1
Q
What are the SRA account rules 2019?
A
Govern how law firms operate their accounting systems and safeguarding money belonging to clients (and others)
2
Q
What is the purpose of solicitor accounts rules?
A
Keep clients’ money safe
3
Q
What are the SRA principles/ codes of conduct govern solictor accounts?
A
Uphold public trust
Act with honesty
Safeguard money and assets entrusted to you by clients and others
4
Q
What is a dual system of accounting?
A
Keep records to show client money is seperate from firm money
5
Q
What must firms do to ensure separation of client and business money?
A
Use seperate bank or buidling society bank accounts
6
Q
What is client money?
A
Money which the solictor/ firm controls but it does not belong to them.
Includes:
* Money held on behalf of clients/ third parties
* Money held intended to cover fees/ disb before bill
* Money held to cover expenses before paid
* Money held / received for a solicitor acitng in a specific role
7
Q
What is double entry book keeping?
A
For each transaction there is a debit and credit entry in 2 different ledgers (balance each other out)
double entry
8
Q
What are ledgers will only business columns used for?
A
- Asset ledgers (premises, fixtures, vehicles, computer software)
- Expense ledgers (wages, utility bills, fuel costs, maintenance)
- Profit costs (legal work billed)
9
Q
What are profit costs?
A
Professional fees/ charges for legal services provided
10
Q
Which transactions are recorded in firms business columns on the ledger?
A
Transactions where money is paid in / out of the firms business bank account
11
Q
What transactions are recorded in firms client columns on the ledger?
A
Transactions relating to money paid in/ out of the firms client account
12
Q
Which ledgers have both business and client columns?
A
- Cash sheet - payments / receipts of both business and client money
- Client ledgers specific to individial clients/ matters
13
Q
What is a cash sheet?
A
The ledger that records payments in and out of the firm’s bank accounts
14
Q
Why will a balance column on a client ledger have DR?
A
Must be shown as a debit or the account will be overdrawn and in breach of SRA rules
15
Q
What are journal entries?
A
A description or summary of accounting entries on the firm’s ledgers
16
Q
What should be in a journal entry?
A
- DR entry and corresponding CR entry
- Which 2 ledgers are involved in the transaction
- Transaction is for client or business money
- Which entry is DR and which is CR
NB: both entries will be in the client or business acount
17
Q
What are the 3 questions to answer a question on journal entries?
A
- In which 2 ledgers should double entries appear?
- Does the transaction relate to client money or business money?
- Which entry should be a debit and which is a credit?
18
Q
What are the 4 categories of client money?
A
- Money held on behalf of clients while providing legal services
- Money held on behalf of third parties while providing legal services to clients
- Money held by solicitors acting in certain specified roles
- Money held on account of costs/ unpiaid disb prior to bill
19
Q
When is money held on behalf of clients?
A
If it is relating to regulated services delivered to a client
e.g net proceeds of sale (property) / monies collected administering an estate
20
Q
What are regulated services?
A
Legal and other professional services firms regulated by the SRA can provide
e.g acting as a trustee/ holds specified appointment
21
Q
What is money held on behalf of third parties?
A
Money held on behalf of a third party in relation to regulated services by a solicitor or firm
*e.g receipt of deposit from a buyer (agent/ stakeholder) OR money held to a sender’s order *
22
Q
When is money held by solicitors acting in specified roles?
A
- Trustee for a trust
- Donee of a power of attorney
- Court of Protection Deputy
- Trustee of an occupational pension scheme
23
Q
What are the requirements of a client account?
A
- England or wales
- Name of firm
- Labelled ‘client’
Money cannot be touched if the firm is subject to insolvency proceedings
24
Q
When does a firm not need a separate client account to hold client money?
A
- Firm only receives money for fees and unpaid disbursements prior to delivery of a bill
- Firm does not operate a client account for any other purpose
- Firm has told clients in advance where and how money will be held
25
What firms may not need a client account?
Criminal litigation services
(only payment of fees and disbursements from Legal Aid Agency)
26
When does client money need to be paid into client account?
Promptly:
* bank tranfer - go directly to client account or very shortly after
* cash / cheque - paid to client account same or next working day
27
How is client money recorded on a firm cash sheet?
