BOOKS OF ACCOUNT

The inspector does not carry out an audit of the owners corporation’s accounting records, nor do they seek to form any professional opinion as to their standard. The inspection is limited to a superficial examination of the accounting records to determine whether the owners corporation is substantially complying with its obligations to keep proper accounting records and also to extract certain information from the records of which the purchaser should be aware.

The owners corporation is required to have two funds that must be separately accounted for:
• Administrative Fund (for the day to day or “recurrent” expenses of the owners corporation).
• Sinking Fund (for the future costs of renewing and replacing Common Property and assets or for “expenses of a “capital” nature).

In this part of the report you should be able to determine the balance of both funds.
As a purchaser you should be concerned if the owners corporation does not have a healthy Sinking Fund. This is because, in the absence of exceptional circumstances, an owners corporation should have been budgeting to build up sufficient funds to renew and replace Common Property and assets as and when they require renewal and replacement, thus avoiding the need for special levies to fund such things. In the case of larger buildings reserve funds frequently amount to hundreds of thousands of dollars. If the owners corporation has an inadequate reserve fund then you will most likely be required to pay special levies as and when work is needed to be carried out. You should take this into account as part of any decision to proceed with the purchase.