A real estate audit is a practice conducted to ensure real estate companies not only comply with all relevant regulations but also ensure financial integrity and provide assurance to the stakeholders in the industry.
Real estate companies in Kenya are gradually increasing due to the increasing demand of property ownerships. However, there are scams that a lot of Kenyans keep falling for due to fraud by the stakeholders in the sector. So, it is more important for real estate companies to always keep an overview and to be assisted by a reliable professional auditor with wide-ranging expertise to check on the transactions and ensure financial integrity in the real estate sector.
Fundamental principles and practices crucial for conducting effective and reliable audits in the real estate sector.
• Planning Transaction Checklists – Each transaction is governed by a series of regulations that must be followed to ensure compliance. It is therefore important to develop a planning checklist to identify typical risk factors to check during the audit process. This ensures that risk arear are identified and checked to ensure compliance.
• Financial Records Management – Maintaining accurate and transparent financial records are crucial for an effective and reliable audit for real estate companies. Most frauds identified in the industry are due to fraudulent documents maintained by the investors. Hence, it is important for the real estate companies to maintain accurate financial records for the auditor to check and verify that they provide a comprehensive overview of the business’s financial activities.
• Transaction recognition – It is important to for the client and the auditor to check that transactions are correctly recognized in the financial records and comply with the respective accounting standards. These include lease accounting, revenue and expenses recognition and property valuations.
• Identify internal controls – For any business organization, accounting structure is extremely important and crucial for its success. Weak internal controls in the sector have also led to fraud and scams in real estate industry. Assessing the effectiveness of internal controls over the accounting structure, particularly those related to property acquisition, leasing, and revenue recognition are fundamental in checking the weaknesses within the company and recommend improvements. This will lead to financial integrity and ensure compliance in the real estate sector.
Auditing real estate firms requires a deep understanding of the industry's unique complexities, including property valuation and lease accounting. Regular and thorough audits not only ensure financial integrity but also enhance investor confidence and contribute to the firm's overall success. It's crucial to engage trusted audit firms that offer personalized and comprehensive service with expertise in real estate to perform these audits effectively and have a peace of mind regarding your financial integrity.
Henry Gitau – Senior Audit Associate