Audit Requirements for Sectional Title Schemes: When Is One Mandatory?

Whether a body corporate's annual financial statements need a full audit, an independent review, or simply need to be compiled depends on the scheme's size and, in some cases, what the owners themselves decide.

The Three Levels of Assurance

Audit

The highest level of assurance – an independent auditor tests transactions and controls
Typically required for larger schemes or where the rules/owners specifically require it
Provides the strongest evidentiary comfort in the event of a dispute

Independent Review

A lower-intensity engagement than a full audit, still performed by an independent, suitably qualified practitioner
Common for many small to mid-sized schemes
Involves analytical procedures and enquiry rather than full transaction testing

Compilation

The financial statements are simply prepared from the accounting records without independent assurance
Generally only appropriate for the smallest schemes, if permitted by the rules and agreed by owners

What Determines the Requirement

The applicable threshold is generally tied to the scheme's rules and the size/complexity of its finances, and owners can resolve at an AGM to apply a higher level of assurance than the statutory minimum if they want extra comfort – common where a scheme has had governance concerns in the past, or holds a large reserve fund balance.

Why Owners Sometimes Ask for More Than the Minimum

Reasons to Consider a Higher Level of Assurance

A recent change in managing agent or trustees
A large or fast-growing reserve fund balance
Previous concerns about financial irregularities
A significant capital project funded partly by a special levy

Choosing the Right Practitioner

Whoever performs the audit, review, or compilation should be independent of the managing agent and trustees – appointing a practitioner with no financial or personal connection to those managing the scheme's money is essential to the credibility of the process.

Matching Assurance to Risk

The right level of financial assurance isn't always the maximum available – it's the level that gives owners genuine confidence proportionate to the size and complexity of their scheme's finances.

Not Sure What Level of Assurance You Need?

PPSP helps trustees select and appoint an appropriately qualified, independent practitioner for their scheme's financial statements.

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