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SQE > Solicitors Accounts > Flashcards

Solicitors Accounts Flashcards

1
Q

What examples are there of breaches that would lead to a qualified report?

A

Significant and/or unreplaced shortfall on client account - unless caused by bank error and rectified promptly
Actual or suspected fraud or dishonesty by managers/employees
Accounting records not available or bank accounts/ledgers failing to include reference to a client
Client account bank reconciliations not being carried out
Client account improperly used as a banking facility

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2
Q

What may the SRA specify regarding engaging an accountant?

A

Matters you must ensure are incorporated into terms on which accountant is engaged

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3
Q

What SRA Accounts rules do apply to joint accounts?

A

Who accounts rules apply to
Obtain, at least every 5 weeks, statements from banks
Keep readily accessible a central record of all bills or other written notifications of costs given by you
Obtaining an accountant’s report and storing accounting records

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4
Q

What SRA Accounts rules apply to operation of a client’s own account?

A

Complete, at least every 5 weeks, a reconciliation of bank statements balance for account with the cash book balance and client ledger total so you can promptly investigate and resolve any differences
Obtain, at least every 5 weeks, bank/building society statements
Keep readily accessible a central record of all bills
Obtaining an accountant’s report & accounting records

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5
Q

When can you enter into arrangements with a client to use a third party managed account?

A

For the purpose of receiving/making payments from/on behalf of the client in respect of regulated services delivered by you to the client only if
a) use of account doesn’t result in you receiving or holding the client’s money; and
b) you take reasonable steps to ensure, before accepting instructions, that the client is informed and understands (i) terms of contractual arrangements relating to use of TPMA, especially fees, and (ii) client’s right to terminate the agreement and dispute your payment requests

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6
Q

What must you obtain from the provider of a third party managed account?

A

Regular statements that accurately reflect all transactions on the account

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7
Q

What is the definition of a third party managed account?

A

An account held at a bank/building society in name of a third party which is an authorised payment instruction regulated by the FCA, in which monies are owned beneficially by the third party, and which is operated upon terms agreed between the third party, you and your client as an escrow payment service

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8
Q

What key SRA account rule does NOT apply to third party managed account? What does?

A

Does NOT: don’t have to obtain an accountant’s report for TPA
Does: must store and retain accounting records on TPMA for at least 6 years

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9
Q

Does money held in a TPMA fall under definition of client money?

A

No - as it’s not held or received by you (so doesn’t have to be held in accordance with SRA Accounts rules relating to the holding of client money)

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10
Q

What SRA Guidance is there on TPMA?

A

Authorised body must ensure they don’t receive or hold client money by use of TPMA
Must obtain regular statements and ensure these reflect transactions on the account
Must take reasonable steps to ensure client informed of/understands their rights/obligations and what use of the TPMA means in their case incl fees, and their right to terminate and dispute payment requests

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11
Q

What requirements are there for the TPMA to be?

A

Regulated by FCA
Authorised payment institution
Account at a bank/building society
Operated as an escrow payment service
Monies in TPMA must be owned beneficially by the third part

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12
Q

Do the authorised body need the SRA’s permission to use a TPMA?

A

No but should notify the SRA if a TPMA is being used, or is switches or if it stops using a TPMA provider

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13
Q

What is the overarching objective of SRA regarding client money?

A

To keep client money safe
Must keep client money separate from money belonging to an authorised body

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14
Q

What is client money?

A

Money held or received by you (authorised bodies, their managers and employees):
a) relating to regulated services delivered by you to a client
b) on behalf of a third party in relation to regulated services delivered by you
c) as a trustee or as the holder of a specified office or appointment
d) in respect of your fees and any unpaid disbursements if held or received prior to delivery of a bill for the same

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15
Q

Is money held or received in relation to a paid disbursement client money?

A

No

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16
Q

Is mortgage money received from a lender on behalf of the client, client money?

A

Yes

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17
Q

Is money for the firm’s fees, and any unpaid expert fees, received BEFORE a bill has been sent to client, client money?

A

Yes

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18
Q

What is non-client money?

A

Money belonging to the authorised body

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19
Q

When should you only withdraw client money from a client account?

A

If sufficient funds are held on behalf of that specific client or third party to make the payment
If not, pay out of firm’s business bank account

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20
Q

What is the client account?

A

A separate bank account where client money is held

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21
Q

What rules are there regarding the client account?

A
  1. Must be held at a E&W bank/building society
  2. Name of client account includes name of authorised body and the word ‘client’
  3. Don’t use a client account to provide banking facilities
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22
Q

Does the client account belong to the law firm or the client?

A

The law firm - it’s where it puts its client money in

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23
Q

When should you make sure that client money is paid into a client account? What are the exceptions?

A

Must be paid promptly
1. Money held as a trustee or as holder of a specified office/appointment doesn’t have to paid in if doing so would conflict with obligations under rules of specified office e.g. donee of a power of attorney; Court of Protection deputy
2. Client money represents payments from Legal Aid Agency for your costs doesn’t have to be paid into the client account
3. If you agree in the individual circumstances an alternative arrangement with the client, or 3rd party, for whom the money is held

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24
Q

What is Rule 2.2. of SRA Accounts Rules?

