Simplifying Trust Account Management for Australian Accounting Firms

If you’re a tax practitioner (Member in Practice) seeking a refresher on trust account requirements, you’re in the right place. Our blog, authored by our product manager Dinesh Choradiya, CPA, is here to simplify the statutory trust account management requirements applicable to Australian accounting firms (Members in Practice).

1. Every accounting firm (MIP) that deals with client monies is required to keep a separate trust account with a bank. For eg, MIP provides Fee From Refund service.
2. The bank should not charge fee or interest and they should be allocated to the main bank account of the firm. Also the word “Trust Account” must be included in the name of the account.
3. In general, the applicable financial year is April to March. Assurance report should cover this period. Main reports that member providing assurance report will look for are
   1. Clients Statement showing all the transactions.
   2. Transactions Report / Cashbook showing the bank reconciliation status of each transaction
   3. Trial Balance of the beneficiaries/clients and
   4. monthly bank reconciliation reports.
4. Accounting Firms (MIP) must also abide by annual assurance obligations and comply with the code relating to the custody of client assets.
5. MIP shall be accountable for all the client monies and keep client monies separate from all the other monies of the member. Dinesh suggests that keeping the trust account balance to zero always helps.
6. MIP will not be involved in any money laundering transactions or in the utilisation of the proceeds of rime or terrorist financing.
7. Money received by error in a trust account (for eg, the ATO paid incorrectly, or payment made to client but bounced back due to incorrect bank dertails) must be dispatched back within 5 business days to the client, drawer or sender as appropriate. And if the payee is no longer a client, then within 10 business days.
8. Since the ATO has stopped sending cheques for the refund amount, and if MIP / Tax practitioner / accounting firm receives that cheque, it must be transacted via a trust account and firm’s main bank account should not be used.
9. Appropriate internal control should be in place. For eg, a person processing the refund should not operate the trust bank account to upload the .aba file
10. Where any interest is earned on a trust account, the MIP shall allocate interest on a reasonable basis to the credit of each relevant client. Recent change allows for this amount to be donated to a charity if the
11. A Member in Public Practice shall record the following information for Client Monies received:
    • The name of the person or entity from whom Monies were received;
    • The amount of Monies;
    • The Client for whose benefit Monies are held;
    • The purpose for which Monies were received or other description of the Monies;
    • The date on which Monies were received;
    • The form in which Monies were received.
12. A receipt must be issued within 21 days containing above details.
13. Within 3 business days of receipt, money should be disbursed. And appropriate records are maintained to support the disbursements.
14. Disbursement amount should not exceed the amount standing to the credit of that client.
15. A Member in Public Practice shall keep Records in such a manner as to disclose clearly:
    • The details of all transactions involving Client Monies, including:
      • Details of all Client Monies paid direct to the Client, or to a third party nominated by the Client;
      • Details of all cheques received and endorsed by the Member for disbursement to the Client, or to a third party nominated by the Client;
      • 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;
      • Details of any errors in transactions involving Client Monies;
    • 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 Member ; and
    • The financial position of a Member’s Trust Account and the Client Monies therein
      In Trusteasy, you can run a transactions report, clients statements and trial balance based on beneficiaries to meet all the above requirements.
16. A Member in Public Practice shall reconcile the Trust Account Records to the Trust Account at least every 25 Business Days. The Member shall take action to correct any difference or error identified during the reconciliation within 5 Business Days of such identification.
17. A Member in Public Practice shall provide a statement within 25 days containing details of the Member’s application of Client Monies and any interest earned on Client Monies, either to the Client or to any other person as directed by the Client.
18. Member in Public Practice who Deals with Client Monies shall appoint another Member in Public Practice as Auditor of Client Monies and shall ensure that an annual Reasonable Assurance Engagement of the Member’s compliance with the requirements of this Standard is performed within 3 months of the Applicable Year-End Date.

TrustEasy is developed keeping above pointers. Compliance made easy with TrustEasy!

Conclusion

Trust accounting is a vital aspect of managing client funds and maintaining compliance for tax practitioners and accounting firms. By understanding how trust accounting works and utilizing the right software, such as Trust Easy, tax practitioners can streamline the processes, ensure accuracy, and build trust with clients.

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