Trust account audits are a regular compliance requirement for many Australian industries, including law firms, real estate agencies and accounting practices. While the purpose of these accounts is similar, the rules around how they’re managed can differ depending on the industry.
Allen Audit & Advisory Partner Katrina McPhee says understanding the requirements and keeping accurate records year-round are the most important ways organisations can make the audit process easier.
“Different trust accounts have their own requirements under legislation,” Katrina says.
“Most need to complete reconciliations every month within a certain timeframe and keep their records for five to seven years.”
Preparing early is key. Keeping documentation organised and up to date throughout the year helps ensure everything is ready when audit time arrives.
“To prepare for a year-end audit, trust accounts must meet the legislative requirements for every transaction across every month of the year,” Katrina says.
“All trust accounts need to provide reconciliation reports, a cashbook, a trial balance, and supporting documents for those records.
“Making sure those documents are prepared, easy to access and meet the requirements is essential.”
Law firm trust accounts
Law firm trust accounts are subject to strict reconciliation requirements under legislation. Firms must complete their trust account reconciliation every month, within 15 working days of the end of that month, to avoid breaching the rules.
Katrina says preparing for a year-end audit starts with maintaining accurate records throughout the entire year.
“Everything they’re required to record for each transaction is set by legislation,” Katrina says.
“The requirements are very specific. Every transaction needs to include the name, date and description, as well as how the payment was made — whether by Electronic Funds Transfer (EFT), cheque or cash.”
When it comes to lodging trust account reports with the Queensland Law Society, timing is critical. The financial year for Queensland law practices ends on 31 March, and external audit reports are due by 30 May.
“The timeframe is very tight,” Katrina says.
“Making sure firms are as prepared as possible will make the process much smoother. The best way to do that is by staying on top of documentation throughout the year.”
Real estate trust accounts
The rules around real estate trust accounts differ between Australian states, meaning agencies must follow the requirements set by their state regulator.
“Queensland real estate agencies have four months after the end of the financial year to submit their audit. The year end is determined by the licence and could be any month,” Katrina says.
“In New South Wales, the trust account year-end is 30 June, and agencies must complete their reconciliation within three months.”
While real estate agencies may have more time to lodge audit reports, Katrina says it’s still important to keep records accurate and up to date throughout the year.
“It’s easy for small things to be missed if they’re not recorded properly at the time, and habits can form around that,” she says.
“Legislation does change. In Queensland, for example, agencies didn’t previously need to record BPAY details, but it’s now a legislative requirement.”
“That’s why it’s important to stay across any changes and make sure your processes still meet the requirements throughout the year.”
Accounting firm trust accounts
Trust accounts held by accounting firms are governed by the APES 310 Money Handling standard, which sets the requirements for how professional accountants manage client money.
Under this standard, firms generally have three months after year-end to complete their trust account audit.
Katrina says recent changes to professional oversight have also shifted how reporting works for accountants.
“Professional accountants across CA ANZ, CPA Australia and IPA now follow the APES 310 Money Handling standard,” Katrina says.
“We now only report matters if we identify negligence or breaches of the requirements.”
While the reporting process may differ from other industries, Katrina says it remains important for accounting firms to stay across the rules and ensure their processes reflect the current requirements.
“Accounting firms need to make sure they understand the legislation and that their records reflect the latest requirements for handling client money,” she says.
An opportunity to improve
Katrina says each trust account audit should be seen as an opportunity to strengthen processes and improve compliance.
“By utilising auditor feedback, clients can understand where the requirements are being missed, and how to progress moving forward,” Katrina says.
Regularly reviewing feedback from auditors can help trust account holders identify gaps in their processes and make improvements before the next reporting cycle.
“When it comes to trust accounts, it’s important that people regularly refresh their knowledge of what’s required,” she says.
“It’s essential for trust account holders to discuss feedback with their auditor and look at where they can implement changes to ensure they meet legislation in the future.
“When we raise something during an audit, it’s usually not simply a recommendation — it’s a requirement.”
If you’re an Australian trust account holder seeking specialised audit and advisory services, please contact Allen Audit & Advisory on 07 5503 1709 or email info@allenaudit.com.au.
