Renovation projects increase risk – the auditor's role takes centre stage

Pipe renovation, facade refurbishment, roof repair or an energy-efficiency project. These are familiar terms for thousands of housing-company shareholders, and they are also significant financial events that bring increased financial and administrative risk. In these situations the auditor's role is not a mere formality, but an important part of the housing company's risk management and of maintaining shareholders' confidence.

Renovation projects – what they involve from an audit perspective

Renovation projects are often the largest investments in a housing company's history. They involve substantial financial outlays, complex contract structures, multiple parties (contractors, supervisors, project managers) and extensive shareholder communication.

The auditor's task is to ensure that the financial transactions related to the renovation project are correctly recorded and that the company's use of funds is controlled, transparent and rule-compliant.

Three key areas of audit focus in renovation projects

1. Financial monitoring of construction contracts

The auditor should assess whether the company has adequate practices for managing construction contracts. Are the contracts properly documented? Is the payment and instalment schedule being followed? Additional and change work should be reviewed with particular care, as they are a common cause of cost overruns.

2. Accuracy of financing and bookkeeping

Financing of renovation projects is often arranged through a loan or capital charges collected from shareholders. The auditor must ensure that the financing arrangements have been properly addressed by the board and the general meeting. The accounting treatment of capital charges in the bookkeeping and financial statements – whether recognised as income or as equity – must be clear and well-grounded.

3. Cost monitoring and financial reporting to shareholders

Shareholders have a right to know how their money is being used. The auditor is not responsible for communications, but does have a duty to evaluate whether the company's reporting is sufficiently transparent. If cost monitoring is inadequate or reporting unclear, the auditor must bring the observations to the board and, where necessary, also to the general meeting.

Warning signs the auditor should watch for

•      Unusual or oversized costs without explanation
  

•      Fragmented or unclear documentation
  

•      Instalments paid without an approved contractor invoice
  

•      Additional and change work without board decisions
  

•      Unclear capitalisation and income-recognition decisions
  

A good auditor sees renovation projects as both a risk – and an opportunity

A renovation project is a major test for the housing company's governance and also for the auditor. A well-performed audit gives shareholders the assurance that money is being spent appropriately and that decision-making is transparent. A poorly executed audit, in turn, can leave behind distrust, legal risk and financial uncertainty.

Renovation projects require exceptional precision, clarity and communication skills from the auditor – and it is in these areas that the auditor adds the most value for the company's governance and shareholders.

The auditor's expertise is not limited to reviewing the financial statements; it can also be used to strengthen financial oversight at the different stages of a project. Reviewing interim and final reports during the financial year, for example, can help ensure that financial reporting is timely and reliable. Discussions with the board on financing management can bring valuable additional value and reduce potential ambiguities later on. In this way the auditor can act as an important partner for the company's governance, supporting the success of the project and shareholders' confidence.

We are one of Eastern Finland's largest auditors of housing companies, with decades of experience!

The easiest way to reach us is via the form at: www.jtt.fi/yhteystiedot

Antti Pekkarinen

Partner, CEO 0407016640 toimisto@jtt.fi