Money in - DR - show increase in asset liability
Money out - CR - show decrease in firm client account
| Opposite to your personal bank statement
28
How is client money recorded on client ledger?
Money in - credit (CR) - show an increase in the account
Money out - debit (DR) - show decrease in the account
29
Where are double entries recorded?
Either **both** in *business account* or **both** in *client account*
30
When can client money be withheld from client account?
1. Money held/ received as a solictor who acts as a trustee/ holder of specified office/ appointment
2. Payments from LAA for the firm's costs
3. Firm's can agree alternative arrangements with clients third parties but must be in writing
31
What is the legal definition of costs?
Includes both fees and disbursements
32
How can a firm rectify failure to pay client money promptly?
Business money must be transferred immediately into the client account (until the breach can be properly rectified)
| client money - 4 categories
33
What is the general principle on client money?
Should be available on demand
34
What type of client accounts should a firm have?
General client account either:
* Current account
* Deposit account (no notice period to withdraw)
35
What is the exception to client money being available on demand?
Firm agrees in writing with the client (or third party) that client money is **not** available on demand
e.g holding a large sum for a long period of time
36
What is a separate designated deposit client account?
seperate client account holding money for one client (better interest rate)
*often require notice period to withdraw* = not avaliable on demand
37
When should client money be returned?
As soon as there is no longer a proper reason to hold it *(no longer needed for provision of legal services) *
| 'promptly'
38
What happens if a client does not give instructions/ unable to contact about client money held?
Money should be returned to the client the same way it was sent
39
What happens of a firm cannot locate a client and does not know where to return client money?
* Reasonable amount of time
* Reasonable effort to contact
* SRA approval to pay to charity
| No SRA approval needed below £500
40
What are the reasons for withdrawals from a client account?
1. Withdrawn for the purpose it is being held (e.g fees / disb)
2. Withdrawn following intstructions from client / third party for who it is held
3. Authorisation from SRA (client cannot be located)
41
Who can authorise withdrawals from client account?
Manager & COFA must ensure people with the correct level of seniority authorise withdrawals
*Minimise risks to client money*
42
Who is a manager of a firm?
Responsibility for running a firm:
* Partner
* Member of law LLP
* Sole principapl in a sole practice
* Director of a law company
43
Who is liable to ensure a firm complies with money rules?
Managers have joint and several responsibility
44
Who sets up and monitors the firms to minimise risks of client money? (trains staff)
Compliance Officer for Finance and Administration (COFA)
45
What is the conditon to withdraw client money?
Sufficient funds are held on behalf of that client/ third party - only money belonging to that specific client is withdrawn
46
What should a solicitor check before making withdrawals from client account?
There is sufficient credit in client account columns
47
What can money be withdrawn from client account for?
* Make payment to client or third party
* Transfer from client account to business account
48
In which ledgers should double entries appear for withdrawal from client account?
* Client ledger
* Cash sheet
49
What accounting entries must be made when withdrawing client money?
Money out = DR - client ledger (client account)
Money in = CR- cash sheet (client account)
| The same as your personal bank account!
50
What are solictor firms not regulated to do?
Provide banking facilities
51
What are the accounting entries for receipt of client money?
CR - client ledger (client account)
DR - cash sheet (client account)
52
What are the accounting entries for receipt of business money?
CR - client ledger business account
DR - cash sheet business account
e.g client paying bill into office account / contribution from o/s
53
When is money for costs and disb business money?
Following delivery of a bill = business account money
Received for paid disb before delivery of bill (purpose for being sent) = business account money
54
When is money for costs and disb client money?
Received on account for fees and unpaid disb prior to delivery of a bill
55
When are disbursements paid from the business account?
Principal method
56
When are disbursements paid from the client account?
Agency method
57
What are the accounting entries for payment of business money?
| Money paid from the business account
DR - client ledger business account
CR - cash sheet business account
58
What are the accounting entries for payment of client money?
| Money paid from the client account
DR - client ledger client account
CR - cash sheet client account
59
When should a breach of the Rules be corrected?
Promptly and upon discovery (reasonable)
60
When is a breach of the Rules corrrected immediately?
Money has been improperly witheld or withdrawn from client account
* (sometimes delay in funds clearing or used for the wrong purpose)*
61
What happens if client money is wrongly paid into the business account?
