Compliance Engagement APES 310 Dealing with Client Monies

Members in public practice who deal with client monies must comply with the requirements of APES 310 Dealing with Client Monies. This standard covers both the operation of trust accounts and those situations where the member in public practice is a signatory to the client bank account. Client monies means any monies (in whatever form) coming into the control of a member in public practice or any of the members personnel. Control means where a member or any of the members personnel, acting either solely or in conjunction with one or more people, can authorise the transacting of client monies. Auditors who undertake audits of the members compliance with APES 310 Dealing with Client Monies must conduct the audit in accordance with the requirements of the Auditing and Assurance Standards issued by the AUASB. Standards of particular relevance are ASAE 3000 Assurance Engagements other than Audits or Reviews of Historical Financial Information and ASAE 3100 Compliance Engagements (as it relates to reasonable assurance engagements). The following procedures constitute guidance material only and are not a substitute for complying with the requirements of these standards. In the procedures set out below, the member in public practice (ie the client of the auditor) is referred to as the Practice and includes all members, or the members personnel, in the public practice who deal with client monies.

The requirements of APES 310 are new to accountants particularly those relating to situations where the accountant is signatory to a client bank account. Any feedback from members in public practice and their auditors on the practical application of the provisions and the following audit program are therefore welcomed by the Institute at professionalstandards@charteredaccountants.com.au
Procedures 1 Engagement acceptance and/ continuance 1.1 Before accepting or continuing the engagement consider professional independence (Section 291 Independence Other Assurance Engagements of APES 110 Code of Ethics for Professional accountants, Section 9.5 of APES 310) and other ethical requirements including those set out in paragraphs 3.1 to 4.1 of APES 310 1.2 Consider whether the firm has the necessary skills and competencies to conduct the compliance audit engagement 2 Agree terms of compliance engagement 2.1 Agree the terms of the compliance audit engagement with the Practice, which must be in writing and forwarded to the Practice 3 Planning 3.1 Prepare and retain sufficient audit documentation in respect of all steps undertaken 3.2 Understand the compliance framework (ie the requirements of APES 310 Dealing with Client Monies) 3.3 Obtain an understanding of the design and implementation of the Practices procedures for dealing with client monies. The controls must satisfy the following objectives: (a) Client monies are dealt with in accordance with the clients instructions and APES 310 (b) A trust account is properly safeguarded and accounted for; and (c) A client bank account is properly safeguarded against unauthorised access or use 3.4 Perform a risk assessment, and give particular consideration to the risks of fraud associated with client monies
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Comments and W/P reference

Compliance Engagement APES 310 Dealing with Client Monies

Procedures 3.5 Consider the risks associated with the Practice holding a signing authority on a clients bank account. Document your understanding of the circumstances in which the Practice may exercise its signing authority on a client bank account, as well as the related controls that are in place. 3.6 Consider materiality and compliance engagement risk when planning and performing a compliance engagement. Factors considered in determining materiality may include the trust account balance, the individual client account balances and balances of trust money held as investments. Consider sample sizes. (Where there are few clients for which monies are received and limited transactions it may be efficient to perform 100% testing.) 3.7 Where risks are identified, design audit procedures appropriate in the circumstances to address those risks 3.8 Design tests of controls appropriate in the circumstances 3.9 Design further evidence-gathering procedures as appropriate to reduce the risk of non detection of breaches of APES 310 including fraud to an acceptable level. 4 Evidence Obtain sufficient appropriate audit evidence to determine whether the Practice dealing with client monies has complied with APES 310 5 Representations Obtain written representations from the Practice confirming the Practice has made available all records and files relevant to the audit of client monies including a record of all practice members and personnel who have dealt in client monies and that they have complied with all the requirements of APES 310. 6 Deficiencies and Breaches Report any deficiency of client monies to the Institute of Chartered Accountants within 5 business days of becoming aware of the deficiency. Report to the Institute of Chartered Accountants within 10 business days of becoming aware of any material: (a) failure by the Practice to comply with paragraphs 6.1 or 6.9 of APES 310 (relating to receipt or disbursement of funds within 3 days); (b) uncorrected error reflected in a statement issued by a Financial Institution; or (c) circumstances where Client Monies have not been transacted or maintained in accordance with APES 310. 7 Subsequent Events Consider the effect on the report of events up to the date of the compliance report in accordance with APES 310. 8 Compliance Report Prepare a compliance report in writing which contains a clear expression of a conclusion about the Practices compliance with APES 310.

