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Part F – Accountants' reports

 

The Solicitors' Accounts Rules 1998 have been replaced on the 6 October 2011 by the SRA Accounts Rules 2011 as part of the introduction of outcomes-focused regulation.

Go to SRA Handbook

Part F of the Solicitors' Accounts Rules was amended on 31 March 2009 as part of a general updating of the rules to introduce firm-based regulation and legal disciplinary practices as provided for in the Legal Services Act 2007.

 
 

Rule 35 - Delivery of accountants' reports

  • (1)

    A solicitor of the Supreme Court, registered European lawyer, registered foreign lawyer or recognised body who or which has, at any time during an accounting period, held or received client money or controlled trust money, or operated a client's own account as signatory, must deliver to the SocietySRA an accountant's report for that accounting period within six months of the end of the accounting period. This duty extends to the directors of such a recognised body if it is a company, and toor the members of such a recognised body if it is a limited liability partnership an LLP, which is subject to this rule.

  • (2)

    In addition the SRA may require the delivery of an accountant's report in circumstances other than those set out in paragraph (1) above if the SRA has reason to believe that it is in the public interest to do so.

      

Notes

    • (i)

      Section 34 of the Solicitors Act 1974 requires every solicitor of the Supreme Court to deliver an accountant's report once in every twelve months ending 31st October, unless the Society is satisfied that this is unnecessary. This provision is applied to recognised bodies by the Administration of Justice Act 1985, Schedule 2, paragraph 5(1). The Courts and Legal Services Act 1990, Schedule 14, paragraph 8(1) imposes the same duty on registered foreign lawyers, and this provision is extended to registered European lawyers by the European Communities (Lawyer's Practice) Regulations 2000, Schedule 4, paragraph 5(2). In general, the Society is satisfied that no report is necessary when the rules do not require a report to be delivered, but this is without prejudice to the Society's overriding discretion. In addition, a condition imposed on a solicitor's practising certificate under section 12(4)(b) of the Solicitors Act 1974 may require the solicitor to deliver accountant's reports at more frequent intervals.Examples of situations under rule 35(2) include:

      • when no report has been delivered but the SRA has reason to believe that a report should have been delivered;
      • when a report has been delivered but the SRA has reason to believe that it may be inaccurate;
      • when the conduct of the solicitor gives the SRA reason to believe that it would be appropriate to require earlier delivery of a report (for instance three months after the end of the accounting period);
      • when the conduct of the solicitor gives the SRA reason to believe that it would be appropriate to require more frequent delivery of reports (for instance every six months);
      • when the SRA has reason to believe that the regulatory risk justifies the imposition on a category of solicitors of a requirement to deliver reports earlier or at more frequent intervals;
      • when a condition on a solicitor's practising certificate requires earlier delivery of reports or the delivery of reports at more frequent intervals.
       
    • (ii)

      A solicitor who practises only in one or more of the ways set out in rule 5 is exempt from the rules, and therefore does not have to deliver an accountant's report.For accountant's reports of limited scope see rule 9 (liquidators, trustees in bankruptcy, Court of Protection deputies and trustees of occupational pension schemes), rule 10 (joint accounts) and rule 11 (operation of a client's own account). For exemption from the obligation to deliver a report, see rule 5 (persons exempt from the rules).

    • (iii)

      The requirement in rule 35 for a registered foreign lawyer to deliver an accountant's report applies only to a registered foreign lawyer practising in partnership with a solicitor of the Supreme Court or registered European lawyer, or as a director of a recognised body which is a company, or as a member of a recognised body which is a limited liability partnershipone of the ways set out in rule 2(2)(x)(iii).

    • (iv)

      The form of report is dealt with in rule 47.

    • (v)

      When client money is held or received by a an unincorporated practice, the principals in the practice (including those held out as principals) will have held or received client money. A salaried partner whose name is included appears in the list of partners on a firm's letterhead, even if the name appears under a separate heading of "salaried partners" or "associate partners", has been held out as is a principal.

    • (va)

      In the case of an incorporated practice, it is the company or limited liability partnershipLLP (i.e. the recognised body) which will have held or received client money. The recognised body and its directors (in the case of a company) or members (in the case of a limited liability partnershipan LLP) will have the duty to deliver an accountant's report, although the directors or members will not usually have held client money.

    • (vi)

      Assistant solicitors and solicitors, consultants and other employees do not normally hold client money. An assistant solicitor or consultant might be a signatory for a firm's client account, but this does not constitute holding or receiving client money. If a client or third party hands cash to an assistant solicitor or solicitor, consultant or other employee, it is the sole principal or the partners (rather than the assistant solicitor or solicitor, consultant or other employee) who are regarded as having received and held the money. In the case of a recognised body an incorporated practice, whether a company or a limited liability partnership an LLP, it would be the recognised body itself which would be regarded as having held or received the money.

    • (vii)

      If, exceptionally, an assistant solicitor or solicitor, consultant or other employee has a client account (for example, as a controlled trustee), or operates a client's own account as signatory, the assistant solicitor or solicitor, consultant or other employee will have to deliver an accountant's report. The assistant solicitor or solicitor, consultant or other employee can be included in the report of the practice, but must ensure that his or her name is added, and an explanation given.

    • (viii)

      A solicitor to whom a cheque or draft is made out, and who in the course of practice endorses it over to a client or employer, has received (and paid) client money. That solicitor will have to deliver an accountant's report, even if no other client money has been held or received.

    • (ix)

      When only a small number of transactions is undertaken or a small volume of client money is handled in an accounting period, a waiver of the obligation to deliver a report may sometimes be granted. Applications should be made to the Registration DepartmentInformation Directorate.

    • (x)

      If a solicitors' practice owns all the shares in a recognised body which is an executor, trustee or nominee company, the practice and the recognised body may deliver a single accountant's report (see rule 31(1)(b)).

     
 

Rule 36 - Accounting periods

  • The norm

     
  • (1)

    An "accounting period" means the period for which the accounts of the solicitor are ordinarily made up, except that it must:

    • (a)

      begin at the end of the previous accounting period; and

    • (b)

      cover twelve months.

    Paragraphs (2) to (5) below set out exceptions.

  • First and resumed reports

     
  • (2)

    For a solicitor who is under a duty to deliver his or her first report, the accounting period must begin on the date when the solicitor first held or received client moneyor controlled trust money(or operated a client's own account as signatory), and may cover less than twelve months.

  • (3)

    For a solicitor who is under a duty to deliver his or her first report after a break, the accounting period must begin on the date when the solicitor for the first time after the break held or received client moneyor controlled trust money(or operated a client's own account as signatory), and may cover less than twelve months.

  • Change of accounting period

     
  • (4)

    If a practice changes the period for which its accounts are made up (for example, on a merger, or simply for convenience), the accounting period immediately preceding the change may be shorter than twelve months, or longer than twelve months up to a maximum of 18 months, provided that the accounting period shall not be changed to a period longer than twelve months unless the Law SocietySRA receives written notice of the change before expiry of the deadline for delivery of the accountant's report which would have been expected on the basis of the firm's firm's old accounting period.

