In Australia, a real estate trust account audit is a procedure whereby an independent auditor examines the documents of a real estate agent’s trust account to ensure that it is being maintained legally. The factors covered during the audit are as follows:
- Clear Policies and Procedures for the Management of the Trust Account
- Separate Agent’s Fund and Trust Account Funds
- Proper Records of All Trust Account Transactions
- Reconciliations of Trust Account Regularly
- Regular Audits of the Trust Account
If the auditor finds any problems with the trust account, they will report these to the relevant authority, such as the Real Estate Institute of Australia or the state government. The agent may then be required to rectify the problems, such as repaying any missing funds or changing their policies and procedures.
What Exactly is a Real Estate Trust Account?
If a real estate agent receives money from a client, then he should deposit this money into a trust account held by an authorised financial institution. It is a legal requirement mandated by law. The funds may include rent, advertising, upkeep, or sales deposits.
Real estate brokers may create one or many trust accounts depending on their business requirements.
The government can check a trust account anytime, so records should be correct. Penalties get imposed for any legal violations.
Purpose of Creating Real Estate Trust Account
A trust account audit aims to determine if trust money records are maintained correctly, whether there are any inconsistencies with trust money, and whether the trust account complies with the law.
The audit will detail any trust fund losses, deficiencies, or failures to pay or account for trust funds and any violations of the Estate Agent (General, Accounts and Audit) Regulations 2018 (the Regulations) or the Act.
Guidelines for Compliance & Transparency in Real Estate Trust Account Audits
Here are guidelines for maintaining compliance and transparency in Australian real estate trust account audits:
- Take the initiative. Stay away from waiting for the auditor to come to you. Take the effort instead to keep your records organised and up to date. This will help the audit process go more smoothly and minimise surprises.
- Be open and honest. Inform the auditor about all of your dealings straightforwardly and honestly. Nothing should be hidden. The auditor’s job is to assist you to avoid catching you doing something incorrectly.
- Please be cooperative. Respond to the auditor’s inquiries wholly and swiftly. Give them whatever paperwork they require. The audit will go more quickly if you are supportive.
Who Conducts an Audit for Real Estate Trust Accounts?
The audit for the real estate trust account is a practising public accountant who is a member of at least one of the following professional bodies:
- CPA Australia
- Chartered Accountants Australia and New Zealand
- Institute of Public Accountants
An estate agent, an employee of an estate agent, or a partner of the estate agent whose trust accounts are being audited are all prohibited from performing the audit. Additionally, they cannot currently hold any of the following positions: member, director, employee, or officer of an estate agency company; employee or partner of the estate agent whose trust accounts are being audited; or have custody of or control over estate agent trust accounts in the past two years.
How to Get Ready for a Real Estate Trust Account Audit
Estate agents must guarantee that their record keeping for all real estate trust accounts is updated and correct. Here are some pointers to help you prepare for an audit:
- Keep the audit deadline in mind. Reporting deadlines are stringent, so make sure you fulfil them. If you want assistance with these time frames, contact your auditor.
- Keep the necessary trust paperwork. Records must be up-to-date and interpretable. Inadequate or suspicious transactions create difficulties in the audit process.
- Make sure to submit your monthly reconciliations on time. The unexplained items or adjustments are part of the monthly reconciliation. This shows that record keeping could be maintained better, so the trust account is deficient.
- Transferring trust funds through non-trust accounts should be avoided. Trust funds are not transmitted through a non-trust account as they are ordinary business funds, which increases the danger of losing trust money.
- Quickly deposit the trust funds. Estate agents are not allowed to bank trust funds slowly since doing so increases the risk of losing trust money.
Requirements for Creating a Trust Account
The following conditions must apply when forming a trust account:
- Licensees must notify the authorised deposit-taking institution in writing that the account is a ‘trust account’ as defined by the Act.
- If a corporation holds a trust account, the account must be in the corporation’s name.
- Otherwise, the trust account must be in the name of the licensee or the firm.
- The name of the licensee, firm, or corporation must appear as a prefix of the account name, followed by any other necessary identifier of the trust account.
- The word should be added ‘Trust Account’ in any account made for a trust account or any cheque that draws the trust account.
Send all the audits to the Secretary before September 30 of the following year or within the three months after the audit period has ended. Licensees risk losing their right to retain or renew a licence if they fail to submit a trust account audit by the deadline.