Commercial service charge accounting and audit: a review

Abstract

Purpose

The purpose of this paper is to critique the accounting and auditing requirements of the 2011 RICS Code of Practice, Service Charges in Commercial Property and examines whether the new 2014 version of the RICS Code and its associated accounting guidance note provide a “best practice” framework for service charge accounting and audit. This theoretical discussion is then applied to empirical data obtained from a sample of UK commercial office properties to assess whether current practices used by managing parties for the preparation and review of service charge reconciliation certificates actually embody the principles of best practice.

Design/methodology/approach

The paper uses inductive reasoning to theorise about how the accounting and auditing of commercial service charges might be improved. The paper also uses a deductive approach to identify whether current commercial service charges accounting and audit practices achieve a theoretical level of best practice. The paper reviews a range of secondary literature and utilises hand-collected data from the service charge documents provided to commercial leaseholders.

Findings

The paper finds deficiencies within the RICS Code’s requirements for service charge accounting and audit. As a result, empirical evidence is found suggesting that UK commercial service charge accounting and audit practices are inconsistent, lack transparency and provide poor levels of negative assurance for tenants.

Research limitations/implications

Content analysis requires subjective interpretation on behalf of the researcher.

Originality/value

Data are original to this research and provide a unique insight as to the accounting and audit practices used by facilities managers, managing agents, accountants and independent auditors within the commercial property sector.

Citation

Holt, A. (2015), "Commercial service charge accounting and audit: a review", Facilities, Vol. 33 No. 7/8, pp. 502-527. https://doi.org/10.1108/F-10-2013-0078