In 2011 ICAEW published a Technical Release on the contents of the Service Charge Accounts produced by for example Residential Management Companies (RMCs) but it produced possibly more negative reaction than any previous guidance we've seen. What it deliberately didn't deal with was the contents of the accounts of the Residential Management Companies themselves, many of which were apparently dormant companies as the monies received, paid and held at the year-end were considered to be funds held on trust, and not actually belonging to the company, and they were involved in no other transactions.
This issue was then referred to the Urgent Issues Task Force who published a Draft Abstract that no-one other than probably the authors thought was correct, and then the UITF were abolished under the FRC reorganisation before anything further happened!
BUT - at last, we appear to have an outcome. The FRC have published Draft FRC Abstract 1 (currently FRED 50) which at first sight seems reasonable. It says such monies are indeed held in trust and prescribes certain treatments and disclosures in RMC accounts but says that the accounts of the RMCs are not dormant and must be prepared to show a true and fair view. It also says comparatives must be shown even where previously the accounts were described as dormant.
Whilst not mandatory until 2015, and indeed not yet formally adopted, this will not be universally popular!! Many of these RMCs (whilst legally a separate entity) are merely a small collection of the small number of leaseholders and tenants who may now need to be persuaded to pay for the extra costs and may be resistant to this! We must stress that this Blog is inevitably abbreviated and has omitted much detail!! Click this link for the full text.
Tell us, and the FRC, what you think? Is this the right treatment and what will the effect of it be? The FRC may be theoretically correct but what about the extra cost? What will clients think and say when you explain what has to be done?