  • Final reports

     
  • (5)

    A solicitor who for any reason stops holding or receiving client moneyor controlled trust money(and operating any client's own account as signatory) must deliver a final report. The accounting period must end on the date upon which the solicitor stopped holding or receiving client moneyor controlled trust money(and operating any client's own account as signatory), and may cover less than twelve months.

Notes

    • (i)

      In the case of solicitors joining or leaving a continuing partnership, any accountant's report for the practice as a whole will show the names and dates of the principals joining or leaving. For a solicitor who did not previously hold or receive client money, etc., and has become a principal in the firm, the report for the practice will represent, from the date of joining, the solicitor's first report for the purpose of rule 36(2). For a solicitor who was a principal in the firm and, on leaving, stops holding or receiving client money, etc., the report for the practice will represent, up to the date of leaving, the solicitor's final report for the purpose of rule 36(5) above.

    • (ii)

      When a partnership splits up, it is usually appropriate for the books to be made up as at the date of dissolution, and for an accountant's report to be delivered within six months of that date. If, however, the old partnership continues to hold or receive client money, etc., in connection with outstanding matters, accountant's reports will continue to be required for those matters; the books should then be made up on completion of the last of those matters and a report delivered within six months of that date. The same would be true for a sole practitioner winding up matters on retirement.

    • (iii)

      When a practice is being wound up, the solicitor may be left with money which is unattributable, or belongs to a client who cannot be traced. It may be appropriate to apply to the SocietySRA for authority to withdraw this money from the solicitor's client account - see rule 22(1)(h), rule 22(2)(h), and note (viii) to rule 22.

     
 

Rule 37 - Qualifications for making a report

  • (1)

    A report must be prepared and signed by an accountant

    • (a)

      who is a member of:

      • (i)

        the Institute of Chartered Accountants in England and Wales;

      • (ii)

        the Institute of Chartered Accountants of Scotland;

      • (iii)

        the Association of Chartered Certified Accountants;

      • (iv)

        the Institute of Chartered Accountants in Ireland; or

      • (v)

        the Association of Authorised Public Accountants; and

       
    • (b)

      who is also:

      • (i)

        an individual who is a registered auditor within the terms of section 35(1)(a) of the Companies Act 1989; or

      • (ii)

        an employee of such an individual; or

      • (iii)

        a partner in or employee of a partnership which is a registered auditor within the terms of section 35(1)(a) of the Companies Act 1989; or

      • (iv)

        a director or employee of a company which is a registered auditor within the terms of section 35(1)(a) of the Companies Act 1989; or

      • (v)

        a member or employee of a limited liability partnership an LLPwhich is a registered auditor within the terms of section 35(1)(a) of the Companies Act 1989.

       
     
  • (2)

    An accountant is not qualified to make a report if:

    • (a)

      at any time between the beginning of the accounting period to which the report relates, and the completion of the report:

      • (i)

        he or she was a partner or employee, or an officer or employee (in the case of a company), or a member or employee (in the case of a limited liability partnershipan LLP) in the practice to which the report relates; or

      • (ii)

        he or she was employed by the same non-solicitor employer as the solicitor for whom the report is being made; or

       
    • (b)

      he or she has been disqualified under paragraph (3) below and notice of disqualification has been given under paragraph (4) (and has not subsequently been withdrawn).

     
  • (3)

    The SocietySRA may disqualify an accountant from making any accountant's report if:

    • (a)

      the accountant has been found guilty by his or her professional body of professional misconduct or discreditable conduct; or

    • (b)

      the SocietySRA is satisfied that a solicitor has not complied with the rules in respect of matters which the accountant has negligently failed to specify in a report.

    In coming to a decision, the SocietySRA will take into account any representations made by the accountant or his or her professional body.

  • (4)

    Written notice of disqualification must be left at or sent by registered post or recorded delivery to the address of the accountant shown on an accountant's report or in the records of the accountant's professional body. If sent through the post, receipt will be deemed 48 hours (excluding Saturdays, Sundays and Bank Holidays) after posting.

  • (5)

    An accountant's disqualification may be notified to any solicitor likely to be affected and may be printed in the Law Society's Gazette or other publication.

Note

  • It is not a breach of the rules for a solicitor to retain an outside accountant to write up the books of account and to instruct the same accountant to prepare the accountant's report. However, the accountant will have to disclose these circumstances in the report - see the form of report in Appendix 5.
 

Rule 38 - Reporting accountant's rights and duties - letter of engagement

  • (1)

    The solicitor must ensure that the reporting accountant's rights and duties are stated in a letter of engagement incorporating the following terms:

    "In accordance with rule 38 of the Solicitors' Accounts Rules 1998, you are instructed as follows:

    • (i)

      I/this firm/this company/this limited liability partnership recognises that, if during the course of preparing an accountant's report:

      • (a)

        you discover evidence of fraud or theft in relation to money

        • held by a solicitor (or registered European lawyer, or registered foreign lawyer, or recognised body, or employee of a solicitor or registered European lawyer, or manager or employee of a recognised body) for a client or any other person (including money held on trust), or
        • held in an account of a client, or an account of another person, which is operated by a solicitor (or registered European lawyer, registered foreign lawyer, recognised body, employee of a solicitor or registered European lawyer, or manager or employee of a recognised body); or
         
      • (b)

        you obtain information which you have reasonable cause to believe is likely to be of material significance in determining whether a solicitor (or registered European lawyer, or registered foreign lawyer, or recognised body, or employee of a solicitor or registered European lawyer, or manager or employee of a recognised body) is a fit and proper person

        • to hold money for clients or other persons (including money held on trust), or
        • to operate an account of a client or an account of another person,

        you must immediately give a report of the matter to the Solicitors Regulation Authority in accordance with section 34(9) of the Solicitors Act 1974;

        
    • (ii)

      that you may, and are encouraged to, make that report directly to the Law Society without prior reference to me/this firm/this company/this limited liability partnership should you, during the course of carrying out work in preparation of the accountant's report, discover evidence of theft or fraud affecting client money, controlled trust money, or money in a client's own account operated by a solicitor (or registered European lawyer, or registered foreign lawyer, or recognised body) as signatory; or information which is likely to be of material significance in determining whether any solicitor (or registered European lawyer, or registered foreign lawyer, or recognised body) is a fit and proper person to hold client money or controlled trust money, or to operate a client's own account as signatory;

    • (ii)(iii)

      you are to report directly to the Law SocietySolicitors Regulation Authority should your appointment be terminated following the issue of, or indication of intention to issue, a qualified accountant's report, or following the raising of concerns prior to the preparation of an accountant's report;

    • (iii)(iv)

      you are to deliver to me/this firm/this company/this limited liability partnership with your report the completed checklist required by rule 46 of the Solicitors' Accounts Rules 1998; to retain for at least three years from the date of signature a copy of the completed checklist; and to produce the copy to the Law SocietySolicitors Regulation Authority on request;

    • (iv)(v)

      you are to retain these terms of engagement for at least three years after the termination of the retainer and to produce them to the Law SocietySolicitors Regulation Authority on request; and

    • (v)(vi)

      following any direct report made to the Law SocietySolicitors Regulation Authority under (i) or (ii)(iii) above, you are to provide to the Law SocietySolicitors Regulation Authority on request any further relevant information in your possession or in the possession of your firm.

