MAIN IMAGE: Jan Davel, Director of PayProp
Staff Writer
The new Property Practitioners Act (PPA) and its Regulations paved the way for property practitioners using “accredited payment processing agents” to apply for exemption from operating their own trust accounts.
Jan Davel from PayProp says now that the real estate industry’s new regulator, the Property Practitioners Regulatory Authority (PPRA) has finalised its Guideline on audit, accounting records and trust account requirements (Guideline), there is an opportunity for property practitioners who dread the cost and administration that comes with the annual audit season, to find significant relief.
Generally, for property practitioners, Section 54 of the PPA states that they must open and keep separate trust accounts for their clients’ trust monies and that these accounts, plus the practitioner’s business accounts, must be audited every year.
These annual audits should be undertaken by accredited auditors. And although many of the audit requirements and property practitioners’ responsibilities have remained the same, there are a few significant changes and, perhaps, a few temporary complications.
One of these changes is the period property practitioners must get their trust and business accounts audited after their financial year-end. The audit report submission deadline has increased from the previous four months to a six-month timeframe under the PPA.
This means that in most cases, the effective date of the new legislation does not coincide with property practitioners’ financial year-ends, and consequently their mandatory audit reporting periods.
To address this misalignment, the PPRA introduced transitional provisions through its Guideline, issued towards the end of May 2022. Essentially, the Guideline stipulates that the submission deadline of audit reports of property practitioners will be determined by their financial year-end dates, e.g.: if a property practitioner’s financial year ended on or before 30 September 2021, the submission deadline remains four months after its financial year-end, and the provisions of the old Estate Agency Affairs Act (EAAA) will apply and if a property practitioner’s financial year ended on or after 31 October 2021, the new six months’ submission deadline will apply, and the provisions of the new PPRs will apply.
Interest earned on trust accounts before 1 February 2022 will be accounted for in terms of the old EAAA and interest earned on trust accounts on or after 1 February 2022 will be accounted for in accordance with the provisions of the new PPRs.
Due to the temporary overlap of the two Acts’ applicability, the Guideline contains a detailed table that clarifies which Act will apply to which months of the property practitioner’s financial year, as determined by such property practitioner’s financial year-end.
As a very positive exception to the general requirement of Section 54, the PPA introduces the possibility of exemption in Sections 4 and 23. In terms of Section 4, any person may, subject to specific provisions of this Section, be exempted from compliance with any specific provision of the PPA.
Section 23 offers the possibility of exemption from keeping a trust account under certain circumstances, and states that exempted property practitioners’ accounting records may undergo a different (lighter) reviewing process.
Regulation 2 provides further details, with Regulation 2(1) outlining the circumstances in which this can happen. Davel says that property practitioners would need to undertake the application process to apply for exemption as the process does not happen automatically. Regulation 2(3) specifies that a property practitioner must comply with all the listed requirements to be exempted from having its financial statements and other accounts audited. Once exempted, they can have those accounts independently reviewed by a registered accountant, which would be a far easier and cheaper undertaking.
“Property practitioners must further use an accredited ‘payment processing agent’, to be exempted from operating their own trust accounts, and must follow the prescribed procedure,” says Davel.
Regulation 2(4) explains how property practitioners who have been exempted from keeping trust accounts can be excused from formal audits and only must have their accounting records independently reviewed by a registered accountant: the audit compliance burden was taken on by the payment processing agent.
Way forward
“The PPRA has been working through numerous challenges, and we are delighted to see that the Guideline provides much more clarity on the above Sections and Regulations,” says Davel. “We do, however, have reason to believe that the Independent Regulatory Board of Auditors (IRBA) will soon be discussing the proposed audit report on trust account templates with the PPRA, after which further updates to the Guideline might follow.”
