1. Why is a separate account required for trust monies?
Maintenance of a trust account is a public declaration that the funds in the account do not belong to the member in his or her personal capacity. Where a separate trust account is not maintained, there is the risk that the member's personal creditors would be able to gain access to client funds in order to satisfy the member's personal obligations.
In addition, if a member fails to maintain trust monies in a separate account, this could lead to the reckless or negligent use of client funds when the member innocently intends to access funds erroneously thought to belong to the member.
2. Should I set up a separate trust account for each client, or can I pool all client monies together in one trust account?
Generally, funds held for clients that are small in amount or not being held for a substantial period of time (such as tax refunds) will be combined into a single trust account. The administrative burden and costs of opening and maintaining a separate account for each client is not justified. Because client monies are pooled in the trust account, there must be accounting methods in place that accurately account for each individual client's funds. When the member is handling large amounts of a client's funds, especially for significant periods of time, the member should consult with the client concerning whether or not that client's funds should be segregated into a separate trust account that earns interest. Any interest earned on trust monies belongs to the client, not to the member.
3.What does APS 10 cover and where can it be found?
APS 10 'Trust Accounts' outlines the procedures to be followed in establishing and operating a Trust account, and maintaining the accounting records as well as the audit requirements.
It can be found in your Members' Handbook Volume 1 under Guidecard B Miscellaneous Professional Statements as APS 10.
4. When must I maintain a trust account?
If you are entrusted with money in the course of your practice on behalf of a client, and you are a member or affiliate in public practice or act as an investment adviser. However trust money does not include circumstances when you are acting in your capacity as a trustee in accordance with a properly constituted trust deed, are acting under Power of Attorney or as an Administrator and where, in each instance, a separate bank account in the client’s name is used.
For example: - A client has entrusted funds to my practice and asked that the practice draw cheques for the client’s wages, etc. What are my responsibilities?
The monies entrusted to you should not be paid into the practice bank account but to a separate trust bank account.- I regularly hold monies for a particular client; can I with the client’s agreement simply operate an account for that client?
If directed by a client, you can establish a separate trust bank account for that client. However the name must include the words “Trust Account” and APS 10 applied.- I receive a refund cheque from the ATO, bank it and immediately draw a cheque for the amount net of my fees for my client. Does this need to go through a trust account? Yes.
If you do anything other than immediately passing the ATO cheque on to the client, then you need to have written authority from the client and effect the transactions through the trust account.
5. What payments and receipts can I make to/from a trust account?
Examples of trust receipts are given in Guidance Note GN3 at paragraph 2.2
Payments from your trust account must be made with the prior written authority of the client. However you should refer to paragraph 46 of APS 10 and the Money Laundering Guidelines N2, particularly paragraphs 11 – 14, should you suspect money laundering activities.
Various financial institution, government and other statutory charges arising from operation of the Trust Account must be debited to your general bank account.
6. Can I make electronic transactions to/from my trust account?
Yes. With effect from 1 April 2004, the Institute of Chartered Accountants in Australia and CPA Australia approved the release of revised APS 10, “Trust Accounts”. This revision permits the use of electronic funds transfers (except for EFT payments in Queensland).The Trust Accounts Act 1973 (Qld) requires certain conditions to be satisfied before an Electronic Funds Transfer from a Trust Bank Account can take place.
7. What form does the audit report take?
Refer to Appendix 1 to APS 10 for an example of an Auditor's Report.
8. I am required by law (eg Queensland Trust Account Act) to have an audit of my trust account. Is a separate audit required under APS 10?
No. A separate audit is not required but you are bound to report to the ICAA in accordance with paragraphs 37 and 45.
9. What audit reports do I need to copy to the ICAA? When and where should they be directed?
The auditor is required to report any qualified audit reports before 30 June each year. These should be directed to Regional Managers.
In addition the auditor should promptly report on the following matters:- Any deficiency, other than those of a trivial nature and/or less than $50 of trust money;
- A failure by a member to pay, deposit or account for any trust money;
- Where you consider that any trust accounting records are not being kept in accordance with APS 10; and
- Any matter arising that you consider may be important regarding the trust account.
8. What extent does the auditor need to go to in his audit?
In addition to the Standards identified in APS 10 the auditor could refer to AUS 904 Engagement to Perform Agreed Upon Procedures (please note you must be logged in as a member to use this link) for guidance.
10. How strict should auditors be in reporting minor breaches of APS 10?
While all breaches of APS 10 should be referred to in the audit report it is also suggested that they identify the nature and significance of the breaches, their impact and whether appropriate remedial action had been taken in their report. This permits the ICAA to respond in accordance with the nature of the breach.
11. What does the ICAA do about late audits?
Paragraph 37 requires audit reports, which include any qualification to be forwarded by the auditor to the ICAA so as to be received within three months after the balance date of the trust account. Should you be unable to have the audit completed within the required time frame it is expected that you would advise the ICAA. The resultant action taken is dependent on the circumstances surrounding the delay. The Institute of Chartered Accountants in Australia response may vary as widely as simply acknowledgement in writing to disciplinary proceedings. However the primary focus is to ensure resolution of the issues as soon as possible, in accordance with maintenance of the ongoing requirements of APS 10.
12. What action does the ICAA take about reported breaches?
The action taken is dependent on the nature of the breach, amount of deficiency, if any, and the rectifying action taken by the member. The ICAA response may vary as widely as simple acknowledgement in writing of the issue and its rectification to disciplinary proceedings. However the primary focus is to ensure resolution of the issues as soon as possible, in accordance with maintenance of the ongoing requirements of APS 10.
13. Does the ICAA produce standard confirmation declarations for circulation to trust account clients?
No.
14. Do I have to be a Registered Company Auditor to undertake an audit under APS 10?
No, but the auditor must be a member of the Institute of Chartered Accountants in Australia or CPA Australia, hold a Certificate of Public Practice and have adequate training, experience and competence in auditing (see the definition of Auditor in paragraph 6).
15. I utilise a service to manage the administration of my trust account, whereby the service provider organises the banking of client tax refunds into an account set up to handle the clients of my practice, then deducts my fees and remits the balance to the client. What are my obligations under APS 10?
The service provider is considered to be operating in the capacity of a contractor or agent of the member. As such, this arrangement is subject to the requirements of APS 10. The member's obligations under APS 10 are not circumvented by appointing a third party to administer the trust account. From the client's perspective, the service is one supplied under the auspices of the member's practice. The obligations to deal with client monies responsibly, including the obligation to have the trust account audited, remain those of the member. |
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