Accounting for Client Money

This Accounting Alert is issued to provide guidance on "client money".

What’s the issue?

The term "client money" is used to describe a variety of arrangements in which the reporting entity holds funds on behalf of clients. Client money arrangements are often regulated and more specific definitions of the terms are sometimes contained in regulator pronouncements.

 

If an entity holds money on behalf of clients:

  • Should the client money be recognized as an asset in the entity's financial statements?
  • Where the client money is recognized as an asset, can it be offset against the corresponding liability to the client on the face of the statements of financial position?

 

Our view

Entities should recognize client money as an asset (and an associate liability) if it meets the general definition of an asset as defined in the Conceptual Framework for Financial Reporting (2018).  Determining whether this definition is met requires a careful analysis of the contractual terms and conditions and economic substance of the arrangements for holding client money to determine whether the client money:

  • is a resource controlled by the reporting entity; and,
  • confers a right that has the potential to produce economic benefits to the reporting entity.

If both conditions apply, the client money should be recognized as an asset of the reporting entity.  This determination may involve significant judgement in which case appropriate disclosures should be made in accordance with IAS 1, Presentation of Financial Statements.  If a client money arrangement results in recognizing cash at a bank as an asset and an associated liability to a client, it will not be appropriate to offset those items in most circumstances.