The client account audit

A qualified auditor, a term the Act defines. EAA 1979 s.14(6) and (7) define it as a person eligible for appointment as a statutory auditor under the Companies Act 2006, subject to independence requirements. Your ordinary accountant cannot sign it unless they happen to be a registered auditor, and most are not. Propertymark takes the same position for its own Accountant's Report, stating that for Estate Agents Act client funds the report must be completed by a registered auditor under Companies Act 2006 s.1239. We are not a registered auditor. We refer the report to a firm that is.

Within six months after the end of each accounting period — regulation 8(1), and the accounting period may not exceed twelve months under reg 1(2). So a 31 March period end means the audit must be complete by 30 September. That is a shorter runway than the nine months and one day people are used to for corporation tax, and it is the reason an agency that leaves client account tidying until the statutory accounts are prepared is already late. The practical deadline is your own: the records need to be clean about a month before the auditor starts, not on the day they do.

A narrower thing than it sounds, and worth understanding before you rely on it. Regulation 8(3) requires the auditor to report whether the requirements of the Act and Regulations have been complied with, or substantially complied with. Regulation 8(4) then confines the substantial compliance opinion to cases where the breaches were trivial, arose from clerical errors or mistakes in book-keeping, were all rectified on discovery, and caused no loss. Regulation 8(5) requires any non-compliance to be specified. A structural problem — money in the wrong account, records that cannot show who money is held for — is not a clerical error and does not qualify.

It is a criminal offence. Section 14(8) makes breach of the clients' money provisions, or failure to produce the auditor's report, liable on summary conviction to a fine not exceeding level 4 on the standard scale. Regulation 8(9) gives an enforcement officer the right to demand the latest report on the spot. Beyond the fine, the real exposure is section 3 of the Act: the lead enforcement authority can make an order prohibiting an unfit person from doing estate agency work at all, and section 4 allows a warning order short of that. National Trading Standards confirms it issues both. A prohibition order ends the business; the fine does not.

Not this one. The regulation 8(1) audit attaches to estate agency work, so a lettings-only business is outside it. But that is not the same as having no reporting obligation. Your CMP scheme imposes its own conditions, and Propertymark for example requires an Accountant's Report annually where a member holds more than £1 million in client accounts, excluding registered insured deposits, or operates as a Client Accounting Service Provider. The accountant must belong to an FRC Recognised Supervisory Body, hold a practising certificate, and have had no connection with the company during the period. Check your own scheme's rules.

Gaps in the records. An audit goes badly when the records cannot show, for each sum held, who it belongs to, which interest in land it relates to and in what capacity it is held — the reg 6(3) list. Client money mixed with office money for even a short period is the other one, and regulation 4 permits non-client money in the account only where it is the minimum required to open or maintain the account, or to restore funds improperly withdrawn. Everything else is a breach even if it was corrected the next day.