Being a signatory - APES 310

By Paul Meredith FCA

Three clients walk into a Chartered Accountant’s office. The first client tells the accountant that he is relocating overseas for 12 months to set up a branch office, and that he wants the accountant to become a signatory to the client’s business bank account, to be able to authorise certain local office expenditures subject to specified restrictions, if head office staff are unable to contact the client at short notice.

The second client says he is going on an extended overseas holiday, and authorises the accountant to operate the client’s investment properties bank account in his absence, to ensure property expenditures are promptly paid and to keep an eye on rental receipts. The third client wants to provide the accountant with their username and password for accessing all the client’s bank accounts, stating that this will streamline the overall engagement work that the accountant has to perform for the client.

The punchline here is that all three scenarios mean that the accountant is subject to the provisions of professional standard APES 310 Dealing with Client Monies.

The Accounting Professional and Ethical Standards Board (APESB) issued APES 310 in December 2010 to replace Miscellaneous Professional Statement APS 10 Trust Accounts, with effect from 1 July 2011. The new standard covers both the operation of trust accounts and those situations where the accountant is the signatory to a client bank account.

Requirements

The approach taken in the standard to the regulation of members who are authorised signatories on a client’s bank account has been described as a best practice approach. The implication is that these provisions should not represent any onerous new obligations for accountants, because they would be expected to have been conducting their signatory role along similar lines to those identified in the standard. So what then does the standard require?

Where an accountant holds a signing authority for a client’s bank account, the standard requires the accountant to have appropriate internal controls and procedures to ensure that the bank account is properly safeguarded against unauthorised access or use.

The standard also requires the accountant to maintain records to appropriately document transactions authorised by them, in particular appropriate records to support transacting electronic funds transfers from a client’s bank account. There are also provisions within the standard that seek to ensure that a client bank account is reconciled on a regular and timely basis.

Members subject to the provisions of APES 310 (because they are dealing with client monies whether through a trust account or as a signatory to a client bank account) are required to have their compliance with the standard audited annually. This represents a new obligation that did not apply before the introduction of APES 310.

Who is a signatory?

When a bank account is set up, certain individuals are authorised to operate that account. In the case of a business, this will usually be the officeholders of the business entity. Where those officeholders in turn authorise others to transact on that account, those others will be able to divert the monetary assets of the business. Recognising that there is a risk that such an ability is open to abuse, the APESB has sought to impose obligations on members of the accountancy profession to address those risks in the public interest.

Although APES 310 refers to authorised signatories, in these days of electronic transactions anyone entrusted with the passwords and login information that would provide them with the power to transact on the account would be considered to be functionally equivalent to a signatory. This would be the case even where they may not have been formally nominated to a financial institution as a designated signatory on the account. Members entrusted with the ability to transact on a client’s bank account should consider themselves subject to the requirements of APES 310, even in the absence of a formal nomination as a signatory.

Risk management 

As part of the implementation of APES 310, one network firm conducted a survey of its partners across Australia to identify where the partners were signatories to a client’s bank account. The firm admits to being surprised at the extent of the involvement that the survey revealed, and this in turn led to a reassessment of the risk profile of the practice, and to the development of guidelines to manage identified risks in this context.

What the auditor will be looking for 

When an auditor conducts an annual audit under APES 310, they will be looking at whether the member has complied with the requirements of the standard. In other words, they will be conducting a compliance audit, not a financial statement audit. It is expected that the audit will be conducted in accordance with Standard on Assurance Engagements ASAE 3100 Compliance Engagements.

In the context of this standard, the auditor will often be considering issues of strict compliance – did the member comply with the requirement or not? Materiality will usually not be a relevant consideration for the auditor, although the Institute will look to the circumstances of the member in determining the appropriate response to any receipt of a modified audit opinion.

Out of scope

Where the accountant is a signatory to their own company’s bank account, or that of their own family trust, this is out of scope for APES 310. This is because in such circumstances the accountant is a signatory specifically because they are an officeholder in the company or a trustee of the trust, and not because of any accountant-client relationship. In such circumstances, APES 310 would not be applicable, even where the company or trust may be provided with some services by the accountant’s firm. The applicability of the standard should turn on whether the service of being a signatory to the bank account is being supplied by the firm to a client.

Clarification

Paragraphs 6.5 and 6.6 of APES 310 have been the subject of much discussion since the standard issued. Paragraph 6.5 currently states that a member in public practice shall record (in most cases) six distinct items of information “for client monies received, or monies received for deposit into a client bank account”, and paragraph 6.6 requires the member to issue an acknowledgement to the client containing the details specified in paragraph 6.5 and stating that the member has deposited the client monies into a trust account or a client bank account. The items of information include the name of the person from whom monies were received, the amount, the purpose for which monies were received or other description of the monies, the date on which and the form in which monies were received.

These paragraphs should not be interpreted to mean that an accountant has to record details of every deposit to a client’s bank account and has to then report that to the client. These paragraphs are concerned with the particular situation where the accountant receives client monies in a form that requires them to be deposited into a bank account – in other words, the accountant physically receives cash or cheques. The APESB was keen to require an accountant to confirm to the client that they had in fact deposited cash or cheques that came into their possession, either to a trust account or to the client’s bank account. This followed on the heels of certain well-publicised cases of accountants who had misappropriated client monies that had come into their possession as cash or cheques.

These paragraphs would not apply to those deposits that appeared in a client’s bank account to which the accountant was a signatory, where the accountant (or their firm) had not physically handled the cash or cheques that constituted the deposit. In most cases it would be presumed that the majority of deposits to a client’s bank account would not have passed physically through the accountant’s hands in the form of cash or cheques, particularly as electronic transactions become the norm.

The Institute considers that the words used to identify this requirement in paragraphs 6.5 and 6.6 are capable of greater clarity, and will be pursuing with the APESB a revision of the wording to achieve this.

Applicable year-end date

Most members who were operating trust accounts prior to the introduction of APES 310 will have an applicable year-end date of 31 March. For those accountants in practice who did not operate trust accounts previously, but who have been signatories to clients’ bank accounts, their applicable yearend date will typically be 30 June under the new standard.

Article last updated 22 December 2011