    To the extent necessary to enable you to comply with (i) to (v)(vi) above, I/we waive my/the firm's/the company's/the limited liability partnership's right of confidentiality. This waiver extends to any report made, document produced or information disclosed to the Law SocietySolicitors Regulation Authority in good faith pursuant to these instructions, even though it may subsequently transpire that you were mistaken in your belief that there was cause for concern."

  • (2)

    The letter of engagement and a copy must be signed by the solicitor (or by a partner, or in the case of a company by a director, or in the case of a limited liability partnershipan LLP by a member) and by the accountant. The solicitor must keep the copy of the signed letter of engagement for at least three years after the termination of the retainer and produce it to the SocietySRA on request.

Notes

    • (i)

      Any direct report by the accountant to the SocietySRA under rule 38(1)(i) or (ii)(iii) should be made to the Fraud Intelligence Unit.and Confidential Intelligence Bureau.

    • (ii)

      Rule 38(1) envisages that the specified terms are incorporated in a letter from the solicitor to the accountant. Instead, the specified terms may be included in a letter from the accountant to the solicitor setting out the terms of the engagement. If so, the text must be adapted appropriately. The letter must be signed in duplicate by both parties - the solicitor will keep the original, and the accountant the copy.

     
 

Rule 39 - Change of accountant

On instructing an accountancy practice to replace that previously instructed to produce accountant's reports, the solicitor must immediately notify the SocietySRA of the change and provide the name and business address of the new accountancy practice.

Rule 40 - Place of examination

Unless there are exceptional circumstances, the place of examination of a solicitor's accounting records, files and other relevant documents must be the solicitor's office and not the office of the accountant. This does not prevent an initial electronic transmission of data to the accountant for examination at the accountant's office with a view to reducing the time which needs to be spent at the solicitor's solicitor'soffice.

Rule 41 - Provision of details of bank accounts, etc.

The accountant must request, and the solicitor must provide, details of all accounts kept or operated by the solicitor in connection with the solicitor's practice at any bank, building society or other financial institution at any time during the accounting period to which the report relates. This includes client accounts, office accounts, accounts which are not client accounts but which contain client money or controlled trust money, and clients' own accounts operated by the solicitor as signatory.

Rule 42 - Test procedures

  • (1)

    The accountant must examine the accounting records (including statements and passbooks), client and controlled trust matter files selected by the accountant as and when appropriate, and other relevant documents of the solicitor, and make the following checks and tests:

    • (a)

      confirm that the accounting system in every office of the solicitor complies with:

      • rule 32 - accounting records for client accounts, etc;
      • rule 33 - accounting records for clients' own accounts;

      and is so designed that:

      • (i)

        an appropriate client ledger account is kept for each client (or other person for whom client money is received, held or paid) and each controlledor trust;

      • (ii)

        the client ledger accounts show separately from other information details of all client moneyand controlled trust moneyreceived, held or paid on account of each client (or other person for whom client money is received, held or paid) and each controlledor trust; and

      • (iii)

        transactions relating to client money, controlled trust money and any other money dealt with through a client account are recorded in the accounting records in a way which distinguishes them from transactions relating to any other money received, held or paid by the solicitor;

       
    • (b)

      make test checks of postings to the client ledger accounts from records of receipts and payments of client money and controlled trust money, and make test checks of the casts of these accounts and records;

    • (c)

      compare a sample of payments into and from the client accounts as shown in bank and building society statements or passbooks with the solicitor's records of receipts and payments of client money and controlled trust money;

    • (d)

      test check the system of recording costs and of making transfers in respect of costs from the client accounts;

    • (e)

      make a test examination of a selection of documents requested from the solicitor in order to confirm:

       
    • (f)

      subject to paragraph (2) below, extract (or check extractions of) balances on the client ledger accounts during the accounting period under review at not fewer than two dates selected by the accountant (one of which may be the last day of the accounting period), and at each date:

      • (i)

        compare the total shown by the client ledger accounts of the liabilities to the clients (or and other persons for whom client money is held) and controlled trusts with the cash account balance; and

      • (ii)

        reconcile that cash account balance with the balances held in the client accounts, and accounts which are not client accounts but in which client moneyor controlled trust moneyis held, as confirmed direct to the accountant by the relevant banks, building societies and other financial institutions;

       
    • (g)

      confirm that reconciliation statements have been made and kept in accordance with rule 32(7) and (9)(a);

    • (h)

      make a test examination of the client ledger accounts to see whether payments from the client account have been made on any individual account in excess of money held on behalf of that client (or other person for whom client money is held) or controlled trust;

    • (i)

      check the office ledgers, office cash accounts and the statements provided by the bank, building society or other financial institution for any office account maintained by the solicitor in connection with the practice, to see whether any client money or controlled trust money has been improperly paid into an office account or, if properly paid into an office account under rule 19(1)(b) or rule 21(1), has been kept there in breach of the rules;

    • (j)

      check the accounting records kept under rule 32(9)(d) and (11) for client money held outside a client account to ascertain what transactions have been effected in respect of this money and to confirm that the client has given appropriate instructions under rule 16(1)(a);

    • (k)

      make a test examination of the client ledger accounts to see whether rule 32(6) (accounting records when acting for both lender and borrower) has been complied with;

    • (l)

      for liquidators, trustees in bankruptcy, Court of Protection deputies and trustees of occupational pension schemes, check that records are being kept in accordance with rule 32(8), (9)(c) and (12), and cross-check transactions with client or controlled trust matter files when appropriate;

    • (m)

      check that statements and passbooks and/or duplicate statements and copies of passbook entries are being kept in accordance with rule 32(9)(b)(ii) and (13) (record-keeping requirements for joint accounts), and cross-check transactions with client matter files when appropriate;

    • (n)

      check that statements and passbooks and/or duplicate statements, copies of passbook entries and cheque details are being kept in accordance with rule 33 (record-keeping requirements for clients' own accounts), and cross-check transactions with client matter files when appropriate;

    • (na)

      for money withdrawn from client account under rule 22(1)(ga) or 22(2)(ga), check that records are being kept in accordance with rule 32(8A), (9)(a) and (13A), and cross-check with client or controlledtrust matter files when appropriate;

    • (o)

      check that interest earned on separate designated client accounts, and in accounts opened on clients' instructions under rule 16(1)(a), is credited in accordance with rule 24(1) and (6)(a), and note (i) to rule 24;

    • (p)

      in the case of private practice only, check that for the period which will be covered by the accountant's report (excluding any part of that period falling before 1st September 2000) the practice was covered for the purposes of the Solicitors' Indemnity Insurance Rules in respect of its offices in England and Wales by:

      • certificates of qualifying insurance outside the assigned risks pool; or
      • a policy issued by the assigned risks pool manager; or
      • certificates of indemnity cover under the professional requirements of a registered European lawyer's home jurisdiction in accordance with paragraph 1 of Appendix 4 3 to those Rules, together with the SRA's written grant of full exemption; or
      • certificates of additional insurance indemnity cover under the professional requirements of a registered European lawyer's home jurisdiction plus certificates of a difference in conditions policy with a qualifying insurer under paragraph 2 of Appendix 4 3 to those Rules, together with the SRA's written grant of partial exemption; and
       
    • (q)

      ask for any information and explanations required as a result of making the above checks and tests.

