Property Practitioners: Which Accounting Records Must Be Audited?

My name is Constance Kawelenga and I am a registered Chartered Accountant and Auditor, and today we’re going to talk about audit requirements for property practitioners.

According to the Property Practitioner Act, every property practitioner must be audited whether they are operating as a sole proprietorship, a company, a close corporation, or a partnership. In other words, the legal form of the entity is not the determinant of the audit requirement.

Which accounting records must be audited? All business property practitioners whose annual revenue is R2,5 million or above must have their financial statements audited, unless they have a PPRA-issued trust account exemption letter in which case they can have their financial statements independently reviewed.

1. PPRA exemption letter

A property practitioner business is exempted from keeping a trust account if it has submitted to PPRA the prescribed affidavit, asserting that it has not received or no longer receives trust monies and undertakes to not receive trust funds without first having opened a trust account and having provided the PPRA with evidence that the account has been closed and all funds have been properly disbursed.

2. Audit vs review – what are the differences?

a. A traditional audit, by its nature, is meant to provide a high or reasonable level of assurance to the user of the financial statements.

b. Review – where the accountant analyses financial information provided by management to test that the figures make sense, eg with reference to ratios, previous years’ performance, budgets etc. A review can only be undertaken by a registered auditor or by a member of an accredited professional body such as SAICA/ACCA or CIMA. It is similar to an audit, but provides limited assurance to the third party user.

3. Business vs Trust aspects of audit

a. An estate agency trust audit covers both the business side of the agency’s transactions, as well as performing specific procedures that cover the fiduciary aspects of holding third parties’ funds in trust.

b. On the business side, the auditor would perform sufficient appropriate audit procedures for them to issue an opinion regarding the income statement and balance sheet of the agency.

c. On the trust side, the auditor reports on the property practitioner’s Compliance with Sections 54 and the relevant sub-sections of this section, Section 48 as it relates to the Fidelity Fund certificate, and Section 28 of the Financial Intelligence Centre Act as it relates to the Property Practitioner’s Financial Intelligence Centre (FIC) registration.

4. Focus of the audit

So if you can remember that this is what the auditor will focus on you are good. The specific audit procedures focuses on interest:

  • total interest earned, which the auditor will corroborate either via bank statements or an IT3(b) certificate from the bank
  • less whatever interest is payable to clients through express written mandates
  • balance being payable (or should already have been paid) to the PPFF (Property Practitioners Fidelity Fund)