Comments and W/P reference

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Compliance Engagement APES 310 Dealing with Client Monies

Procedures If the auditors opinion is modified, lodge the report with the Institute of Chartered Accountants within 15 days of completion of the audit. 9 For further professional obligations of the auditor see section 6 of program

Comments and W/P reference

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Compliance Engagement APES 310 Dealing with Client Monies

Compliance Requirements of APES 310

The following procedures identify the requirements of APES 310 Dealing with Client Monies. However the exact nature, timing and extent of the procedures is dependent on the circumstances of the particular engagement. An initial assessment of internal controls needs to be made which will in turn determine the extent of testing of those controls. A subsequent assessment will then determine the level of reliance that can be placed on the Practices internal controls and the nature, timing and extent of substantive procedures. APES 310 ref Completed by and date of completion

Procedures

Comments and W/P reference

Section 1 General principles

Document and test the internal controls and procedures to operate a client bank account or trust account that the Practice has set up to satisfy the following objectives: (a) Client monies are dealt with in accordance with the clients instructions and APES 310 (b) A trust account is properly safeguarded and accounted for; and (c) A client bank account is properly safeguarded against unauthorised access or use Assess whether the Practice has taken all reasonable steps to ensure the internal controls achieve the above objectives.

4.5

Assess and test that the Practice (subject to paragraphs 4.11, 4.12 and 6.7) deals with client monies only through a client bank account or a trust account It is preferable for a clients instructions to be in writing. Where a client gives an oral instruction, a contemporaneous note should be made and kept on file by the Practice recording the relevant details. Test for compliance with this requirement Assess and test that transactions on any client bank account or trust account are carried out only in accordance with the clients instructions Test that the Practice keeps client monies separate from all other monies of the Practice, and that the Practice is accountable for all client monies

4.1 to 4.4

Test for compliance with the requirement for the Practice not to obtain any benefit from dealing with client monies, including benefits deriving from the deposit and/or investment of client monies, without prior written authority from the client

4.6

Test that fees the Practice charges in respect of dealing with client monies is in accordance with Section 240 Fees and Other Types of Remuneration of the Code of Ethics

4.7

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Compliance Engagement APES 310 Dealing with Client Monies

The Practice is required to bear any Financial Institution, statutory or other government charges in respect of a trust account. Test for compliance with this requirement If the Practice has deposited the Practices own funds to a trust account, test that this has been done only: (a) to meet any charges made to the trust account where the Financial Institution has made such charges to the trust account in error, instead of to the Practice's general bank account; or (b) to meet a Financial Institution's prescribed minimum requirements for an ongoing account balance.

4.8

4.9

Test that the Practice has not: a) received or paid into a trust account or a client bank account; or b) disbursed out of a trust account or a client bank account any monies where the member believed on reasonable grounds that they were obtained from, or are to be used for, illegal activities or that dealing with the monies is otherwise unlawful

4.11

Consider, in dealing with client monies, whether the Practice has been involved in any money laundering transactions or in the utilisation of the proceeds of crime or terrorist financing

4.12

Example procedures could include some or all of: Enquiry Management representation Client confirmation (with Practice permission) that all reported dealings with client monies are complete and have been performed in accordance with client instructions and that any benefit obtained by the Practice has been approved Review a sample of trust account reconciliations to trust account records Review Practice bank account statements/reconciliations for unexplained entries of client monies Bank confirmations Sample from all client files for any unrecorded dealings with client monies Cross reference to internal controls relating to client engagement regarding money laundering or other illegal purposes

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Compliance Engagement APES 310 Dealing with Client Monies

Section 2 Opening a Trust Account

If the Practice deals in Client Monies, assess and test that the Practice has opened a Trust Account at a Financial Institution for client monies received in the name of the Practice Trust Account in its title, unless the Practice was authorised to operate a Client Bank Account? Note: This does not apply where the Practice which does not wish to Deal in Client Monies receives Client Monies and dispatches them within 5 business days to the Client, drawer or sender as appropriate.

