1. Records, Reconciliation and Reports

Question 1

What must all accounting records be and what does this mean?

Answer 1

All accounting records must be ‘ACCURATE AND CONTEMPORANEOUS.’

This means they are kept up to date, and they are in chronological order.

Question 2

What are the 5 types of accounting records firms must keep?

Answer 2

1. Clident Ledgers for each client (And each legal matter)
2. Blanaces on Client ledger (adding up the balance on all separate client ledgers)
3. Cash sheet (A running total of all client account transactions)
4. Porfit Costs Ledger (Central record of all bills)
5. Transfer Journals (Record of inter-ledger transfers , ie between to clients)

Question 3

What is reconciliation?

What must happen?

Answer 3

Reconciliation is where the firm cross checks their records with bank statements. This must be done every 5 weeks.

Thus, firms must obtain statements of their business account and client account every 5 weeks, in order to do reconciliation every 5 weeks.

After reconciliation, a reconciliation statement must be signed by the firms compliance officer for finance and administration or manager.

Question 4

Who can sign the reconciliation statement?

Answer 4

The firms compliance officer for finance and administration

or

manager of the firm

Question 5

What are the firms obligations to obtain accounting reports? When and how often?

Answer 5

Firms must obtain an independent account to write a report every accounting period (12 months)

If money has been received within an accounting period, an accountants report must be obtained within six months of the end of the accounting period.

Question 6

What is the 2 exceptions to a firm not having to obtain a accounting report ?

Answer 6

An accounting report does not need to be obtained if there is a lower risk to the clients money.

This can be because of 2 reasons:

1. The firm only recieves payment from the Legal Aid Agency
2. The firm only deals with small amounts of client money

Small amounts is where the amount does not exceed more than an average of £10,000 in the accounting period, and no more than £250,000 at one point in the same time.

Question 7

When must firms deliver their accounting reports to the SRA?

Answer 7

If the accountants report has discovered a Sufficently Serious Breach, they will qualify the report.

If the report has been qualified, the firm must send copies to the SRA within 6 months from the end of the accounting period.

Question 8

In what 2 circumstances can the SRA request copies of a firm’s accounting reports?

Answer 8

1. They consider a client’s money might be at risk
2. it is in the public interest (eg whistleblower report)

Question 9

What must solicitors and firms do if there are any issues that may constitute a serious breach?

Answer 9

They must report it promptly to the SRA.

Question 10

When must accountants immediately report to the SRA?

Answer 10

• Any evidence of theft or fraud about client money.
• Any concerns about whether a solicitor or firm is fit and proper to hold client money

Question 11

What 2 requirments must an accountant meet to be able to prepare an accounting report?

When will they be unable?

Answer 11

1. Must be members of the insitute of chartered accountants in England, Wales, or Scottland.
2. Must work for a registered auditor.

Will be unable if found guilty of a professional misconduct by their professional body or if they have failed to exercise due care and skills while preparing a report.

Question 12

What is the general rule for journey entires?

Answer 12

There will always be 2 documents.

On the client ledger, money in will always be a credit.

Money out will always be a debit.

On the second document, it will be the opposite.

The second document will be a

1. Cash account (if any sort of money)
2. Profit Costs (If law firm has sent a bill and not yet been paid - credit on client ledger, debit on profit costs)
3. VAT - For any tax?