The Property Practitioners Regulatory Authority’s audit deadline is looming for many property businesses. Are you fully prepared for audit season?
As you know, the audit process for business property practitioners that have been exempted from keeping their own trust accounts ('exempted') is different from that of business property practitioners that have not been exempted.
If a business property practitioner has been exempted after following the prescribed application process, and if it is not subject to an annual audit in terms of the Companies Act, such business property practitioner may also be exempted from having to have its annual financial statements and other accounts audited and may only be required to have such accounting records independently reviewed by a registered accountant.
If a business property practitioner has not been exempted from keeping its own trust account, its auditor must submit its audit report (also referred to as an ‘illustrative report on trust accounts’ as per Annexure 2 of the PPRA’s revised audit guideline) via the PPRA’s Auditors Portal within six months after their financial year-end. That means companies that follow the standard financial year ending in February must ensure that their auditors submit their audit reports by 31 August following the correct procedure.
How is the audit process different for PayProp clients?
PayProp is a registered specialist property practitioner under the Property Practitioners Act, specialising as a ‘payment processing agent’ that processes the collection, reconciliation and distribution of trust payments on behalf of other ‘mandating business property practitioners’.
Mandating business property practitioners (i.e., business property practitioners that mandate a duly registered payment processing agent such as PayProp) will be eligible for exemption from keeping its own trust accounts, provided that it meets the prescribed criteria and follows the prescribed procedures for applying for the exemption, and only if its payment processing agent meets the prescribed criteria.
Application for exemption is optional, and it needs to be noted that exemption is never granted automatically - a prescribed application process must be followed, and if exemption is granted, the PPRA will issue an official exemption letter.
Non-exempted mandating business property practitioners that work with a duly registered payment processing agent, such as PayProp, follow a much-simplified audit process. Each will receive an agreed-upon procedures (AUP) letter from the payment processing agent’s auditor, which they must submit to their own auditor, who will use this letter to complete the prescribed illustrative report on trust accounts and then submit such report to the PPRA.
These AUP letters include a schedule of information that verifies the balances and accrued interest of each mandating property practitioner’s Section 54 (1) and (2) trust accounts at year-end. It also confirms that the payment processing agent’s auditor has attended to additional agreed-upon audit procedures enabling the auditor to form an audit conclusion as to whether all mandating property practitioners' trust accounts within the payment processing agent’s trust environment have been managed in accordance with the requirements of the Property Practitioners Act and the PPRA’s revised audit guideline.
A payment processing agent’s auditor also needs to submit an illustrative limited assurance report (as per Annexure 8 of the PPRA’s revised audit guideline) on the payment processing agent’s trust account environment to the PPRA. This relates to the payment processing agent’s internal controls to prevent fraud and theft, and specifically focuses on its:
- bookkeeping system;
- recording of all pertinent information regarding trust accounts and the movements of all trust monies;
- safeguards for the protection of trust accounting records against unauthorised access, alteration, destruction or manipulation; and
- keeping of trust accounting records in a format that renders them readily retrievable or making extracts or copies thereof.
If your business (i) uses PayProp, (ii) has not been exempted, and (iii) has an audit report deadline of 31 August, your business’s main administrator will already have received an AUP letter from PayProp’s auditor (PwC), along with guidance on how your auditor should submit your illustrative report on trust accounts to the PPRA.
Exempted business property practitioners who mandated a payment processing agent, such as PayProp, do not require AUP letters from the payment processing agent’s auditor, since their auditor no longer needs to submit an illustrative report on trust accounts to the PPRA. However, the date of exemption is important, and it may still be necessary for the payment processing agent’s auditor to issue an AUP letter in respect of the part of a mandating property practitioner’s financial year that preceded their exemption.
Exempted business property practitioners who mandated a payment processing agent will receive a copy of the payment processing agent’s auditor’s report on the payment processing agent’s overall trust account environment (as explained above), as well as this auditor’s proof of submission of this report to the PPRA. These documents, as well as a copy of the exempted business property practitioner’s exemption letter should be readily available if requested by PPRA or during an inspection, and must be submitted to their auditor, chartered accountant, or accounting officer (as applicable) to serve as evidence of such business property practitioner’s continued eligibility for exemption from keeping a trust account.