Breach of Rule 2.3 - money transferred from business account to client account **immediately**
62
What are the journal entries when transferring from bsuiness account to client account?
Out of BA:
* DR client ledger business account
* CR cash sheet business account
Into CA:
* CR client ledger client account
* DR cash sheet client account
63
What is the general principle on interest?
Firms account clients or third parties a fair sum of interest on money held
64
When is it fair not to pay any interest at all on client money?
Firm holds a short sum of money for a short period of time
65
How can a firm pay a client interest? (2 options)
* **Actual interest -** e. g from separate designated deposit client account
* **Sum in lieu of interest -** literally money paid instead of interest for money held in client account = *applies interest policy and pays from business account*
66
What is a separate designated deposit client account?
A separate account opened by the firm for an individual client (large sum of money for a long period of time)
67
What are the requirements of a separate designated deposit client account?
* Separate from general client account
* Designated in the name of the individual
* Desposit account - earns interest
* Labelled 'client' account
68
What is the exception on the requirement to pay interest to a client?
Firm gives sufficient information in advance
Agree alternative arrangments
Must be in writing
69
How does a firm decide what interest amount is *fair*?
* Written policy & inform clients
* Policy takes into account amount of client money and length of time held
* Consider interest rates by banks (not highest/ lowest but inbetween)
* Firms have a de minimus provision (not pay interest below this amount)
| de minimus amount for interest paid - **usually £20**
70
When must firms return client money?
* End of the matter
* Significant delay/ change - money not needed in the short term -
| e.g completion of sale/ probate
71
When is it jutifiable for a firm to hold money for a long period?
It is related to the firms provision of legal services
72
How can firm pay interest to a client at different stages of the matter?
1. Transfer interest into the client account to offset against bills / future disb (matter incomplete)
2. Pay interest direct to client (end of matter) from business account
73
How is interest usually paid on money held in the general client account?
Sum in lieu of interest
74
How is interest paid in a separate deposit client account?
Firm pays the client all interest accrued from the funds in the account
75
Which interest belongs to the firm?
* General client account
* Business account
| Can be paid from client account to the business account
76
How are payments in lieu of interest recorded on the ledger?
As a expense on an interest payable expense ledger
77
What are the 2 steps to pay interest on money held in general client account?
1. Record interest payable as business money
2. Transfer sum from business account to client account
78
Where is interest payable recorded?
The ledgers
| NOT RECORDED ON THE CASH SHEET
79
What are the accounting entries for interest payable?
***Interest payable to client:***
CR client ledger **business account** (reduce firm funds)
DR interest payable expense ledger (inc expense)
(cash sheet - CR)
| interest payable expense ledger only has business columns
80
What are the accouting entries for a sum in lieu of interest **out of the business account?**
DR client ledger business account
CR cash sheet business account
81
What are the accounting entries for a sum in lieu of interest **into the client account?**
CR client ledger client account
DR cash sheet client account
82
What type of account should a SDDCA be?
instant access deposit account (money available on demand) *UNLESS agreed otherwise in writing*
83
What are the 3 stages to pay money to pay interest from a SDDCA to a client?
1. Client money is transferred from general CA into an SDDCA
2. Bank pays interest on client money held in SDDCA
3. Client money & interest is transferred back to general CA
84
Method to record interest on client money held in an SDDCA
1. Extra columns on existing ledger for money on deposit
2. Seperate ledgers for money on deposit
85
What are the double entries to record transfer of client money from general account to SDDCA?
**Stage 1: Transfer from general CA to SDDCA**
*Transfer from general client account:*
* DR client ledger client account
* CR cash sheet client account
*Transfer into SDDCA:*
* CR client ledger client deposit account
* DR cash sheet client deposit account
86
What are the accounting entries to record the bank paying interest on funds in a SDDCA?
**Stage 2: Bank pays interest on SDDCA**
CR client ledger client deposit account
DR cash sheet client deposit account
87
What are dounble the accounting entries to record transfer from SDDCA to general CA?
**Stage 3: Transfer from SDDCA to general CA**
*Transfer from SDDCA:*
* DR client ledger client deposit account
* CR cash sheet client deposit account
*Transfer into general client account:*
* CR client ledger client account
* DR cash sheet client account
88
What are the *ledgers used* if interest is recorded on separate ledgers? (SDDCA)
**2 client ledgers:**
* client ledger
* deposit client ledger
**2 cash sheets:**
* cash sheet
* deposit cash sheet
89
What is the difference between accounting entries for SDDCA interest?
