Audit or external examination: which applies to you?
The yearly independent check of trust records has a different name in each profession. In Victoria, a law practice's trust records are examined by an external examiner, and an estate agent's trust accounts are audited by an approved auditor. This guide uses each regulator's own term and keeps the two sets of rules apart, so read the parts written for your profession.
Rules and timing differ from state to state. Every date and requirement quoted in this guide is Victorian: the law practice rules come from the Victorian Legal Services Board + Commissioner and the estate agent rules from Consumer Affairs Victoria. If your practice or agency is in another state, confirm the dates with your own regulator before you rely on anything here.
A Victorian law practice that holds a trust account must appoint an external examiner to examine the records of that trust account annually.
A Victorian estate agent must have a trust account audited if it held or managed trust funds at any time during the audit period. Consumer Affairs Victoria says an account that did not hold or manage trust funds at all during the period is not required to be audited, but the agent must still confirm this through its myCAV account.
Gather the records
Start with the records, because everything else depends on them. Our trust audit document checklist lists the documents to gather: trust account bank statements, trust ledgers, trust account reconciliations, receipts and payment authorities, trust account registers, the reports from the previous period and any correspondence with the regulator.
Collect them for the whole period, including the parts of it that are harder to find. A gap is quicker to fill while the person who handled the transaction still remembers it.
Both regulators require the records to be handed over. A Victorian law practice must provide its external examiner with its accounting or other records relating to the affairs of the practice, and any other information the examiner reasonably requires.
A Victorian estate agent must provide the auditor with all books, papers, accounts, documents, securities, statements and reports reasonably necessary for the audit, and any information the auditor reasonably requires. The agent must also prepare, certify and produce for the auditor a statement detailing the trust money held on the last day of the audit period, and any negotiable or bearer securities or deposit receipts held that day which represent money drawn from the trust account.
Reconcile before the examiner or auditor arrives
A reconciliation that is up to date and explained is the most useful thing you can hand over. Check that each trust reconciliation for the period has been completed, that it agrees with the bank statement and the trust ledgers, and that someone can explain every reconciling item.
Victorian estate agents are required to keep their trust accounts in a way that allows a proper and convenient audit, and orderly reconciliations are a large part of that.
Before the work starts, read back through the period for the items below. If you find a problem, write down what happened and what has been done about it, and raise it with the examiner or auditor at the start.
- Reconciling items that have been carried forward from one reconciliation to the next
- Ledgers with an overdrawn or unexpected balance
- Receipts or payments without supporting paperwork on file
- Money that has sat in trust for a long time with no activity
- Corrections and reversals with no note explaining them
Who does what in a Victorian law practice examination
For Victorian law practices, the trust examination year runs from 1 April to 31 March. The external examiner must provide the end of trust year documentation to the Victorian Legal Services Board + Commissioner by 31 May each year.
A practice that has only recently started to hold trust money should look at the appointment step first. A practice must notify the regulator of the appointment of its external examiner, using the regulator's notification form, within a month of receiving trust money (other than transit money).
The regulator says the end of trust examination year requirements open in LSB Online in early April, and that it contacts practices and examiners directly about them. The examiner's report follows the practice's own parts, so completing those early leaves the examiner more time before 31 May.
All parts of the annual trust examination reporting are done through LSB Online, and the work is split between the practice and the examiner:
- The practice appoints the external examiner. It is the practice, not the examiner, that lodges the appointment form with the regulator.
- The practice keeps the trust records and provides the examiner with the records and information the examiner reasonably requires.
- The practice completes Parts A and B of the annual trust examination reporting.
- The external examiner examines the trust records and then submits the examiner's report.
Who does what in a Victorian estate agency audit
Victorian estate agents must have their trust accounts audited each year for the period 1 July to 30 June, within three months after 30 June, by an approved auditor, using the audit report form approved by the Director, Consumer Affairs Victoria.
The annual audit date can be varied from 30 June by applying to Consumer Affairs Victoria. If approval is given, the audit and the auditor's report must be completed within three months of the new audit year-end date.
An approved auditor is a practising public accountant who is a member of at least one of CPA Australia, the Institute of Public Accountants or the Institute of Chartered Accountants in Australia. Consumer Affairs Victoria also says an approved auditor cannot be an estate agent or the employee of an estate agent; a partner of the estate agent whose trust accounts are being audited; someone who has been, in the last two years, an employee or partner of that estate agent; a member, director, employee or officer of an estate agency corporation; or someone who keeps, controls or has custody of estate agent trust accounts. Check your auditor against that list before the audit is booked.
Lodging the report is the agent's job, not the auditor's, so put it in the diary when the audit is booked. Consumer Affairs Victoria says that failing to lodge within the 10 business days is an offence.
The work is split like this:
- The agent keeps the trust accounts, provides the auditor with the records and information reasonably required, and prepares and certifies the statement of trust money held on the last day of the audit period.
- The approved auditor audits the trust accounts and reports on the approved audit report form.
- The agent lodges a copy of the audit report with Consumer Affairs Victoria through myCAV within 10 business days of receiving it from the auditor.
- The agent keeps a copy of the signed audit report for seven years after it is delivered, and must be able to produce it on demand.
What happens with findings
Expect questions while the work is under way. Answer them promptly, in writing where you can, and attach the document that supports the answer.
For a Victorian law practice, the appointment gives the external examiner statutory powers to examine the practice's trust records and to report the findings to the Victorian Legal Services Board + Commissioner.
For a Victorian estate agent, the auditor must provide Consumer Affairs Victoria with a written report if they find that the agent's accounts are unable to be properly audited, any dishonesty or legal breach by the agent, a loss or deficiency of trust money, a failure to pay or account for such a loss, or a failure to comply with the Act. The auditor must also provide a signed copy of that report to the agent.
In either profession, treat the findings as a list of jobs. Agree who will fix each item and by when, change the procedure that allowed it, and keep a note of what was done so that it can be shown at the next examination or audit.
How OziDesktop works with you
OziDesktop holds External Examiner status for law practices in Victoria, New South Wales, Queensland and South Australia only. Requirements and lodgement processes differ between these states, and we work to the rules of the state your practice is in. At appointment we confirm your state, the examination period and the records we need; we then examine the trust records, raise questions as we go and explain what we found.
We audit real estate agency trust accounts in Victoria, New South Wales, Queensland, Tasmania and the Australian Capital Territory. Rules and dates differ between them, and our real estate trust audit page sets out each one under Dates and rules by state.
We do not keep your day-to-day trust records or reconcile the trust account for you. The practice or agency does that, and the examination or audit is an independent check of it. If you would like your trust procedures looked at ahead of the formal examination or audit, ask us about a compliance review. There is more detail on our solicitor trust account audits and real estate trust account audits pages.