Trust accounts are vital for property practitioners, serving as secure places to manage client funds, such as rental deposits and homeowner association fees. Under the Property Practitioners Act of 2019, managing these accounts transparently and according to strict guidelines ensures clients' funds are protected against misuse and financial transparency is maintained. This article details the role of audits and independent reviews in maintaining these high standards.

What are Property Trust Accounts?

Trust accounts are separate, dedicated bank accounts used by property practitioners to hold client funds. These funds might include rental deposits and homeowner association fees. The Property Practitioners Act mandates rigorous management of these accounts to protect against misuse and ensure financial transparency, including regular audits or independent reviews to verify compliance and safeguard client interests. In this article, we'll look at the specific requirements, including when independent reviews are appropriate and who is qualified to conduct them.

Audits versus Independent Reviews

An audit is a comprehensive examination of the financial records associated with a trust account. This detailed process aims to confirm the accuracy of financial statements and identify any material misstatements due to fraud or error. It provides the highest level of assurance, but it comes at a high cost.

An independent review also examines the trust account's financial statements, although it is less exhaustive than an audit. A review checks for indications that the financial statements do not align with the prescribed accounting framework providing a cost-effective method of obtaining assurance on the financial statements.

When are Independent Reviews appropriate?

Independent reviews offer a streamlined alternative to full audits for certain business property practitioners under specific conditions. Understanding when an independent review is permitted helps ensure compliance while potentially reducing the burden of financial scrutiny for eligible practitioners.

1. Revenue Threshold

   Property practitioners with annual revenues below R2.5 million are eligible for independent reviews of their financial statements, offering a more cost-effective alternative to comprehensive audits.

2. PPRA-issued Trust Account Exemption

   Practitioners who possess a PPRA-issued trust account exemption letter are also eligible for independent reviews, provided they meet the Public Interest Score (PIS) criteria outlined in the Companies Act 71 of 2008. This exemption primarily benefits practitioners who manage smaller-scale operations or handle fewer trust transactions. The PPRA-issued exemption significantly influences the review process. It allows eligible property practitioners to bypass the full audit, provided they meet specific criteria related to their business size and financial handling as indicated by their PIS. This exemption is particularly beneficial for practitioners who do not handle trust money directly but still require compliance verification for their financial statements.

3. Public Interest Score (PIS) Requirements

• PIS of 100 or Above: If a company with a trust account exemption has a PIS of 100 or more, it qualifies for an independent review of its financial statements by either a Registered Auditor or a Chartered Accountant.

• PIS Below 100: Companies with a PIS below 100, as well as non-corporate entities holding a trust account exemption, can opt for an independent review. Such review can be conducted by a qualified accounting officer who is a qualifying member of an accredited professional body, such as the Chartered Institute for Business Accountants (CIBA).

Who Can Perform an Independent Review?

Registered Auditors and Chartered Accountants: For practitioners with a PIS of 100 or above, registered auditors and chartered accountants are the designated professionals allowed to perform independent reviews.

Qualified Accounting Officers: For those with a PIS below 100 or non-corporate entities, a broader range of professionals including qualified accounting officers of close corporations can conduct the reviews. CIBA Business Accountants in Practice - BAP(SA)s - with valid independent review licenses are qualified to perform these engagements following the requirements set out in the International Standard on Review Engagements (ISRE 2400).

Independence requirements for reviewers and auditors

Under the IAESB Code of Ethics, independent reviews must strictly adhere to independence requirements, notably ensuring that the reviewer did not participate in preparing the financial statements being examined. This rule prevents conflicts of interest and maintains the impartiality of the review, ensuring the financial reports are free from bias and reflect true and fair views of the entity’s financial status.

Become an Independent Review Specialist with CIBA!

The Independent Review Specialist License is essential for a BAP(SA) to gain CIPC recognition as an independent reviewer. To acquire this license, candidates must demonstrate their expertise by passing an exam crafted by an independent industry expert and accredited by CIBA. This license confirms a practitioner's ability to handle statutory duties under specific sections of the Act and Regulations, including adherence to standards of conduct and quality control under ISRS 2400 during independent reviews. Holding this license allows practitioners to perform independent reviews as an alternative to audits, which can lead to higher fees and profit margins due to the specialist nature of the work. These reviews must comply with the ISRS 2400, ensuring a professional standard in evaluating financial statements.