Column added - labelled *client deposit account*
Separate ledger - labelled*deposit client **ledger/** cash sheet*
90
What is on the ledger for HMRC-VAT?
Record of:
Output VAT a firm has charged clients
Input VAT paid when buying good/ services for business
91
What happens if output VAT exceeds input VAT?
Firm is liable to pay the difference to HMRC
output = billed to clients
input = paid on expenses by firm
92
What happens if input VAT exceeds output VAT?
HMRC will issue a VAT refund
93
What are the accounting entries when submitting a bill? (sending to client)
DR client ledger business account
CR profit costs ledger (fee amount)
DR client ledger business account
CR HMRC-VAT ledger (VAT amount)
| NO ENTRIES IN THE CASH SHEET - bill not paid yet
94
What is an abatement?
Agreed reduction in a client's bill
95
What are the accounting entries for abatement of a bill?
**Business account:**
CR client ledger business account
DR profit and costs ledger (fee amount)
CR client ledger business account
DR HMRC - VAT ledger (VAT amount)
| OPPOSITE TO SUBMITTING A BILL
96
What will abatement accounting entries reflect?
The amount the bill has been reduced **by** *NOT what the bill has been reduced to*
97
Where is money paid if a firm is **not** already holding money for a submitted bill?
Directly to the business account
98
What money cannot be transferred to cover fees / dsibursements?
Money held for other purposes e.g mortgage advancement
but can if other money e.g proceeds from sale and client auth
99
What are the accounting entries for payment of a bill on account into business?
CR client ledger client account
DR cash sheet business account
100
What are the accounting entries for a client to business cash transfer?
1. DR client ledger client account & CR cash sheet business account
2. CR client ledger business account & DR cash sheet business account
101
What is input tax?
Tax paid on business expenses coming IN to the firm
102
When does client money becomes business money?
When a bill has been submitted
103
What is output tax?
Tax charged on legal services going OUT of the firm
104
What are expenses are recognised as disbursements for VAT purposes?
**Separate** from legal services provided
(SDLT, HMLR registration fee, probate fee, court fees)
| Firm only arranges for third party service (agent)
105
What are expenses are not recognised as disbursements for VAT purposes?
* Expenses that are **integral** to the legal services provided rather than purely for the client (experts' fees/ some coveyancing searches)
* Expenses that are seen as overheads (postage/ printing)
106
When is VAT charged to the client for disbursements?
Disbursements for VAT purposes = the cost of the firm to deliver the service
integral to legal services = used by solictors not just the client
overhead expenses = essential costs to keep the firm runnig
107
When can a disbursement be paid from the business account?
Insufficient funds in client account
108
What are the accounting entries for payment of a discbursement no VAT (client account)?
DR client ledger client account
CR cash sheet client account
109
What are the accounting entries for payment of a discbursement no VAT (business account)?
DR client ledger business account
CR cash sheet business account
110
When is the **agency** method used for VAT?
Client's name on the invoice
111
When is the **principal** method used for VAT?
Firm's name on the invoice
112
What is the agency method?
* Firm acts as an agent to arrange
* Invoice issues to client
* Client liable for VAT
NO entries on HMRC-VAT ledger
113
What is the principal method?
* Third party goods/ services are supplied to the firm
* Firm pays for VAT
* Recharge fee & VAT to client
* Input & output tax must be recorded on HMRC-VAT ledger
114
What are the acccounting entries for payment of a disbursement with VAT - **agency method**? *(client account)*
DR client ledger client account
CR cash sheet client account
| INCLUSIVE OF VAT
115
What are the acccounting entries for payment of a disbursement with VAT - **agency method**? *(business account) *
* DR client ledger business account
* CR cash sheet business account
| INCLUSIVE OF VAT
116
How can a disbursement with a firm's name on the invoice be paid?
**Paid from business account**
* client account to business account cash transfer (sufficient funds)
* client pays direct into business account
117
What are the 2 stages for the principal method?
