Buying And Living in a Multi-Unit Development Property in Ireland
13. Management Company Financial Records
Continued13.10 What is the role of the company's auditor?
An auditor is an accountant who holds a specific licence to conduct examinations/investigations of a company's financial statements.
These investigations are known as audits. Auditors examine the accounts and financial records of the company and prepare a report for the company's members.
The auditor is generally appointed by the directors and reappointed at every AGM of the company. To ensure that the auditor's assessment is impartial, an auditor must be independent of the company and therefore should not be an officer or employee of the company or any associated company.
The directors must make available all accounting records and all other records and related information, including minutes of all directors and members meetings to the auditors.
The auditor's primary task is to report to the members of the company their opinion on the company's financial statements.
The auditors report will say if the company's accounts have been prepared in accordance with Company Law, accounting standards and if they give 'a true and fair view' of the company's financial affairs.
The auditors' report must be read at the AGM and should be made available to every member of the company. The auditors are also entitled to receive notice of, and attend, general meetings of the company.
13.10.1 What is meant by the term 'True and Fair view'?
While the term 'true and fair view' is not defined in the Companies Acts, the ODCE states that in general, financial statements are considered to give a true and fair view where they:
- Have been prepared in accordance with the Companies Acts, and accounting standards;
- Fairly reflect the circumstances of the company's business;
- Reflect the commercial effect of the underlying transactions and balances and not merely their legal form;
- State the assets, liabilities and profits (or losses) of the company as arrived at in accordance with accounting policies required by company law and by the relevant accounting standards;
- Consistently apply those accounting policies i.e. from year to year in order that the financial statements from one year to the next are comparable.
13.10.2 What is in an auditors' report?
In relation to management companies, the auditors' report must state whether, in their opinion:
- The company has maintained proper books of account;
- The financial statements have been properly prepared in accordance with the provisions of the Companies Acts and give a true and fair view of the company's affairs and of its profit (or loss);
- There has been a serious loss of capital requiring the convening of an extraordinary general meeting;
- The information contained in the directors' report is consistent with the financial statements;
- They have obtained all the information and explanations they considered necessary for the purposes of the audit;
- The company's balance sheet and profit and loss account are in agreement with the books of account.
13.10.3 What should you look for in the audited accounts?
When you receive the company's audited accounts, you should look at the auditor's report and check what they have to say about the books of account kept by the company as per the previous section.
Any shortcomings identified in the auditor's report should be raised and discussed at the company's AGM. Auditors do not judge the appropriateness of the company's actions or activities.
Where the auditors are unable to report positively on any of the above, they may 'qualify' their audit report in what is known as a qualified auditors report.
13.10.4 What is a Qualified Auditors' Report?
A qualified audit report can take two forms:
- 'A disclaimer of opinion'. This is where the auditors state that they are unable to form an opinion as to whether the financial statements give a true and fair view. A disclaimer of opinion will arise where the scope of the auditors' work has been limited in some way e.g. they have been unable to gain access to all of the books and records;
- An 'adverse opinion'. This is where the auditors state that the financial statements do not give a true and fair view. An adverse opinion will be given where the auditors are in disagreement with the financial statements and the directors are not prepared to amend them to reflect what the auditor considers to be a true and fair view.
Where the auditors believe that the company is breaking, or has not met, its obligations to maintain proper books of account, they are obliged to serve a notice on the company informing it of that opinion.
If within 7 days of notice, the directors fail to take the necessary steps to ensure that proper books of account are maintained, the auditors are required to notify this failure to the Companies Registration Office, which in turn will notify the Office of the Director of Corporate Enforcement.
13.11 Filing of Annual Return with the Companies Registration Office
As stated earlier, the management company must once every year, file an Annual Return with the Companies Registration Office (CRO).
The Annual Return contains certain fundamental information about the company and its financial activities.
Companies and officers, who do not file their return in compliance with the Companies Acts are liable to enforcement measures from the CRO.
For example, companies that miss their deadline for submitting their return will be fined a late payment penalty.
When drafting their annual accounts and filing their Annual Return all companies must follow certain standards, formats and disclose certain information.
Managing agents may offer to file the Annual Return on the company's behalf as part of their service.
Where the Agent is responsible for filing the returns to the CRO, the contact between the Agent and the management company should clearly state that the accounting and financial records are and remain the property of the management company and must be freely available for inspection by the directors, secretary and management company's auditor.
The contract should also outline where late payment fees are imposed by the CRO for non-compliance that they should not be borne by the management company where it is not responsible for the delay.
Similarly, where the developer or their nominated directors are in control of the management company, members should not be liable for any costs arising from returns not made to the satisfaction of the CRO.
The accounts should be provided in due time to the directors for examination and approval and the directors shall return them in sufficient time to allow for the convening of the AGM and for filing the accounts with the CRO.
The CRO provide detailed information on the process and procedures involved in submitting an Annual Return and this guidance is available online at www.cro.ie
13.11.1 Other company information which must be recorded with the CRO
As well as the Annual Return, directors are also legally obliged to ensure that certain other documents are filed with the CRO. The most common include:
- Change of address of the company's registered office;
- Notice of increase in nominal (authorised) capital;
- Change of director and/or secretary or of their particulars;
- Declaration that a person has ceased to be a director or secretary;
- Notice that a person holding the office of director or secretary has died;
- Nomination of a new annual return date;
- Notification of the creation of a mortgage or charge;
- Memorandum of satisfaction of charge.
13.12 Can members request more detailed information on the company's accounts?
It is important to note that there is no limit to the information a company may decide to provide to its members.
The information outlined in the precious sections sets out only the minimum amount of information that must be presented to the members.
You can ask your management company to present supplementary information at the AGM as is necessary to enable you and the other members to get a really good sense of where the company stands financially.
In particular, directors should consider providing detailed income and expenditure information in relation to service charges, sinking funds, unpaid service charges, insurance etc.
Through the work of the Multi-Unit Development Stakeholder Forum, the National Consumer Agency has published a document to illustrate a typical Report and Financial Statements.
These draft Financial Statements are available in the Downloads section of this website.