As a general rule 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.
Davel says importantly, as per the previous regulator’s requirements, 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 of time property practitioners have to 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 and, although it sounds simple, it isn’t.
Whereas the new PPA came into effect on 1 February 2022, i.e., at a specific point in time, property practitioners have different financial year-ends. 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, it stipulates that the submission deadline of audit reports of property practitioners will be determined by their financial year-end dates, for example:
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.
More specifically, 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, for example when a property practitioner:
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 above 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’, such as PayProp, to be exempted from operating their own trust accounts, and must follow the prescribed procedure,” says Davel. He lists the points that appear in Regulation 2(4) describing what a compliant “payment processing agent” is:
This explains how property practitioners who have been exempted from keeping trust accounts can be excused from formal audits and only have to have their accounting records independently reviewed by a registered accountant: the audit compliance burden was taken on by the payment processing agent.
The guideline also includes 11 annexures that provide, among others, template affidavits in respect of trust monies that property practitioners should use when they apply for exemption; a template audit report on trust accounts; a summary of fines for contraventions of the PPA; and even a list of frequently asked questions.
“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.”
“From our perspective, we are comfortable that we have met, and continue to meet all the requirements of being a payment processing agent and further that, as far as it might become necessary, can implement any necessary changes.”