     

  • Extracting balances

     
  • (2)

    For the purposes of paragraph (1)(f) above, if a solicitor uses a computerised or mechanised system of accounting which automatically produces an extraction of all client ledger balances, the accountant need not check all client ledger balances extracted on the list produced by the computer or machine against the individual records of client ledger accounts, provided the accountant:

    • (a)

      confirms that a satisfactory system of control is in operation and the accounting records are in balance;

    • (b)

      carries out a test check of the extraction against the individual records; and

    • (c)

      states in the report that he or she has relied on this exception.

     

Notes

    • (i)

      The rules do not require a complete audit of the solicitor's accounts nor do they require the preparation of a profit and loss account or balance sheet.

    • (ii)

      In making the comparisons under rule 42(1)(f), some accountants improperly use credits of one client against debits of another when checking total client liabilities, thus failing to disclose a shortage. A debit balance on a client account when no funds are held for that client results in a shortage which must be disclosed as a result of the comparison.

    • (iii)

      The main purpose of confirming balances direct with banks, etc., under rule 42(1)(f)(ii) is to ensure that the solicitor's records accurately reflect the sums held at the bank. The accountant is not expected to conduct an active search for undisclosed accounts.

    • (iv)

      In checking compliance with rule 22(1)(ga) and 22(2)(ga) , the accountant should check on a sample basis that the solicitor has complied with rule 22(2A) and is keeping appropriate records in accordance with rules 32(8A), (9)(a) and (13A). The accountant is not expected to judge the adequacy of the steps taken to establish the identity of, and to trace, the rightful owner of the money.

     
 

Rule 43 - Departures from guidelines for accounting procedures and systems

The accountant should be aware of the Council'sSRA's guidelines for accounting procedures and systems (see rule 29), and must note in the accountant's report any substantial departures from the guidelines discovered whilst carrying out work in preparation of the report. (See also rule 44(e).)

Rule 44 - Matters outside the accountant's remit

The accountant is not required:

  • (a)

    to extend his or her enquiries beyond the information contained in the documents produced, supplemented by any information and explanations given by the solicitor;

  • (b)

    to enquire into the stocks, shares, other securities or documents of title held by the solicitor on behalf of the solicitor'clients;

  • (c)

    to consider whether the accounting records of the solicitor have been properly written up at any time other than the time at which his or her examination of the accounting records takes place;

  • (d)

    to check compliance with the provisions in rule 24(2) to (5) and (6)(b) on payment of sums in lieu of interest;

  • (e)

    to make a detailed check on compliance with the guidelines for accounting procedures and systems (see rules 29 and 43); or

  • (f)

    to determine the adequacy of the steps taken under paragraphs (a) and (b) of rule 22(2A).

 

Rule 45 - Privileged documents

A solicitor, acting on a client's instructions, always has will normally have the right on the grounds of privilege as between solicitor and client to decline to produce any document requested by the accountant for the purposes of his or her examination. In these circumstances, the accountant must qualify the report and set out the circumstances.

Note

  • In a recognised body with one or more managers who are not legally qualified, legal professional privilege may not attach to work which is neither done nor supervised by a legally qualified individual - see Legal Services Act 2007, section 190(3) to (7), and Schedule 22, paragraph 17.
 

Rule 46 - Completion of checklist

The accountant should exercise his or her professional judgment in adopting a suitable "audit" programme, but must also complete and sign a checklist in the form published from time to time by the Council of the Law SocietySRA. The solicitor must obtain the completed checklist, retain it for at least three years from the date of signature and produce it to the SocietySRA on request.

Notes

    • (i)

      The current checklist appears at Appendix 4. It is issued by the SocietySRA to solicitors at the appropriate time for completion by their reporting accountants.

    • (ii)

      The letter of engagement required by rule 38 imposes a duty on the accountant to hand the completed checklist to the solicitor, to keep a copy for three years and to produce the copy to the SocietySRA on request.

     
 

Rule 47 - Form of accountant's report

The accountant must complete and sign his or her report in the form published from time to time by the Council of the Law SocietySRA.

Notes

    • (i)

      The current form of accountant's report appears at Appendix 5.

    • (ii)

      The form of report is prepared and issued by the SocietySRA to solicitors at the appropriate time for completion by their reporting accountants. Separate reports can be delivered for each principal in a partnership but most firms deliver one report in the name of all the principals. For assistant solicitors and solicitors, consultants and other employees, see rule 35, notes (vi) and (vii).

    • (iia)

      A recognised body An incorporated practice will deliver only one report, on behalf of the company and its directors, or on behalf of the limited liability partnershipLLP and its members - see rule 35(1).

    • (iii)

      Although it may be agreed that the accountant send the report direct to the SocietySRA, the responsibility for delivery is that of the solicitor. The form of report requires the accountant to confirm that either a copy of the report has been sent to each of the solicitors of the Supreme Court, registered European lawyers and registered foreign lawyers persons (including bodies corporate) to whom the report relates, or a copy of the report has been sent to a named partner on behalf of all the partners in the firm. A similar confirmation is required in respect of the directors of a recognised body which is a company, or the members of a recognised body which is a limited liability partnershipan LLP.

    • (iv)

      A reporting accountant is not required to report on trivial breaches due to clerical errors or mistakes in book-keeping, provided that they have been rectified on discovery and the accountant is satisfied that no client suffered any loss as a result.

    • (v)

      In many practices, clerical and book-keeping errors will arise. In the majority of cases these may be classified by the reporting accountant as trivial breaches. However, a "trivial breach" cannot be precisely defined. The amount involved, the nature of the breach, whether the breach is deliberate or accidental, how often the same breach has occurred, and the time outstanding before correction (especially the replacement of any shortage) are all factors which should be considered by the accountant before deciding whether a breach is trivial.

    • (vi)

      The SocietySRA receives a number of reports which are qualified only by reference to trivial breaches, but which show a significant difference between liabilities to clients and client money held in client and other accounts. An explanation for this difference, from either the accountant or the solicitor, must be given.

    • (vii)

      Accountants' reports should be sent to Regulation and Information Servicesthe Information Directorate.

    • (viii)

      For direct reporting by the accountant to the SocietySRA in cases of concern, see rule 38 and note (i) to that rule.

     
 

Rule 48 - Practices with two or more places of business

If a practice has two or more offices:

    • (a)

      separate reports may be delivered in respect of the different offices; and

    • (b)

      separate accounting periods may be adopted for different offices, provided that:

      • (i)

        separate reports are delivered;

      • (ii)

        every office is covered by a report delivered within six months of the end of its accounting period; and

      • (iii)

        there are no gaps between the accounting periods covered by successive reports for any particular office or offices.

       
     

Rule 49 - Waivers

The SocietySRA may waive in writing in any particular case or cases any of the provisions of Part F of the rules, and may revoke any waiver.

Note

  • Applications for waivers should be made to Regulation and Information Servicesthe Information Directorate. In appropriate cases, solicitors may be granted a waiver of the obligation to deliver an accountant's report (see rule 35, and note (ix) to that rule). The circumstances in which a waiver of any other provision of Part F would be given must be extremely rare.
 
