Key changes for accountants handling client funds

This article was current at the time of publication.

Among the many professional and ethical obligations of public practitioners is the proper handling of client monies.

It’s important to become familiar with the changes recently announced by the Accounting Professional & Ethical Standards Board (APESB) to the APES 310 Client Monies standard.

APES 310 sets out the scope and application for public practitioners for managing all the processes around holding, receiving, and disbursing client monies held in trust accounts and client bank accounts.

It applies when practitioners handle clients’ monies, have access to client bank accounts to pay invoices via accounting software or are an authorised signatory on client banks accounts, and audit client monies.

APES 310 includes all the requirements around reporting on dealing with client monies and obtaining an assurance engagement on members’ compliance with the standard.

Where a public practitioner acts as an auditor of client monies, APES 310 also details the obligations in terms of compliance with applicable independence requirements and auditing and assurance standards, completing a professional appointment process, and reporting obligations to professional bodies.

What are the key changes?

Bank accounts

APES 310 states that to ensure client monies are properly safeguarded, public practitioners must open a trust account at a financial institution in the name of the member or the member’s firm and include the term “trust account” in its title.

The standard will now also allow public practitioners who are experiencing difficulties in opening bank accounts with the wording “trust account” to use an alternative term, such as “client account”.

In addition, APES 310 stipulates that accounts holding client monies must not entitle a financial institution to combine the account with another account or to exercise any right to set-off or counterclaim against monies owed to the institution on other accounts.

The terms and conditions of the account must also require that any interest payable on an account balance is credited to the account.

If those conditions cannot be satisfied, public practitioners are required to open a trust or client account with another financial institution where they or their firm do not hold any other bank accounts or credit facilities.

“Previously being required to have the term ‘trust account’ on the name of the bank account was something with which not all banks could comply, which was a problem,” says Belinda Zohrab-McConnell, Regulation and Standards Lead at CPA Australia.

“And another problem was that accounts need to be set up so accountants could not derive any interest or any sort of set-off. Again, banks found it very difficult to structure an account which had no interest bearing and set-off capability.

“That’s another area where the standard has been changed to make it more accommodating with the kind of financial products that banks offer. There’s now a workaround for a situation where you cannot avoid having interest bearing or interest offset arrangements.”

The guidance document for professional accountants covering trust accounts has also been updated in the Trust Account Information Sheet to reflect the changes to APES 310.

Assurance engagement

APES 310 states that public practitioners dealing with client monies will need to appoint another practitioner as auditor of client monies and ensure that an annual Reasonable Assurance Engagement of the practitioner’s compliance with the requirements of the standard is performed within three months of the applicable year-end date.

Where a practitioner who is dealing with client monies does not have to maintain a trust account and can only co-authorise transactions in a client bank account in conjunction with the client, then they may engage an auditor of client monies to perform a Limited Assurance Engagement to comply with the standard.

“In some circumstances, both the accountant and the client and perhaps an employee of the client are co-signatories and have access to the account,” says Zohrab-McConnell.

“So, it really has been designed to protect the client from some sort of internal fraud. However, it does also mean of course that the accountant themselves could perpetuate a fraud against the client.

“That’s where, if you deal with client monies, you need to appoint another member of a public practice to be the auditor of those client monies and ensure that there’s an annual Reasonable (or Limited where appropriate) Assurance Engagement.

“It protects the client should they have a staff member who’s defrauding them. But equally, the accountant has to engage someone to audit that account to provide the client with the confidence that their accountant is not defrauding them.”

Jodie Smith FCPA, Manager – Non-assurance, Professional Standards for CPA Australia, says that some members may not be aware that the standard change requires them to incorporate client bank accounts into their audits.

“We have some members who provide bookkeeping services to their clients and are [the] co-signatory on the payroll function or the accounts payable function. 

“Where that’s the case they are required to have systems and procedures that can comply with APES 310 which need to be audited as a part of the client monies. The audit needs to be completed within three months of their applicable year-end date.

“Most trust accounts have an applicable year-end of 31 March, so therefore the audit needs to be completed by 30 June. If your applicable year-end differs from 31 March, then you have three months post the applicable year-end date to have the audit completed by.”

APES 310 will be effective for client engagements commencing on or after 1 April 2025, however earlier adoption of the standard is permitted.