As an auditor of property practitioners’ trust accounts, are you aware of the new developments following the illustrative reports recently published by IRBA in March 2023 and the coming into effect of the Property Practitioners Act in February 2022?
AUDIT OR INDEPENDENT REVIEW OF FINANCIAL STATEMENTS
All business property practitioners with an annual revenue of at least R2,5 million are required to have their annual financial statements audited within six months of their financial year-end unless they are in possession of a trust account exemption letter issued by the Property Practitioners Regulatory Authority (PPRA). However, the audited financial statements do not need to be submitted to the PPRA unless requested in writing by the PPRA or requested by a PPRA inspector during an inspection.
Business property practitioners with annual revenue below R2,5 million may have their annual financial statements independently reviewed instead of a full audit. In addition, a business property practitioner in possession of a PPRA-issued trust account exemption letter may also have their annual financial statements independently reviewed, regardless of their annual revenue.
PERSONS ELIGIBLE TO PERFORM THE INDEPENDENT REVIEW OF THE FINANCIAL STATEMENTS
The independent review for business property practitioners without a PPRA-issued trust account exemption letter must be performed by the same registered auditor responsible for auditing the trust account. For business property practitioners in possession of a trust account exemption letter, the independent review of the financial statements must be performed by the following:
- A registered auditor or chartered accountant, if the business property practitioner is a company with a public interest score of at least 100 as calculated in terms of the Companies Act, or
- A registered auditor, chartered accountant or any person qualified to be an accounting officer of a close corporation for all the other business property practitioners who are not in the above category
The independently reviewed financial statements do not need to be submitted to the PPRA unless requested in writing by the PPRA or requested by a PPRA inspector during an inspection.
Exemptions from keeping a trust account
The new Property Practitioners Act (PPA) provides for the circumstances under which a business property practitioner can be exempted from keeping a trust account. The first ground for an exemption is when a business property practitioner does not handle trust monies. The second ground for an exemption is when a business property practitioner no longer handles trust monies. And lastly, a property practitioner who outsources the trust account administration function to a payment-processing agent is also exempted from keeping a trust account. A business property practitioner needs to be in possession of a PPRA-issued trust account exemption letter to be officially regarded as exempted from keeping a trust account.
REQUIREMENTS FOR OBTAINING A TRUST ACCOUNT EXEMPTION LETTER
The following are the required documents to qualify for a trust account exemption:
- For new business property practitioners – An affidavit in the same format as the one in Regulation 2 of the Property Practitioners Regulations (PPR), which must be signed and stamped by a commissioner of oaths
- For existing business property practitioners who do not intend to use payment processing agents and are not managing agents – An affidavit mentioned above, bank letters confirming closure of the trust account, and submission of a winding up audit report by the auditor on the MyPPRA Auditors Portal covering the period up to date of closure of trust account
- For existing business property practitioners who intend to use payment processing agents and are not managing agents – An affidavit as mentioned above, bank letters confirming closure of their own trust account, and submission of a winding up audit report by the auditor on the MyPPRA Auditors Portal covering the period up to date of closure of trust account or date of mandating the payment processing agent and signed letter from the payment processing agent accepting the mandate
- For managing agents − An affidavit as mentioned above, bank letters confirming closure of their own trust account, submission of a winding up audit report by the auditor on the MyPPRA Auditors Portal covering the period up to date of closure of trust account or date of mandating the payment processing agent, a list of their body corporate clients, and letters from all their body corporate clients confirming that the managing agent does not hold any monies on their behalf.
FRAMEWORK APPLICABLE TO PROPERTY PRACTITIONERS’ TRUST ACCOUNT AUDITS
Following the coming into effect of the PPA in February 2022, the Independent Regulatory Board for Auditors (IRBA) embarked on a project to develop new illustrative reports applicable to audits of property practitioners’ trust accounts. This culminated in three sets of illustrative reports being published by IRBA in March 2023. The three illustrative reports are based on the International Standard on Assurance Engagements (ISAE) 3000 (Revised), Assurance Engagements other than Audits or Reviews of Historical Financial Information (ISAE 3000 (Revised)) and the International Standard on Related Services (ISRS) 4400 (Revised), Agreed-Upon Procedures Engagements (ISRS 4400 (Revised)).
Auditors are required to express a reasonable assurance conclusion on compliance with certain sections of the PPA relating to trust accounts. In addition, auditors are also required to report on factual findings on specific agreed-upon procedures relating to interest earned on trust monies, unclaimed trust monies, possession of a fidelity fund certificate, and registration with the Financial Intelligence Centre (FIC) as accountable institutions.
AUDIT REPORT ON TRUST ACCOUNTS SUBMISSIONS
The submission period of audit reports on trust accounts to the PPRA has been extended from the four-month period after the practitioner’s financial year-end in the repealed Estate Agency Affairs Act to the six-month period in the new PPA. Audit reports submitted after this timeframe attract a R20/day penalty for the first three months and an additional fine of R25 000 if the audit reports remain outstanding after three months of the deadline.
CONTRAVENTIONS REPORTED IN SUBMITTED TRUST ACCOUNT AUDIT REPORTS
Minor contraventions of the PPA reported by auditors in submitted audit reports on trust accounts attract fines in terms of Regulation 38 of the PPR, and these fines range from R750 to R25 000 per individual charge. The contraventions range from having trust accounts not property referenced as required by the PPA to administering the trust accounts without complying with the provisions of the PPA.
CONCLUSION
Auditors, accountants and property practitioners must understand the new accounting and auditing requirements in the PPA in order to discharge their obligations without falling foul of the law. Detailed guidance and answers to frequently asked questions can be accessed on the PPRA website (https://theppra.org.za/myaudit).
Author
Thomas Makupo CA(SA), RA, Audit Compliance Manager at the Property Practitioners Regulatory Authority