1. Third party supplies goods and services to the firm in exchange for payment
2. Firm recharges the client (usually same time as billing profits/ costs)
118
What are the accounting entries for stage 1 of the principal method?
Disbursement
* DR client ledger business account
* CR cash sheet business account
VAT
* DR HMRC-VAT ledger (input tax)
* CR cash sheet business account
| Firms pays disbursement & VAT
119
What are the accounting entries for stage 2 of the principal method?
Principal = firm issues the invoice in their own name, charges VAT on the full amount, and records the transaction as part of the firm’s business income
Profit costs
* DR client ledger business account
* CR profit costs ledger
VAT
* DR client ledger business account
* CR HMRC- VAT ledger (output tax)
**CR = income earned by the firm**
**DR = client owes**
| Recharges client when billing for profits/ costs
120
What account is a disbursement paid from when usuing the principal method?
Business account
121
What is the sum on the client ledger for the principal method?
VAT exclusive
122
Where are all client ledger entries for the principal method?
Business account columns
123
What method is used to pay counsel's fees?
Firms can use the agency method by changing the invoice to the **firm name**
Then use funds in client account if sufficient
or business account if not enough
124
What is the sum on the ledger for the agency method?
VAT inclusive
125
Where are cash transfers recorded?
Client ledger
Cash sheet
126
What is an inter-client transfer?
* Transfer between different clients OR
* Transfer between different client matters
127
# 1.
Wher are inter-client transfers recorded?
Two seperate client ledgers
| NO ENTRIES ON CASH SHEET - NO TRANSFER FROM CLIENT ACCOUNT
128
What are the requirements to transfer client money to business money?
* Some or all the money in client account is intended to cover the firm's costs
* A bill has been submitted to the client
* Transfer is for the sum billed
129
What are the accounting entries for a client to business cash transfer?
**Transfer out of client account:**
DR client ledger client account
CR cash sheet client account
**Transfer into business account:**
CR client ledger business account
DR cash sheet business account
130
What are the double accounting entries for a business to client cash transfer?
**Transfer out of business account:**
* DR client ledger business account
* CR cash sheet business account
**Transfer into client account:**
* CR client ledger client account
* DR cash sheet client account
131
What is the protocol if a firm receives a mixed receipt?
Whole amount paid into 1 account (usually client account)
*Then allocated promptly to the correct account*
| The Rules say can be paid to client or business account fiirst
132
What happens if a mixed receipt is paid by cheque?
Options:
1. Pay into client account and transfer
2. Pay into business account and transfer
3. Bank splits cheque (uncommon)
133
What are the accounting entries for a client to client transfer* (inter- client) *
DR client A ledger client account (transferor)
CR client B ledger client account (transferee)
| NO CASH SHEET ENTRY
134
What are the accounting entries for an inter-client transfer between matters?
DR client ledger (matter A) client account
CR client ledger matter B) client account
| NO CASH SHEET ENTRY
135
What is a mortgage advance?
Money a lender has agreed to lend the buyer to complete the property purchase
136
How do firms hold mortgage advances held on behalf of lenders until completion?
1. Operate 2 client ledgers (lender and borrower)
2. Operate 1 client ledger (borrower) include details of lender/ mortgage transactions
137
What are accounting entries - *seperate ledger for a lender and borrower* - for receipt of mortgage advance?
**1. Record receipt of mortgage advance in client ledger**
* CR lender client ledger client account
* DR cash sheet ledger client account
**2. Transfer mortgage advance from lender client ledger to borrower client ledger on completion**
* DR lender client ledger client account
* CR borrower client ledger client account
138
What are the accounting entries when billing the buyer / borrower?
DR borrower client ledger business account for profit costs & VAT
CR profit costs account
CR HMRC-VAT account
139
What are the accouting entries when billing the lender?
DR client ledger business account for profit costs and VAT
CR profit costs account
CR HMRC- VAT account
140
What are the acccounting entries to transfer mortgage charges (fees) from the lender to the buyer?
No actual movement of money = business account !!
CR lender client ledger business account (reduces amount held for lender)
DR borrower client ledger business account (increases funds in borrowers account)
141
What are accounting entries - *single ledger for a lender and borrower* - for receipt of mortgage advance?
* DR cash sheet client account = funds received into client account
* CR borrower client ledger client account = shows firm holding money for the borrower
142
What details need to be clearly recorded in a single ledger used for a mortgage advance?