7/1/2007 12:00:00 AM

Part F – Accountants' reports

 

The Solicitors' Accounts Rules 1998 have been replaced on the 6 October 2011 by the SRA Accounts Rules 2011 as part of the introduction of outcomes-focused regulation.

Go to SRA Handbook

Part F of the Solicitors' Accounts Rules was amended on 31 March 2009 as part of a general updating of the rules to introduce firm-based regulation and legal disciplinary practices as provided for in the Legal Services Act 2007.

 
 

Rule 35 - Delivery of accountants' reports

  • (1)

    A solicitor of the Supreme Court, registered European lawyer, registered foreign lawyer or recognised body who or which has, at any time during an accounting period, held or received client money or controlled trust money, or operated a client's own account as signatory, must deliver to the SocietySRA an accountant's report for that accounting period within six months of the end of the accounting period. This duty extends to the directors of such a recognised body if it is a company, and toor the members of such a recognised body if it is a limited liability partnership an LLP, which is subject to this rule.

  • (2)

    In addition the SRA may require the delivery of an accountant's report in circumstances other than those set out in paragraph (1) above if the SRA has reason to believe that it is in the public interest to do so.

      

Notes

    • (i)

      Section 34 of the Solicitors Act 1974 requires every solicitor of the Supreme Court to deliver an accountant's report once in every twelve months ending 31st October, unless the Society is satisfied that this is unnecessary. This provision is applied to recognised bodies by the Administration of Justice Act 1985, Schedule 2, paragraph 5(1). The Courts and Legal Services Act 1990, Schedule 14, paragraph 8(1) imposes the same duty on registered foreign lawyers, and this provision is extended to registered European lawyers by the European Communities (Lawyer's Practice) Regulations 2000, Schedule 4, paragraph 5(2). In general, the Society is satisfied that no report is necessary when the rules do not require a report to be delivered, but this is without prejudice to the Society's overriding discretion. In addition, a condition imposed on a solicitor's practising certificate under section 12(4)(b) of the Solicitors Act 1974 may require the solicitor to deliver accountant's reports at more frequent intervals.Examples of situations under rule 35(2) include:

      • when no report has been delivered but the SRA has reason to believe that a report should have been delivered;
      • when a report has been delivered but the SRA has reason to believe that it may be inaccurate;
      • when the conduct of the solicitor gives the SRA reason to believe that it would be appropriate to require earlier delivery of a report (for instance three months after the end of the accounting period);
      • when the conduct of the solicitor gives the SRA reason to believe that it would be appropriate to require more frequent delivery of reports (for instance every six months);
      • when the SRA has reason to believe that the regulatory risk justifies the imposition on a category of solicitors of a requirement to deliver reports earlier or at more frequent intervals;
      • when a condition on a solicitor's practising certificate requires earlier delivery of reports or the delivery of reports at more frequent intervals.
       
    • (ii)

      A solicitor who practises only in one or more of the ways set out in rule 5 is exempt from the rules, and therefore does not have to deliver an accountant's report.For accountant's reports of limited scope see rule 9 (liquidators, trustees in bankruptcy, Court of Protection deputies and trustees of occupational pension schemes), rule 10 (joint accounts) and rule 11 (operation of a client's own account). For exemption from the obligation to deliver a report, see rule 5 (persons exempt from the rules).

    • (iii)

      The requirement in rule 35 for a registered foreign lawyer to deliver an accountant's report applies only to a registered foreign lawyer practising in partnership with a solicitor of the Supreme Court or registered European lawyer, or as a director of a recognised body which is a company, or as a member of a recognised body which is a limited liability partnershipone of the ways set out in rule 2(2)(x)(iii).

    • (iv)

      The form of report is dealt with in rule 47.

    • (v)

      When client money is held or received by a an unincorporated practice, the principals in the practice (including those held out as principals) will have held or received client money. A salaried partner whose name is included appears in the list of partners on a firm's letterhead, even if the name appears under a separate heading of "salaried partners" or "associate partners", has been held out as is a principal.

    • (va)

      In the case of an incorporated practice, it is the company or limited liability partnershipLLP (i.e. the recognised body) which will have held or received client money. The recognised body and its directors (in the case of a company) or members (in the case of a limited liability partnershipan LLP) will have the duty to deliver an accountant's report, although the directors or members will not usually have held client money.

    • (vi)

      Assistant solicitors and solicitors, consultants and other employees do not normally hold client money. An assistant solicitor or consultant might be a signatory for a firm's client account, but this does not constitute holding or receiving client money. If a client or third party hands cash to an assistant solicitor or solicitor, consultant or other employee, it is the sole principal or the partners (rather than the assistant solicitor or solicitor, consultant or other employee) who are regarded as having received and held the money. In the case of a recognised body an incorporated practice, whether a company or a limited liability partnership an LLP, it would be the recognised body itself which would be regarded as having held or received the money.

    • (vii)

      If, exceptionally, an assistant solicitor or solicitor, consultant or other employee has a client account (for example, as a controlled trustee), or operates a client's own account as signatory, the assistant solicitor or solicitor, consultant or other employee will have to deliver an accountant's report. The assistant solicitor or solicitor, consultant or other employee can be included in the report of the practice, but must ensure that his or her name is added, and an explanation given.

    • (viii)

      A solicitor to whom a cheque or draft is made out, and who in the course of practice endorses it over to a client or employer, has received (and paid) client money. That solicitor will have to deliver an accountant's report, even if no other client money has been held or received.

    • (ix)

      When only a small number of transactions is undertaken or a small volume of client money is handled in an accounting period, a waiver of the obligation to deliver a report may sometimes be granted. Applications should be made to the Registration DepartmentInformation Directorate.

    • (x)

      If a solicitors' practice owns all the shares in a recognised body which is an executor, trustee or nominee company, the practice and the recognised body may deliver a single accountant's report (see rule 31(1)(b)).

     
 

Rule 36 - Accounting periods

  • The norm

     
  • (1)

    An "accounting period" means the period for which the accounts of the solicitor are ordinarily made up, except that it must:

    • (a)

      begin at the end of the previous accounting period; and

    • (b)

      cover twelve months.

    Paragraphs (2) to (5) below set out exceptions.

  • First and resumed reports

     
  • (2)

    For a solicitor who is under a duty to deliver his or her first report, the accounting period must begin on the date when the solicitor first held or received client moneyor controlled trust money(or operated a client's own account as signatory), and may cover less than twelve months.

  • (3)

    For a solicitor who is under a duty to deliver his or her first report after a break, the accounting period must begin on the date when the solicitor for the first time after the break held or received client moneyor controlled trust money(or operated a client's own account as signatory), and may cover less than twelve months.

  • Change of accounting period

     
  • (4)

    If a practice changes the period for which its accounts are made up (for example, on a merger, or simply for convenience), the accounting period immediately preceding the change may be shorter than twelve months, or longer than twelve months up to a maximum of 18 months, provided that the accounting period shall not be changed to a period longer than twelve months unless the Law SocietySRA receives written notice of the change before expiry of the deadline for delivery of the accountant's report which would have been expected on the basis of the firm's firm's old accounting period.

