Can accountants help in avoiding service charge disagreements?

Service charge costs can often be an area of disagreement between the owners and occupiers. Back in 2006 the Royal Institution of Chartered Surveyors (RICS) issued its first version of guidance to its members on best practice in the preparation of commercial service charge accounts. Now in its third edition, in part, the aims of this includes increasing the general standards of management and transparency of information to occupiers, who ultimately pay the expenditure spent by the landlord and managers as laid down in the accounts.

The RICS recommended best practice is that such accounts should be reviewed by an independent accountant, where permissible in the lease.  As a firm we are asked to undertake and certificate on such reviews and the conundrum has always been – what form such the report should take? And what underlying procedures should we conduct on such assignments? As a result, within our industry there has been widespread irregularity in the accountants’ report wording and confusion for practitioners and occupiers alike on the actual level of assurance that is being provided. Managing and administering commercial estates is no doubt a difficult task, and anything accountants could do in helping to avoid confusion and disputes where commercial services are concerned I am sure would be greatly welcomed by landlords and managers alike.

Thankfully, in April 2014 the Institute of Chartered Accountants in England and Wales (ICAEW) finally helped in issuing its own technical guidance for accountants that set out best practice aims to address these challenges.

As set out in the release, where an audit is not required, a limited assurance report conducted in accordance with International Standard on Review Engagements (ISRE) 2400 (Revised), Engagements to Review Historical Financial Statements is considered the most appropriate.  According with the standard should give rise to more consistency in the procedures and reporting, and ultimately the level of assurance user can glean, based upon professional judgment of the reporting accountants.

Hopefully, owners and managers see the potential benefits such reports can bring in potentially leading to better satisfied occupiers and perhaps fewer service charge related disputes.

Within our team, we have been successfully assisting in preparing service charge statements on expenditure and issuing limited assurance reports for a large number of years.  Our knowledge of the RICS guidance and compliance has assisted landlords and managing agents to deliver high quality information to owners and occupiers.

The implementation of the guidance is for reports for periods starting on or after 1 April 2014, however earlier implementation is encouraged.