Details column:
* Lender's name
* Clear trasnaction relates to mortgage advance
143
How should a firm record mortgage transactions if they act for the lender and borrower?
Operate 2 seperate client ledgers
144
What are a firm's options when completion monies are received?
1. Record receipt in the seller (borrower's) client ledger and then transfer to lender's ledger (inter-client transfer)
2. Record receipt of the mortgage redemption in lender client ledger and remaining proceeds of sale in seller/ borrower's client ledger
145
What is a stakeholder deposit?
Held jointly on behalf of the buyer and the seller *(between exchange and completion)*
On completion - belongs to seller
146
What is an agency deposit?
Held on behalf of the seller only
*Belongs to seller after exchange of contracts*
147
How can a firm hold a stakeholder deposit?
1. Seperate stakeholder ledger in the names of buyer and seller - *on completion transferred to seller's client ledger*
2. Record deposit in seller client ledger - labelled as stakeholder money - **not used until completion**
148
What are the accounting entries for a seperate stakeholder ledger? (2 stages)
Receipt of deposit on exchange of contracts:
* CR stakeholder client ledger client account
* DR cash sheet client account
Transfer to seller on completion:
* DR stakeholder client ledger client account
* CR seller's client ledger client account
149
What are the accounting entries for receipt of stakeholder deposit in the seller's client ledger?
CR client ledger client account
DR cash sheet client account
| Details column must show **stakeholder deposit**
150
What are the accounting entries for a deposit held as agent?
CR seller's client ledger client account
DR cash sheet client account
151
What is a bridging loan?
Money a client can borrow to bridge a gap while they are waiting for other sources to be available
*e.g property/ probate matters *
152
What are the accouting entries for a bridging loan?
CR client ledger client account
DR cash sheet client account
153
What rules apply to joint accounts?
1. Obtain bank or building statements at least every 5 weeks
2. Keep a central record of bills / written notifications of costs
*Still act in client's best interest / safeguard money & minimise risks*
| Joint = solicitor and third party e.g executors with another party
154
What are the other types of accounts?
1. Joint account - solicitor and third party
2. Client's own account - client lacks mental capacity
3. Third- party managed account - outsource client accounts
155
What is a power of attorney?
Document authorising another to make decisions on their behalf
156
What is a court protection deputy?
The court of protction will appoint a deputy to make decisions if a person lacks mental capacity (in their best interests)
157
What are the rules for a solcitor operating a client's own account?
1. Obtain bank or building statements at least every 5 weeks
2. Reconcile statements at least every 5 weeks (matching records to bankstatement/ ledgers)
3. Keep a central record of all bills/ written notifications of costs (e.g CCL)
*Still act in client's best interest / safeguard money*
158
What protection does the SRA give a solictor operating a client's own account?
If a solictor takes reasonable steps to ensure client money is not at risk and keeps records of this - they will not be in breach
159
If a solicitor is appointed to operate a client's own account how is the money kept?
Seprate client account
| *(may be a deputyship account)*
160
What is the condition to operate a third-party managed account (TPMA)?
Law firms do not receive or hold clients' money themselves
161
What are the advanatges of operating a TPMA?
* Not client moeny - not follow rules o client money/ accounts
* Avoid costs of opertaing client accounts (insurance/ reports)
* Reducing risk of money laundering
162
What are the obligations on a firm when using a TPMA?
**Overriding obligations -* client's best interest & safeguard money* **
* TMPA proider is regulated by FCA
* Check interest is appropiate
* Complete notification form to send to SRA
* Inform clients of TMPA use and check understanding
* Inform clients how TMPA fees are paid
* Inform clients of right to terminate / dispute payment requests
* Obtain regular copies of statements (check against internal records)
163
Which rules govern which type of accounts?
Rule 9 - joint accounts
Rule 10 - client's own account
Rule 11 - third- prty managed account
164
What does a law firm need to notify the SRA when oprating a TPMA?
* Notify using a TPMA
* Send details of the provider
165
Under Rule 8.1 what do accouting records need to be?
Up to date and chronological
166
What are the accouting records a firm must keep?
