SRA Handbook

Rule 32A: Obtaining and delivery of accountants' reports

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Rule 32A: Obtaining and delivery of accountants' reports

32A.1

Subject to rule 32A.1A, if you have, at any time during an accounting period, held or received client money, or operated a client's own account as signatory, you must:-

(a)

obtain an accountant's report for that accounting period within six months of the end of the accounting period; and

(b)

if the report has been qualified, deliver it to the SRA within six months of the end of the accounting period.

This duty extends to the directors of a company, or the members of an LLP, which is subject to this rule.

32A.1A

Subject to rule 32A.2, you are not required to obtain or deliver an accountant's report if:

(a)

all of the client money held or received during an accounting period is money held or received from the Legal Aid Agency or in the circumstances set out in rule 19.3; or

(b)

in the accounting period, the statement or passbook balance of client money you have held or received does not exceed:

(i)

an average of £10,000; and

(ii)

a maximum of £250,000,

or the equivalent in foreign currency.

32A.1B

In rule 32A.1A above:

(a)

a "statement or passbook balance" is the total balance obtained at least once every five weeks, from a bank, building society or other institution of all general client accounts and separate designated client accounts, and accounts that are not client accounts but are holding client money, when carrying out reconciliations in accordance with rules 29.11 to 29.14; and

(b)

an average "statement or passbook balance" is the total of all statement or passbook balances obtained in any accounting period divided by the number of such balances in that period.

32A.2

Notwithstanding the provisions of rules 32A.1 and 32A.1A, the SRA may require you to obtain or deliver an accountant's report at any time in circumstances other than those set out in rules 32A.1 and in the circumstances set out in rule 32A.1A if the SRA has reason to believe that it is in the public interest to do so.

Guidance notes

(i)

A qualified accountant's report is a report prepared in accordance with rule 32A.1(a) where the reporting accountant forms the judgement that these rules have not been complied with such that the safety of client money is at risk. The form of the report is dealt with in rule 44. See also the SRA's "Guidance to Reporting Accountants and firms on planning and completion of the annual Accountants' Reports, under Rule 32A of the SRA Accounts Rules 2011".

(ii)

To qualify for the exemption in rule 32A.1A(b), you are required to assess at the end of the accounting period if the average (at least five weekly) balance of client money you have held or received is or less than, or equal to £10,000 and that the maximum aggregated total of client money held or received is less than, or equal to £250,000 (or the equivalent in foreign currency). Both thresholds need to be satisfied for the exemption to apply. If you do satisfy the criteria you will be exempted from the requirement of obtaining an annual accountant's report for that accounting period. We expect that firms will inevitably move in and out of the thresholds from year to year and it is your obligation to satisfy yourself, and if required the SRA, that you have properly applied the exemptions. You should ensure you keep full records of your decisions in this regard. For the avoidance of any doubt if you or your firm is exempted from the obligation to obtain an accountant's report under rule 32A.1A, all of the other sections of these rules will continue to apply to you in full.

(iii)

Examples of situations under rule 32A.2 include:

(a)

when no report has been obtained or delivered but the SRA has reason to believe that a report should have been obtained or delivered, for example, because you have failed to deliver a qualified report to the SRA or where you have failed to obtain a report because you have improperly applied one of the exemptions in rule 32A.1A;

(b)

when a report has been delivered but the SRA has reason to believe that it may be inaccurate;

(c)

when your conduct gives the SRA reason to believe that it would be appropriate to require you to obtain or deliver a report earlier than would otherwise have been the case (for instance three months after the end of the accounting period);

(d)

when your conduct gives the SRA reason to believe that it would be appropriate to require the obtaining and delivery of a report, whether or not qualified that an exemption would otherwise apply, or the more frequent obtaining and delivery of reports (for instance every six months);

(e)

when the SRA has reason to believe that the regulatory risk justifies the imposition on a category of firm of a requirement to obtain and deliver reports earlier or at more frequent intervals;

(f)

when a condition on a solicitor's practising certificate requires earlier delivery of reports or the obtaining and delivery of reports at more frequent intervals.

(iv)

The requirement in rule 32A for a registered foreign lawyer to deliver an accountant's report applies only to a registered foreign lawyer practising in one of the ways set out in paragraph (vi)(C) of the definition of "you" in the Glossary.

(v)

When client money is held or received by an unincorporated practice, the principals in the practice will have held or received client money. A salaried partner whose name 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", is a principal.

(vi)

In the case of an incorporated practice, it is the company or LLP (i.e. the recognised body or licensed body) which will have held or received client money. The recognised body/licensed body and its directors (in the case of a company) or members (in the case of an LLP) will have the duty to obtain the accountant's report and to deliver any such report to the SRA if it is qualified, although the directors or members will not usually have held client money.

(vii)

Assistant 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, consultant or other employee, it is the sole principal or the partners (rather than the assistant solicitor, consultant or other employee) who are regarded as having received and held the money. In the case of an incorporated practice, whether a company or an LLP, it would be the recognised body or licensed body itself which would be regarded as having held or received the money.

(viii)

If, exceptionally, an assistant solicitor, consultant or other employee has a client account (as a trustee), or operates a client's own account as signatory, the assistant solicitor, consultant or other employee will have to obtain and deliver an accountant's report unless the exemptions in rule 32A.1A apply. The assistant solicitor, consultant or other employee can be included in the report of the practice, but will need to ensure that his or her name is added, and an explanation given.

(ix)

Rule 32A does not apply to a solicitor or registered European lawyer, employed as an in-house lawyer by a non-solicitor employer, who operates the account of the employer or a related body of the employer.

(x)

In exceptional circumstances, a waiver of the obligation to obtain a report may sometimes be granted. Applications should be made to the SRA.

(xi)

If a firm owns all the shares in a recognised body or licensed body which is an executor, trustee or nominee company, the firm and the recognised body/licensed body may obtain a single accountant's report (see rule 28.1(b)).