5.1

5.2

Assess and test that the Practice has documented the process followed to establish the identity of a Client and the source of Client Monies prior to Dealing with Client Monies

5.3

Assess and test that the Practice has opened and maintained a separate Trust Account where a Client has requested one

5.4

Assess and test that the terms and conditions relating to Trust Accounts opened by the Practice with a Financial Institution require that: (a) all Monies standing to the credit of that account are held by the Practice as Client Monies and that the Financial Institution is not entitled to combine the account with any other account, or to exercise any right to set-off or counterclaim against Monies in that account in respect of any sum owed to the Financial Institution on any other account; and (b) any interest payable in respect of the account balance is credited to that account.

5.5

Assess and test that the Practice has retained a copy of the terms and conditions of the Financial Institution relating to a Trust Account as part of the Members Records and, where requested, provided a copy to the Client within 10 Business Days of that request?

5.6

Assess and test that the Practice has informed the Client in writing: (a) the details of the Financial Institution at which the Client Monies are to be held no later than at the time of initial deposit into a Trust Account; and (b) if there has been a change to the existing Financial Institution arrangements within 10 Business Days where the Client Monies are held.

5.7

Example procedures could include some or all of: Enquiry Management representation
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Client confirmation Checking the bank statements and bank audit confirmation that the name is appropriate Checking whether the terms and conditions of the trust account are appropriate Checking a sample of client files to confirm a separate trust account has been requested, opened and maintained Selecting a sample of client files to check whether professional fees are charged appropriately APES 310 ref Completed by and date of completion

Section 3 Dealing with Client Monies Holding and receiving Client Monies Subject to paragraph 6.7, has the Practice deposited Client Monies into a Financial Institution within 3 Business Days of receipt?

Comments and W/P reference

6.1

Has the Practice only held Client Monies in a Trust Account for the period necessary to enable the purpose for which the Client Monies were received to be discharged?

6.2

If the Practice was receiving Client Monies where the payee is no longer a Client, or the intended recipient is unknown to the Practice, were the Monies returned within 10 Business Days to the drawer or sender as appropriate?

6.3

If the Practice was unable to disburse Client Monies to the Client, payee, drawer or sender, has the Member complied with relevant legislation in respect of unclaimed Monies?

6.4

Has the Practice recorded the following information for Client Monies received, or Monies received for deposit into a Client Bank Account: (a) the name of the person from whom Monies were received; (b) the amount of Monies; (c) the Client for whose benefit Monies are held; (d) the purpose for which Monies were received or other description of the Monies; (e) the date on which Monies were received; (f) the form in which Monies were received; and

6.5

(g) in relation to Client Monies of a kind referred to in paragraph 6.7, the location where the Monies are held. Note The requirements in 6.5 and 6.6 only apply in situations where the deposits have actually passed through the Practice in the form of cash or cheques Has the Practice issued an acknowledgement to the Client within 21 Business Days or as otherwise agreed with the Client containing the details specified in paragraph 6.5 and stating that the Practice has deposited the Client Monies into a Trust Account or a Client Bank Account? 6.6

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Compliance Engagement APES 310 Dealing with Client Monies

Where the Practice has received Client Monies that are not capable of being deposited into a Financial Institution, has it been safeguarded against unauthorised use, the details recorded in an appropriate register, and an acknowledgement issued to the Client within 21 Business Days containing the details specified in paragraph 6.5? Note: Client Monies that are not capable of being deposited into a Trust Account or a Client Bank Account may include promissory notes or a coin collection. In such circumstances the requirements of paragraphs 4.1 and 6.7 apply. Disbursement of Client Monies Has the Practice disbursed Client Monies within 3 Business Days of receipt of instructions in respect of the disbursement or in accordance with the terms of engagement?

6.7

6.8

6.9

Is the Practice, or any persons authorised in accordance with paragraph 6.12, the only ones operating the Practices Trust Account?

6.10

Has the Practice ensured that it has appropriate Records to support transacting electronic funds transfers from a Trust Account or a Client Bank Account?

6.11

In circumstances where the Practice was not available to authorise Trust Account transactions in a timely manner, did the Practice delegate in writing his/her authority to effect transactions to: (a) another Practice, or a solicitor holding a current practising certificate; (b) a suitably competent person employed by the Practice; or (c) a manager of a branch of a Financial Institution.