* seperate client ledgers for each client and legal matter
* balances on client ledgers
* cash sheet (book)
* profit costs ledger
* transfers journal
167
What should a client ledger include? (Rule 8.1a)
* The term 'client ledger'
* Client name
* Description of legal matter
* Record receipts of client money on client side
* Record receipts/ payment of business money on business side (bills)
168
What must firms keep a record of for client monies under Rule 8.1(b)?
A running total of all monies owed to clients (held on their behalf) - add up the balances on all separate client ledgers
169
Why do firms need a cash sheet? (Rule 8.1(c)
Keep a record of all client account transactions *(show all money owed to clients)*
170
Why do firms need a profit costs ledger? (Rule 8.4)
Must have a central record of bills
171
Why do firms need a transfers journal?
Record of all inter-ledger transfers
*(inter-client transfers)*
172
How long are firms required to obtain bank statements?
Every 5 weeks for client and business accounts
173
What is reconciliation?
Cross checking **internal** accounting records against **external** client/ business account statements
| ***Focus is on client money***
174
How often should a firm carry out reconciliation?
Every 5 weeks
175
When should differences found in reconcilation be investigated?
Promptly - ***keep client money safe ***
176
Who can sign off a reconcilation statement?
Compiance officer for finance and administration (COFA) or a manager of the firm
177
When must law firms get an independent accountant to write a report?
At the end of every accouting period
12 months (e.g.1 January to 31 December or 1 April to 31 March)
178
What is an accounting period?
* Usually 12 month period
* Financial statements prepared
179
What is the general requirement of accouting reports?
Any law firm that has held/ received client money during the accouting period must obtain accoutnat's report within **6 months of the end of the period**
180
What are the exceptions to the general requirement on accountant reports?
Lower risk to client money:
* Only money received from LAA
* Small amounts
181
What is the threshold for obtaining accountant reports?
Client account:
* Does not exceed **average of £10,000** during the accounting period
* Does not exceed **maxiumum of £250,000 at any point** in the same period
182
What must a an accountant firm do if an accountants report is qualified?
Send a copy of the report to the SRA within 6 months of the end of the accounting period
183
What is ***'qualifying an accountant's report?'***
Accountant identifies a serious flaws in the firms accounting records/ systems/ breaches of Rules
Client money has been/ likely to be at risk
184
When can the SRA request delivery of an accountant report?
* Risk to client meony e.g firm closes down/ stops holding client money
* In public interest e.g employee whistleblower
185
What are solicitor and accountant firms under a duty to do ?
Report **promptly** to the SRA any issues that may be a **serious breach of SRA / Accounts Rules**
186
What must an accountant immediately report to the SRA?
* evidence of **theft/ fraud** of client money
* concerns a **firm is not fit and proper** to hold client money
187
When can the SRA disqualify an accountant from making a report?
* Guillty of professional misconduct
* Failed to exercise care and skill
188
How long should law firms keep accounting records?
6 years
189
Accouting entries for money received from client (flowchart)
Client Ledger → CR
Client Bank Account → DR
Office Ledger → none
190
Accouting entries for payment out of client account (flowchart)
Client Ledger → DR
Client Bank Account → CR
Office Ledger → —
191
Accouting entries for transfer to office account for fees (flowchart)
Client Ledger → DR
Client Bank Account → CR
Office Ledger → DR
192
general rule for cash sheet entry?
There is a sum in or out of the firm's (client or business account) that effects the bank balance
Does not show individual client balances - only on ledger
193
General rules on what entries are in the cash sheet
client fees into office - DR
client deposit into cleint - DR
payment out of client account - CR
client to office CR (client)/ DR (office)
payment out of office account - CR
bank charges - CR
bank interest - DR
194
What are the journal entries for payment of disb subject to VAT? (agency method)
DR client ledger client acc (VAT inc sum)
CR cash sheet client account (VAT inc sum)
oppsosite to principal - VAT charged to client
195
When is there a CR / DR in profit & costs ledger?
DR - firm expenses, purchase of goods/ services
CR - fees billed, disb recovery, tfr from client acc for costs
recorded exc VAT
196
When is there a CR / DR in HMRC ledger?
DR - VAT refund, correct overpaid tax (HMRC owe money)
CR - output VAT on fees, VAT on disb charged (firm owes HMRC)
FLK 2 - my cards
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