  • Final reports

     
  • (5)

    A solicitor who for any reason stops holding or receiving client moneyor controlled trust money(and operating any client's own account as signatory) must deliver a final report. The accounting period must end on the date upon which the solicitor stopped holding or receiving client moneyor controlled trust money(and operating any client's own account as signatory), and may cover less than twelve months.

Notes

    • (i)

      In the case of solicitors joining or leaving a continuing partnership, any accountant's report for the practice as a whole will show the names and dates of the principals joining or leaving. For a solicitor who did not previously hold or receive client money, etc., and has become a principal in the firm, the report for the practice will represent, from the date of joining, the solicitor's first report for the purpose of rule 36(2). For a solicitor who was a principal in the firm and, on leaving, stops holding or receiving client money, etc., the report for the practice will represent, up to the date of leaving, the solicitor's final report for the purpose of rule 36(5) above.

    • (ii)

      When a partnership splits up, it is usually appropriate for the books to be made up as at the date of dissolution, and for an accountant's report to be delivered within six months of that date. If, however, the old partnership continues to hold or receive client money, etc., in connection with outstanding matters, accountant's reports will continue to be required for those matters; the books should then be made up on completion of the last of those matters and a report delivered within six months of that date. The same would be true for a sole practitioner winding up matters on retirement.

    • (iii)

      When a practice is being wound up, the solicitor may be left with money which is unattributable, or belongs to a client who cannot be traced. It may be appropriate to apply to the SocietySRA for authority to withdraw this money from the solicitor's client account - see rule 22(1)(h), rule 22(2)(h), and note (viii) to rule 22.

     
 

Rule 37 - Qualifications for making a report

  • (1)

    A report must be prepared and signed by an accountant

    • (a)

      who is a member of:

      • (i)

        the Institute of Chartered Accountants in England and Wales;

      • (ii)

        the Institute of Chartered Accountants of Scotland;

      • (iii)

        the Association of Chartered Certified Accountants;

      • (iv)

        the Institute of Chartered Accountants in Ireland; or

      • (v)

        the Association of Authorised Public Accountants; and

       
    • (b)

      who is also:

      • (i)

        an individual who is a registered auditor within the terms of section 35(1)(a) of the Companies Act 1989; or

      • (ii)

        an employee of such an individual; or

      • (iii)

        a partner in or employee of a partnership which is a registered auditor within the terms of section 35(1)(a) of the Companies Act 1989; or

      • (iv)

        a director or employee of a company which is a registered auditor within the terms of section 35(1)(a) of the Companies Act 1989; or

      • (v)

        a member or employee of a limited liability partnership an LLPwhich is a registered auditor within the terms of section 35(1)(a) of the Companies Act 1989.

       
     
  • (2)

    An accountant is not qualified to make a report if:

    • (a)

      at any time between the beginning of the accounting period to which the report relates, and the completion of the report:

      • (i)

        he or she was a partner or employee, or an officer or employee (in the case of a company), or a member or employee (in the case of a limited liability partnershipan LLP) in the practice to which the report relates; or

      • (ii)

        he or she was employed by the same non-solicitor employer as the solicitor for whom the report is being made; or

       
    • (b)

      he or she has been disqualified under paragraph (3) below and notice of disqualification has been given under paragraph (4) (and has not subsequently been withdrawn).

     
  • (3)

    The SocietySRA may disqualify an accountant from making any accountant's report if:

    • (a)

      the accountant has been found guilty by his or her professional body of professional misconduct or discreditable conduct; or

    • (b)

      the SocietySRA is satisfied that a solicitor has not complied with the rules in respect of matters which the accountant has negligently failed to specify in a report.

    In coming to a decision, the SocietySRA will take into account any representations made by the accountant or his or her professional body.

  • (4)

    Written notice of disqualification must be left at or sent by registered post or recorded delivery to the address of the accountant shown on an accountant's report or in the records of the accountant's professional body. If sent through the post, receipt will be deemed 48 hours (excluding Saturdays, Sundays and Bank Holidays) after posting.

  • (5)

    An accountant's disqualification may be notified to any solicitor likely to be affected and may be printed in the Law Society's Gazette or other publication.

Note

  • It is not a breach of the rules for a solicitor to retain an outside accountant to write up the books of account and to instruct the same accountant to prepare the accountant's report. However, the accountant will have to disclose these circumstances in the report - see the form of report in Appendix 5.
 

Rule 38 - Reporting accountant's rights and duties - letter of engagement

  • (1)

    The solicitor must ensure that the reporting accountant's rights and duties are stated in a letter of engagement incorporating the following terms:

    "In accordance with rule 38 of the Solicitors' Accounts Rules 1998, you are instructed as follows:

    • (i)

      I/this firm/this company/this limited liability partnership recognises that, if during the course of preparing an accountant's report:

      • (a)

        you discover evidence of fraud or theft in relation to money

        • held by a solicitor (or registered European lawyer, or registered foreign lawyer, or recognised body, or employee of a solicitor or registered European lawyer, or manager or employee of a recognised body) for a client or any other person (including money held on trust), or
        • held in an account of a client, or an account of another person, which is operated by a solicitor (or registered European lawyer, registered foreign lawyer, recognised body, employee of a solicitor or registered European lawyer, or manager or employee of a recognised body); or
         
      • (b)

        you obtain information which you have reasonable cause to believe is likely to be of material significance in determining whether a solicitor (or registered European lawyer, or registered foreign lawyer, or recognised body, or employee of a solicitor or registered European lawyer, or manager or employee of a recognised body) is a fit and proper person

        • to hold money for clients or other persons (including money held on trust), or
        • to operate an account of a client or an account of another person,

        you must immediately give a report of the matter to the Solicitors Regulation Authority in accordance with section 34(9) of the Solicitors Act 1974;

        
    • (ii)

      that you may, and are encouraged to, make that report directly to the Law Society without prior reference to me/this firm/this company/this limited liability partnership should you, during the course of carrying out work in preparation of the accountant's report, discover evidence of theft or fraud affecting client money, controlled trust money, or money in a client's own account operated by a solicitor (or registered European lawyer, or registered foreign lawyer, or recognised body) as signatory; or information which is likely to be of material significance in determining whether any solicitor (or registered European lawyer, or registered foreign lawyer, or recognised body) is a fit and proper person to hold client money or controlled trust money, or to operate a client's own account as signatory;

    • (ii)(iii)

      you are to report directly to the Law SocietySolicitors Regulation Authority should your appointment be terminated following the issue of, or indication of intention to issue, a qualified accountant's report, or following the raising of concerns prior to the preparation of an accountant's report;

    • (iii)(iv)

      you are to deliver to me/this firm/this company/this limited liability partnership with your report the completed checklist required by rule 46 of the Solicitors' Accounts Rules 1998; to retain for at least three years from the date of signature a copy of the completed checklist; and to produce the copy to the Law SocietySolicitors Regulation Authority on request;

    • (iv)(v)

      you are to retain these terms of engagement for at least three years after the termination of the retainer and to produce them to the Law SocietySolicitors Regulation Authority on request; and

    • (v)(vi)

      following any direct report made to the Law SocietySolicitors Regulation Authority under (i) or (ii)(iii) above, you are to provide to the Law SocietySolicitors Regulation Authority on request any further relevant information in your possession or in the possession of your firm.