6.12

Has the Practice which wishes to disburse Monies from a Trust Account or a Client Bank Account relating to professional fees and/or expenses due from a Client, obtained the Clients written approval prior to such disbursement?

6.13

Has the Practice not made a disbursement to or on behalf of a Client from a Trust Account that exceeds the amount of funds standing to the credit of that Client?

6.14

Example procedures can include: Enquiry Management representation Client confirmation Checking a sample of client files to confirm monies are appropriately deposited and information recorded Checking a sample of client files to confirm monies are appropriately disbursed Checking whether those authorised to operate the trust account are the only ones who do
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Compliance Engagement APES 310 Dealing with Client Monies

Section 4 Documentation

APES 310 ref 7.1

Completed by and date of completion

Comments and W/P reference

Has the Practice maintained Records to appropriately document transactions in respect of Client Monies?

Has all interest earned on Trust Accounts been credited to the relevant Client's account? (clients ledger account) Has the Practice retained Records that: (a) enable transactions involving Client Monies to be audited; (b) disclose the financial position of Client Monies; and (c) clearly identify the transactions made on behalf of each Client.

7.2

7.3

Subject to legislative requirements, has the Practice retained and ensured that all documentation in respect of Client Monies is accessible for at least 7 years?

7.4

Subject to legislative requirements, has the Practice taken reasonable steps to ensure that the Client authorises the Practices Professional Body to have access to the Practices Records in respect of Client Monies for the purposes of an inspection, quality review or disciplinary proceedings of the applicable Professional Body?

7.5

Has the Practice kept Records in such a manner as to disclose clearly: (a) the details of all transactions involving Client Monies, including: (i.) details of all Client Monies paid direct to the Client, or to a third party nominated by the Client; (ii.) details of all cheques received and endorsed by the Practice for disbursement to the Client, or to a third party nominated by the Client; (iii.) details of all electronic funds transfers of Monies received, and of Monies transferred direct to the Client, or to a third party nominated by the Client; and (iv.) details of any errors in transactions involving Client Monies; (b) the details and basis of calculation of all interest earned on Client Monies held in a Trust Account and that the interest has been applied by the Practice in accordance with paragraph 5.5(b); (c) the financial position of a Practices Trust Account and Clients Bank Account and the Client Monies therein; and (d) the signatories for each Client Bank Account authorised by the Client.

7.6

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Has the Practice reconciled the Trust Account Records to the Trust Account at least every 25 Business Days? Have any differences or errors been corrected within 5 Business Days?

7.7

Has the Practice provided a statement containing details of the Practices application of Client Monies and any interest earned on Client Monies, either to the Client or to such other person as directed by the Client: (a) in respect of all transactions, at least annually; (b) upon completion of the matter requiring the maintenance of the Trust Account or Client Bank Account; (c) in respect of any transaction, upon written request from the Client; or (d) when a Trust Account or Client Bank Account is closed or if the Practices authority to operate a Client Bank Account is revoked.

7.8

Has the Practice issued the statements referred to in: (a) paragraph 7.8(a) within 30 Business Days of the Applicable Year-End Date; (b) paragraphs 7.8(b) and 7.8(d) within 25 Business Days; (c) paragraph 7.8(c) within 5 Business Days.

7.9

Where a Client receives Client Bank Account statements directly from a Financial Institution, has the Practice provided to the Client details of transactions undertaken by the Practice within 25 Business Days of the end of each month or as otherwise agreed with the Client? (Note this provision does not turn on the receipt of a physical bank statement. The objective is to ensure that client bank accounts where a member has a signing authority are reconciled on a timely and regular basis.) Has the Practice which operates a Client Bank Account ensured that the Practices Records for the Client Bank Account are reconciled to the Financial Institution statements at least every 25 Business Days, except when the Client also transacts business through the Client Bank Account and receives statements directly from the Financial Institution?

