Professional standards and accounting change: A comparative study of the financial reporting practices for commercial service charges in the UK retail and office sectors 2010-2013

This research aims to continue previous work by the author in the field of commercial service charge management in the UK, offering a unique cross-sectoral comparison in this paper. While prior studies have approached only one sector, this study analyzes both retail and office sectors in the UK. It examines the financial reporting and administrative practices of managing agents and the overall quality of commercial service charge documents, through which it offers commentary on the standard of professional service in service charge provision. It achieves this by benchmarking performance achieved against the accounting requirements of the UK RICS Code of Practice, Service Charges in Commercial Property.

Data were hand collected from analysis of actual service charge documents supplied to commercial retail occupiers at 100 UK office buildings and 100 UK shopping centres during the period of 2010-2013. This process ensures authenticity by removing reliance upon third-party reporting of the said data and offers a uniquely detailed longitudinal sample.

Overall levels of compliance with the financial reporting requirements of the RICS Code of Practice for Commercial Service Charges were poor in both sectors over the period of 2010-2013. Of specific concern was the widespread failure to disclose the accounting policies used during the preparation of the service charge accounts; knowing whether the accounts are prepared using an accruals or cash basis is essential for occupier decision-making purposes. Overall, the results from this study contrast with claims by the professional body that levels of “best practice” are increasing across the service charge industry.

The work analyzes service charge documents prepared during 2010-2013 for 100 office buildings and 100 retail shopping centres located in the UK. While the sample sizes utilized are relatively small, the paper provides a unique in-depth longitudinal analysis of commercial service charge documents that produces findings with high levels of generalizability. Content analysis was utilized to interpret the data and required some subjective judgement by the researcher.

The study provides a comprehensive longitudinal study of accounting and financial reporting practices for commercial service charges in the UK retail and office sectors. Sector data are original, and the paper provides a unique benchmarking approach for assessing Code compliance at each building. This structured longitudinal approach to benchmarking differs markedly from the largely anecdotal evidence offered by the profession when defending current levels of Code compliance. In addition, the paper also provides individual compliance scorecards for 695 service charge documents in order to assess compliance with nine “core” financial reporting requirements of the RICS Code. Its chief value lies in establishing actual practice standards that can be taken up as a driver for improvement – by tenants, agents, landlords and the wider profession.