    To the extent necessary to enable you to comply with (i) to (v)(vi) above, I/we waive my/the firm's/the company's/the limited liability partnership's right of confidentiality. This waiver extends to any report made, document produced or information disclosed to the Law SocietySolicitors Regulation Authority in good faith pursuant to these instructions, even though it may subsequently transpire that you were mistaken in your belief that there was cause for concern."

  • (2)

    The letter of engagement and a copy must be signed by the solicitor (or by a partner, or in the case of a company by a director, or in the case of a limited liability partnershipan LLP by a member) and by the accountant. The solicitor must keep the copy of the signed letter of engagement for at least three years after the termination of the retainer and produce it to the SocietySRA on request.

Notes

    • (i)

      Any direct report by the accountant to the SocietySRA under rule 38(1)(i) or (ii)(iii) should be made to the Fraud Intelligence Unit.and Confidential Intelligence Bureau.

    • (ii)

      Rule 38(1) envisages that the specified terms are incorporated in a letter from the solicitor to the accountant. Instead, the specified terms may be included in a letter from the accountant to the solicitor setting out the terms of the engagement. If so, the text must be adapted appropriately. The letter must be signed in duplicate by both parties - the solicitor will keep the original, and the accountant the copy.

     
 

Rule 39 - Change of accountant

On instructing an accountancy practice to replace that previously instructed to produce accountant's reports, the solicitor must immediately notify the SocietySRA of the change and provide the name and business address of the new accountancy practice.

Rule 40 - Place of examination

Unless there are exceptional circumstances, the place of examination of a solicitor's accounting records, files and other relevant documents must be the solicitor's office and not the office of the accountant. This does not prevent an initial electronic transmission of data to the accountant for examination at the accountant's office with a view to reducing the time which needs to be spent at the solicitor's solicitor'soffice.

Rule 41 - Provision of details of bank accounts, etc.

The accountant must request, and the solicitor must provide, details of all accounts kept or operated by the solicitor in connection with the solicitor's practice at any bank, building society or other financial institution at any time during the accounting period to which the report relates. This includes client accounts, office accounts, accounts which are not client accounts but which contain client money or controlled trust money, and clients' own accounts operated by the solicitor as signatory.

Rule 42 - Test procedures

  • (1)

    The accountant must examine the accounting records (including statements and passbooks), client and controlled trust matter files selected by the accountant as and when appropriate, and other relevant documents of the solicitor, and make the following checks and tests:

    • (a)

      confirm that the accounting system in every office of the solicitor complies with:

      • rule 32 - accounting records for client accounts, etc;
      • rule 33 - accounting records for clients' own accounts;

      and is so designed that:

      • (i)

        an appropriate client ledger account is kept for each client (or other person for whom client money is received, held or paid) and each controlledor trust;

      • (ii)

        the client ledger accounts show separately from other information details of all client moneyand controlled trust moneyreceived, held or paid on account of each client (or other person for whom client money is received, held or paid) and each controlledor trust; and

      • (iii)

        transactions relating to client money, controlled trust money and any other money dealt with through a client account are recorded in the accounting records in a way which distinguishes them from transactions relating to any other money received, held or paid by the solicitor;

       
    • (b)

      make test checks of postings to the client ledger accounts from records of receipts and payments of client money and controlled trust money, and make test checks of the casts of these accounts and records;

    • (c)

      compare a sample of payments into and from the client accounts as shown in bank and building society statements or passbooks with the solicitor's records of receipts and payments of client money and controlled trust money;

    • (d)

      test check the system of recording costs and of making transfers in respect of costs from the client accounts;

    • (e)

      make a test examination of a selection of documents requested from the solicitor in order to confirm:

       
    • (f)

      subject to paragraph (2) below, extract (or check extractions of) balances on the client ledger accounts during the accounting period under review at not fewer than two dates selected by the accountant (one of which may be the last day of the accounting period), and at each date:

      • (i)

        compare the total shown by the client ledger accounts of the liabilities to the clients (or and other persons for whom client money is held) and controlled trusts with the cash account balance; and

      • (ii)

        reconcile that cash account balance with the balances held in the client accounts, and accounts which are not client accounts but in which client moneyor controlled trust moneyis held, as confirmed direct to the accountant by the relevant banks, building societies and other financial institutions;

       
    • (g)

      confirm that reconciliation statements have been made and kept in accordance with rule 32(7) and (9)(a);

    • (h)

      make a test examination of the client ledger accounts to see whether payments from the client account have been made on any individual account in excess of money held on behalf of that client (or other person for whom client money is held) or controlled trust;

    • (i)

      check the office ledgers, office cash accounts and the statements provided by the bank, building society or other financial institution for any office account maintained by the solicitor in connection with the practice, to see whether any client money or controlled trust money has been improperly paid into an office account or, if properly paid into an office account under rule 19(1)(b) or rule 21(1), has been kept there in breach of the rules;

    • (j)

      check the accounting records kept under rule 32(9)(d) and (11) for client money held outside a client account to ascertain what transactions have been effected in respect of this money and to confirm that the client has given appropriate instructions under rule 16(1)(a);

    • (k)

      make a test examination of the client ledger accounts to see whether rule 32(6) (accounting records when acting for both lender and borrower) has been complied with;

    • (l)

      for liquidators, trustees in bankruptcy, Court of Protection deputies and trustees of occupational pension schemes, check that records are being kept in accordance with rule 32(8), (9)(c) and (12), and cross-check transactions with client or controlled trust matter files when appropriate;

    • (m)

      check that statements and passbooks and/or duplicate statements and copies of passbook entries are being kept in accordance with rule 32(9)(b)(ii) and (13) (record-keeping requirements for joint accounts), and cross-check transactions with client matter files when appropriate;

    • (n)

      check that statements and passbooks and/or duplicate statements, copies of passbook entries and cheque details are being kept in accordance with rule 33 (record-keeping requirements for clients' own accounts), and cross-check transactions with client matter files when appropriate;

    • (na)

      for money withdrawn from client account under rule 22(1)(ga) or 22(2)(ga), check that records are being kept in accordance with rule 32(8A), (9)(a) and (13A), and cross-check with client or controlledtrust matter files when appropriate;

    • (o)

      check that interest earned on separate designated client accounts, and in accounts opened on clients' instructions under rule 16(1)(a), is credited in accordance with rule 24(1) and (6)(a), and note (i) to rule 24;

    • (p)

      in the case of private practice only, check that for the period which will be covered by the accountant's report (excluding any part of that period falling before 1st September 2000) the practice was covered for the purposes of the Solicitors' Indemnity Insurance Rules in respect of its offices in England and Wales by:

      • certificates of qualifying insurance outside the assigned risks pool; or
      • a policy issued by the assigned risks pool manager; or
      • certificates of indemnity cover under the professional requirements of a registered European lawyer's home jurisdiction in accordance with paragraph 1 of Appendix 4 3 to those Rules, together with the SRA's written grant of full exemption; or
      • certificates of additional insurance indemnity cover under the professional requirements of a registered European lawyer's home jurisdiction plus certificates of a difference in conditions policy with a qualifying insurer under paragraph 2 of Appendix 4 3 to those Rules, together with the SRA's written grant of partial exemption; and
       
    • (q)

      ask for any information and explanations required as a result of making the above checks and tests.

