SRA issues new guidance for accountants
The SRA has recently published new guidance on the Solicitors’ Accounts Rules for Reporting Accountants. The document provides answers to the questions most frequently raised with the SRA’s Professional Ethics Guidance team.
Many of the topics are of interest only to accountants, such as how to complete the new Accountant’s Report and the qualifications needed to prepare a Report in the first place. Others have already been covered in our previous Legal Focuses.
There are, however, a few other items that may be of interest to you, as follows:
1. Unqualified staff member signing cheques
Provided a specific authority for a withdrawal from client account is signed by at least one of the persons listed in rule 23(1), then the SAR permit a client account cheque to be signed by a non-solicitor.
That said, this is not regarded as best practice, and is not in line with paragraph 4.1 of the SRA’s guidelines on accounting procedures and systems (Appendix 3 to the SAR).
The guidance therefore instructs accountants to report this as a substantial departure from the guidelines in their Accountant’s Report.
2. Differentiating between paid and unpaid disbursements
Rule 32(8) requires that bills to clients distinguish between fees, paid disbursements and unpaid disbursements.
The guidance confirms that where all disbursements included on a bill are paid then there is no need for them to be marked as such.
3. Interest
The guidance reminds Reporting Accountants that they are not required to check that amounts in lieu of interest have been paid to clients where their monies are held in a general client account.
However, if a practice is failing to operate a system to identify instances where interest is due, then this would represent a substantial departure from paragraph 2.9 of the guidelines, and would need to be disclosed in the Accountant’s Report.
4. Missing paid cheques
If you are a Hazlewoods client then you may know that we have always qualified our Accountant’s Report if any of the client account paid cheques that we selected for testing, or digital copies of them, have not been provided, even if it is the fault of the practice’s bank rather than the fault of the practice. Our logic behind this is twofold:
- Firstly, the cheque may not be available because it has already been requested back from the bank by someone seeking to conceal a fraudulent transaction.
- The cheque has not been properly retained for at least two years, in breach of rule 32(10).
The SRA’s guidance confirms that Reporting Accountants should qualify their Accountant’s Reports if a paid cheque cannot be provided.
5. Client account titles
As you will be aware, under rule 14(3) all client account titles must include the word ‘client’ in full. Failure to comply is an automatic qualifying breach, as including the word ‘client’ is essential to ensure that the protection afforded to clients under section 85 of the Solicitors Act 1974 applies (this is the section that prevents banks using client money to repay any debts of the solicitor).
In addition, the account should be in the name of either the sole practitioner or in the name of the practice. However, the SRA has recognised the fact that where statements and other electronically produced documents are concerned, there is often a limit to the number of characters that can be included in an account title. Under these circumstances it is acceptable for the name of the practice to appear in an abbreviated form, provided the practice is readily identifiable.
Note that it is not acceptable for the word ‘client’ to be abbreviated.
6. Residual client balances
Finally, the guidance gives a reminder that solicitors are required to promptly return any leftover balances to their clients on completion of a matter. Where amounts are retained for a specific purpose then the solicitor is required to inform the client of the amount held, and the reason behind it, on at least an annual basis.
This new rule came into effect from 22 July 2008, therefore in theory practices should be writing to their clients for the second time right about now...
If you would like to discuss any of these issues in more detail please feel free to call Andy Harris on 01242 237661, or email andrew.harris@hazlewoods.co.uk