Commercial property accounting under the microscope

ACCOUNTING PRACTICES in commercial property should become more transparent, a new study has concluded.

The Service Charge Operating Report prepared by Dr Andrew Holt, lecturer in accounting at Kingston University and David Barrass, managing director of Property Solutions, found the sector is becoming less opaque, but further improvement is needed.

Service charges are complex, difficult to calculate, and sometimes poorly accounted for, increasing the possibility of disputes and disgruntled building users.

The Royal Institute of Chartered Surveyors has published its second Code of Practice, setting out the best way to operate service charges to ensure value for money, transparency, consultation and a fair basis of apportionment between tenants.

Holt and Barrass’s report found that while the code is useful, it remains open to interpretation: “As a result, it is no surprise that disputes may arise over what service charge accounts should disclose.”

Documents lack standardisation and can be hard to compare, even when prepared by the same organisation. The authors concluded that further education for preparers is needed, even while acknowledging that the service charge is a derived expense and “reporting accurately upon these costs is only the end of a long process”.

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Fiona Westwood of Smith and Williamson.