     

  • Extracting balances

     
  • (2)

    For the purposes of paragraph (1)(f) above, if a solicitor uses a computerised or mechanised system of accounting which automatically produces an extraction of all client ledger balances, the accountant need not check all client ledger balances extracted on the list produced by the computer or machine against the individual records of client ledger accounts, provided the accountant:

    • (a)

      confirms that a satisfactory system of control is in operation and the accounting records are in balance;

    • (b)

      carries out a test check of the extraction against the individual records; and

    • (c)

      states in the report that he or she has relied on this exception.

     

Notes

    • (i)

      The rules do not require a complete audit of the solicitor's accounts nor do they require the preparation of a profit and loss account or balance sheet.

    • (ii)

      In making the comparisons under rule 42(1)(f), some accountants improperly use credits of one client against debits of another when checking total client liabilities, thus failing to disclose a shortage. A debit balance on a client account when no funds are held for that client results in a shortage which must be disclosed as a result of the comparison.

    • (iii)

      The main purpose of confirming balances direct with banks, etc., under rule 42(1)(f)(ii) is to ensure that the solicitor's records accurately reflect the sums held at the bank. The accountant is not expected to conduct an active search for undisclosed accounts.

    • (iv)

      In checking compliance with rule 22(1)(ga) and 22(2)(ga) , the accountant should check on a sample basis that the solicitor has complied with rule 22(2A) and is keeping appropriate records in accordance with rules 32(8A), (9)(a) and (13A). The accountant is not expected to judge the adequacy of the steps taken to establish the identity of, and to trace, the rightful owner of the money.

     
 

Rule 43 - Departures from guidelines for accounting procedures and systems

The accountant should be aware of the Council'sSRA's guidelines for accounting procedures and systems (see rule 29), and must note in the accountant's report any substantial departures from the guidelines discovered whilst carrying out work in preparation of the report. (See also rule 44(e).)

Rule 44 - Matters outside the accountant's remit

The accountant is not required:

  • (a)

    to extend his or her enquiries beyond the information contained in the documents produced, supplemented by any information and explanations given by the solicitor;

  • (b)

    to enquire into the stocks, shares, other securities or documents of title held by the solicitor on behalf of the solicitor'clients;

  • (c)

    to consider whether the accounting records of the solicitor have been properly written up at any time other than the time at which his or her examination of the accounting records takes place;

  • (d)

    to check compliance with the provisions in rule 24(2) to (5) and (6)(b) on payment of sums in lieu of interest;

  • (e)

    to make a detailed check on compliance with the guidelines for accounting procedures and systems (see rules 29 and 43); or

  • (f)

    to determine the adequacy of the steps taken under paragraphs (a) and (b) of rule 22(2A).

 

Rule 45 - Privileged documents

A solicitor, acting on a client's instructions, always has will normally have the right on the grounds of privilege as between solicitor and client to decline to produce any document requested by the accountant for the purposes of his or her examination. In these circumstances, the accountant must qualify the report and set out the circumstances.

Note

  • In a recognised body with one or more managers who are not legally qualified, legal professional privilege may not attach to work which is neither done nor supervised by a legally qualified individual - see Legal Services Act 2007, section 190(3) to (7), and Schedule 22, paragraph 17.
 

Rule 46 - Completion of checklist

The accountant should exercise his or her professional judgment in adopting a suitable "audit" programme, but must also complete and sign a checklist in the form published from time to time by the Council of the Law SocietySRA. The solicitor must obtain the completed checklist, retain it for at least three years from the date of signature and produce it to the SocietySRA on request.

Notes

    • (i)

      The current checklist appears at Appendix 4. It is issued by the SocietySRA to solicitors at the appropriate time for completion by their reporting accountants.

    • (ii)

      The letter of engagement required by rule 38 imposes a duty on the accountant to hand the completed checklist to the solicitor, to keep a copy for three years and to produce the copy to the SocietySRA on request.

     
 

Rule 47 - Form of accountant's report

The accountant must complete and sign his or her report in the form published from time to time by the Council of the Law SocietySRA.

Notes

    • (i)

      The current form of accountant's report appears at Appendix 5.

    • (ii)

      The form of report is prepared and issued by the SocietySRA to solicitors at the appropriate time for completion by their reporting accountants. Separate reports can be delivered for each principal in a partnership but most firms deliver one report in the name of all the principals. For assistant solicitors and solicitors, consultants and other employees, see rule 35, notes (vi) and (vii).

    • (iia)

      A recognised body An incorporated practice will deliver only one report, on behalf of the company and its directors, or on behalf of the limited liability partnershipLLP and its members - see rule 35(1).

    • (iii)

      Although it may be agreed that the accountant send the report direct to the SocietySRA, the responsibility for delivery is that of the solicitor. The form of report requires the accountant to confirm that either a copy of the report has been sent to each of the solicitors of the Supreme Court, registered European lawyers and registered foreign lawyers persons (including bodies corporate) to whom the report relates, or a copy of the report has been sent to a named partner on behalf of all the partners in the firm. A similar confirmation is required in respect of the directors of a recognised body which is a company, or the members of a recognised body which is a limited liability partnershipan LLP.

    • (iv)

      A reporting accountant is not required to report on trivial breaches due to clerical errors or mistakes in book-keeping, provided that they have been rectified on discovery and the accountant is satisfied that no client suffered any loss as a result.

    • (v)

      In many practices, clerical and book-keeping errors will arise. In the majority of cases these may be classified by the reporting accountant as trivial breaches. However, a "trivial breach" cannot be precisely defined. The amount involved, the nature of the breach, whether the breach is deliberate or accidental, how often the same breach has occurred, and the time outstanding before correction (especially the replacement of any shortage) are all factors which should be considered by the accountant before deciding whether a breach is trivial.

    • (vi)

      The SocietySRA receives a number of reports which are qualified only by reference to trivial breaches, but which show a significant difference between liabilities to clients and client money held in client and other accounts. An explanation for this difference, from either the accountant or the solicitor, must be given.

    • (vii)

      Accountants' reports should be sent to Regulation and Information Servicesthe Information Directorate.

    • (viii)

      For direct reporting by the accountant to the SocietySRA in cases of concern, see rule 38 and note (i) to that rule.

     
 

Rule 48 - Practices with two or more places of business

If a practice has two or more offices:

    • (a)

      separate reports may be delivered in respect of the different offices; and

    • (b)

      separate accounting periods may be adopted for different offices, provided that:

      • (i)

        separate reports are delivered;

      • (ii)

        every office is covered by a report delivered within six months of the end of its accounting period; and

      • (iii)

        there are no gaps between the accounting periods covered by successive reports for any particular office or offices.

       
     

Rule 49 - Waivers

The SocietySRA may waive in writing in any particular case or cases any of the provisions of Part F of the rules, and may revoke any waiver.

Note

  • Applications for waivers should be made to Regulation and Information Servicesthe Information Directorate. In appropriate cases, solicitors may be granted a waiver of the obligation to deliver an accountant's report (see rule 35, and note (ix) to that rule). The circumstances in which a waiver of any other provision of Part F would be given must be extremely rare.
 
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