7.10

7.11

Has the Practice taken action to correct any difference or error identified during the reconciliation within 5 Business Days of such identification? Example procedures can include: Enquiry Management representation Checking a sample of client files whether appropriate records have been retained and include the relevant information
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Compliance Engagement APES 310 Dealing with Client Monies

Checking whether the trust account is reconciled at least every 25 days Checking a sample of client files whether statements are sent to the client as required Client confirmation Section 5 Audit of a Practice in compliance with APES 310 Subject to legislative requirements, has the Practices compliance with the requirements of APES 310 been audited annually within 3 months of the Applicable YearEnd Date? APES 310 ref 8.1 Completed by and date of completion

Comments and W/P reference

Has the Practice who Deals with Client Monies appointed another Practice in Public Practice as Auditor of Client Monies to perform the audit pursuant to the requirements of APES 310? Paragraphs 8.1 and 8.2 do not apply to a Practice in circumstances where a Trust Account is audited in accordance with Trust Accounts Act 1973 (Qld) or similar legislative requirements. (Note that the scope of this standard is broader than the Act. The APESB has resolved to revise the wording of the standard to clarify the audit obligations of members also subject to the Act)

8.2 8.3

Has the Practice borne the cost of the compliance audit conducted in relation to APES 310?

8.4

Has the Practice: (a) allowed the Practices Professional Body or the Auditor of Client Monies access to the Practices Records; and (b) assisted the Practices Professional Body or the Auditor of Client Monies in the performance of their duties?

8.5

Has the Practice notified the applicable Professional Body and the Auditor of Client Monies within 5 Business Days of becoming aware of any Deficiency of Client Monies occurring in the Trust Account along with details of corrective action taken by the Practice?

8.6

Where the Practice is proposing to change the existing Auditor of Client Monies, has he/she first obtained the approval of the applicable Professional Body?

8.7

Has the Practice appointed a replacement Auditor of Client Monies within 10 Business Days of the resignation or removal of the existing Auditor of Client Monies? Where a Practice ceases public Practice and: (a) another Practice is willing to accept the transfer of obligations to transact Client Monies in accordance with this Standard, has the Practice ceasing public Practice obtained

8.8

8.9

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the written consent of the Client prior to the transfer? or (b) no other Practice is willing to accept the transfer of obligations to transact Client Monies or written consent in accordance with paragraph 8.9(a) has not been obtained, has the Practice or their legal representative returned Client Monies to the Client?

Where the circumstances described in paragraph 8.9 are applicable, has the Practice engaged an Auditor of Client Monies to audit the Practices compliance with APES 310 for the period where the Practice was responsible for Client Monies which has not otherwise been subject to audit? Has the Practices compliance with APES 310 been audited within 3 months of ceasing to Deal with Client Monies? Section 6 Professional obligations of an Auditor of Client Monies Subject to any legal requirements, has the Auditor of Client Monies performed the audit in accordance with Auditing and Assurance Standards?

8.10

8.11

APES 310 ref 9.1

Completed by and date completed

Comments and W/P reference

Has the Auditor of Client Monies prepared the auditors report in accordance with Auditing and Assurance Standards? If the report contains a modified opinion, has the Auditor of Client Monies lodged the report with the Institute of Chartered Accountants within 15 Business Days of completion of the audit?

9.2

Does the Auditor of Client Monies comply with Section 291 Independence Other Assurance Engagements of the Code?

9.4

Has the Auditor of Client Monies not undertaken an audit of another Practices compliance with this Standard in circumstances where a reasonable and informed third party having knowledge of all relevant information, including safeguards applied would determine that the independence of the Auditor of Client Monies is impaired as a result of a past, existing or proposed relationship?

9.5

Has the Auditor of Client Monies reported any Deficiency of Client Monies to the Practices Professional Body within 5 Business Days upon becoming aware of the Deficiency? Has the Auditor of Client Monies reported to the Practices Professional Body within 10 Business Days of becoming aware of any material: (a) failure by a Practice to comply with paragraphs 6.1 or 6.9 of this Standard;

9.6

9.7

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Compliance Engagement APES 310 Dealing with Client Monies

(b) uncorrected error reflected in a statement issued by a Financial Institution; or (c) circumstances where Client Monies have not been transacted or maintained in accordance with this Standard.

Subject to legislative requirements, does the Auditor of Client Monies retain relevant working papers for a period of at least 7 years?

9.8

Where a Practice wishes to resign from the position of Auditor of Client Monies, has he/she first obtained the written approval of the applicable Professional Body?

9.9

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