnecessary bureaucracy around the whole procedure.

Anybody can produce accounts for companies up to appprox £5m yet you have to be a registered auditor to comment on a bank reconciliation where the total sums involved may not exceed £10,000.

I think vested interests are at work and it is particularly distasteful if you are targeting the poorest people in society.

 

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By frauke
14th Feb 2011 20:16

Total sums less than £10K?

I look after one resident management company that has annual sevice charges of only £1,500pa and that includes my accountancy fee. I am not a registered auditor, (or a member of a CCAB body). I have to admit my fee is very low simply because the flat owners do a lot of it themselves and don't want to pay anymore than they have to.  I keep my involvement to the minimum - and produce accounts for typically for less than 20 tansactions a year!  Understably they will not want to pay a registered auditor to produce service charge accounts for less than 20 transactions - and would a registered auditor really want the business? 

Last year I did take a leaseholder to the county court (via solicitors) without any problem for non payment of service charges, but never have had a LVT. 

I do know of a residents management company that when it was handed over to the Parish council - I guess 15 years ago was in so much debt the residents ldecided to let it go!  The company was to manage the common outdoor areas on the estate including the sewage (as there was no mains drainage when they were built) but no-one did anything for years until eventually Company House struck the company off for non filing!

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By frauke
20th Jul 2011 18:32

Not implemented

I have been reliably informed that the revision of section 21 of the Landlord and Tenant Act 1985 and the implications for accountants specialising in Flat Management Companies who are not qualified statutory auditors is not relevant simply because it was never implemented!

In fact the coalition government stopped it and it is unlikely to go ahead.

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