Solicitor client

Gill Gittings

Hi I'm wondering if anyone can help. One of our clients is a solicitor who we do the bookkeeping for. One of the partners is purchasging a new house and is using the solicitors practise to do the legal formalities. I was wondering if this was ethical?

Thanks in advance.

Steve Collings

There's nothing "unethical" about the partner's firm undertaking the conveyancing work. I know a number of solicitors who have done this. What your clients must be careful of though is making sure they don't breach the Solicitors Accounts Rules because this could result in a qualified report by the reporting accountants.

Rule 13 of SAR 98 deals with "client monies" and depending on the legal structure of the practice would depend on the correct accounting treatment of monies which the solicitor pays to the practice as to whether it should be classed as 'client' money or 'office' money.

If the practice is a partnership or a sole trader then the monies will be office money because parnters/principals cannot (in law) be clients of themselves. However, if the practice is a LLP or a Ltd Company then the monies should be paid into the client account because in law LLP's and Ltd Co's are separate bodies.

This is important because if monies are paid into the incorrect account then there is an immediate breach of the rules - regardless of whether it was intended or not - and would be reportable to the Solicitors Regulation Authority.

Regards
Steve

Gill Gittings

Thank steve. We have to be careful with this particular client because they are having an inspection this month by the law society. They have also sacked their auditors because they are responsible for thje inspection. The senior partner told us that because the auditors couldn't find a couple of cheques they reported them which was a bit harsh but hey ho!

Steve Collings

Hi Gill,

It isn't "harsh" - it's reportable I'm afraid. If your client sacked their reporting accountants for qualifying their report on the grounds of missing cheques then your client is wrong unless there were other genuine reasons for dispensing with their services.

Rule 32 (10) [I think - my SARs are on my laptop] says that solicitors must retain paid cheques or digital images of paid cheques (front and back) for a period of two years unless there is a written agreement with their bank that they will hold the paid cheques for them. This is where the SARs get even more complex! If your client does not have an agreement with the bank that the bank will hold the paid cheques on the solicitors' behalf then your client is in breach of the rules. However, provided that there is a written agreement your client will not be in breach of the rules but the report should still be qualified because the reporting accountants will essentially have a scope limitation on their work - the reporting accountants cannot just simply choose some more cheques to sample. Your client won't be in breach of the rules because there is an agreement but the bank hasn't stuck to their side of the agreement.

Your client should also understand that the duties of a reporting accountant are not to "audit" the accounting records in the traditional sense. They are not forming an opinion on the "truth and fairness" and as such materiality does not come into it. When the reporting accountants carry out their work they are simply dealing with "yes" or "no" answers - either the solicitor has complied with the rules in all respects (not all 'material' respects) or they haven't. I generally clarify these issues at the outset when a solicitor client comes in for an initial meeting because the rules are quite specialist and it is important to address the fact that Reporting Accountants are not acting in the capacity as 'Auditors' when carrying out their work.

Hope that sheds some light on the issues for you.

Kind regards
Steve

Julia

Steve some excellent advice here -I have sent you a PM about the solicitors rules as they are complex.
Also we have a copy of your IAS book at our BPP centre - its excellent! Well done -are you doing anymore?

Julia

Steve Collings

Julia wrote: »

Also we have a copy of your IAS book at our BPP centre - its excellent! Well done -are you doing anymore?

Julia

hi Julia,

Thanks for the reassuring feedback. I am going to do another one for a well-known publisher of accountancy and auditing materials. It concerns the clarified auditing standards and is scheduled for publication during the second half of this year.

Thanks again.

Steve