A

A way of holding client money without a client account (so can’t comply with relevant rules)
Applies where:
a) only client money held/received is for fees and any unpaid disbursements, prior to delivery of a bill for the same, and
b) any money held for disbursements relates to costs/expenses incurred by the authorised body on behalf of the client, and
c) authorised body doesn’t have a client client
Authorised body is thus not required to hold client money in client account as long as they inform the client in advance of where/how it will be held

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25
Q

When should client money be returned?

A

Promptly, as soon as there is no reason to hold the money

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26
Q

What is the purpose of a client ledger?

A

To record any client money wherever it is held, and it can be used even if the firm doesn’t have a client account

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27
Q

Where client money is not held in a client account, does it have to be available on demand? Can it be held in the authorised body’s business account?
Is the client owed a fair sum of interest on client money?

A

No
Yes
No
- these are all usual rules for client money in a client account

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28
Q

If client money is being held in accordance with Rule 2.2 (i.e. no client account), does the requirement to obtain and deliver an accountant’s report apply?

A

No

29
Q

When must breaches of SRA Accounts Rules be corrected?

A

Promptly upon discovery
Any money improperly withheld or withdrawn from a client account must be immediately paid into the account or replaced as appropriate

30
Q

What is the rule on interest on the client account?

A

Must account to clients or third parties for a fair sum of interest on any client money held by you on their behalf - in the client account

31
Q

How should funds received from mixed payments (contain client & non-client money) be dealt with?

A

Should be paid promptly into the client account and then non-client money transferred into the business account

32
Q

Where should non-client money be paid into?

A

The business account

33
Q

If firm has already paid for costs, can they pay may money received from the client to reimburse them straight into the business account without having to issue a bill?

A

Yes - but client should have been made aware of these costs
The money received is non-client money

34
Q

What is the rule regarding payments into, transfers and withdrawals from a client account?

A

Must be in respect of the delivery by you of regulated services - i.e. must not operate as a banking facility

35
Q

When can client money be withdrawn?

A

For purpose of which it’s being held
Following receipt of instructions from client or 3rd party for whom the money is held
On the SRA’s prior written authorisation or in prescribed circumstances

36
Q

How should withdrawals from the client be supervised?

A

Must be appropriately authorised and supervised

37
Q

What rules are there for transfers from the client account to pay your costs?

A

Where you’re holding client money and some/all of it will be used to pay your costs:
a) must give bill of costs, or other written notification of costs incurred
b) must be done before you transfer any client money from a client account to make the payment
c) any such payment must be for the specific sum identified in the bill of costs, or other written notification, and covered by amount held for client/3rd party

38
Q

What potential consequences are there for money breaches?

A

Can lead to SDT proceedings, which can include striking off

39
Q

To whom must breaches be reported to if client money is lost or taken, even if already replaced?

A

the SRA

40
Q

How often must an authorised body reconcile accounts signed off by the COFA?

A

At least every 5 weeks

41
Q

Who is responsible for compliance within an authorised body and how is it termed?

A

The managers are jointly and severally responsible

42
Q

When should accountant’s reports be drawn up? What are the 2 exceptions?

A

When operating with client money in an accounting period
1. All client money is from Legal Aid Agency, or
2. In accounting period, amount of client money doesn’t exceed an average of £10,00 AND a max of £250,000
These exceptions only apply to that specific accounting period

43
Q

What type of accounts must accounting report include?

A

Client account, joint account and operation of clients’ own account as signatory

44
Q

When should an accountant’s report be obtained if it’s necessary to obtain one?

A

Within 6 months of that relevant accounting period

45
Q

When should an accounting report be delivered to the SRA?

A

Within 6 months of end of accounting period if it’s qualified: shows a failure to comply with the rules so client money or 3rd parties’ is/likely to be placed at risk

46
Q

If a body hasn’t held client money for an accounting period, does it need to obtain a report? And f a report is not qualified, does it need to be sent to the SRA?

A

No
No

47
Q

Do minor breaches need to be reported to SRA by way of qualified report?

A

No

48
Q

When can the SRA require an authorised body to obtain/deliver an accountant’s report?

A
  1. On reasonable notice if body has ceased to operate and to hold/operate a client account - known as a final report
  2. If considered in public interest to do so
49
Q

What must an accountant who produces an accountant’s report be?

A
  1. Member of chartered accountancy body
    AND
  2. Work for/be registered auditor
50
Q

What form must the accountant’s report be in?

A

The form prescribed by SRA

51
Q

What must the authorised body provide an accountant preparing a report with?

A

Details of all accounts, and all other info/documentation neeeded

52
Q

How long must accounting records be securely stored and retained?

A

Minimum 6 years

53
Q

What is a joint account? Is a joint account a client account?

A

When you hold or receive money jointly with client or a third party
No - but the money held in it is client money

54
Q

For operation of a clients’ own account as signatory, how often must a reconciliation of bank statements with cash book balance and cash ledger total be done?

A

At least every 5 weeks
Must obtain statements minimum every 5 weeks

55
Q

What must a firm ensure about the use of a TPMA?

A

The use, and the one used, is appropriate in each case

56
Q

What is recorded in the client ledger?

A

Transactions of client money in client account
Transactions of non-client money in business account

57
Q

What is recorded in the cash sheet for the client account?

A

Money paid into or taken out of the client account

58
Q

What is recorded in the cash sheet for the business account?

A

Money paid into or taken out of the business account

59
Q

What is recorded in the profit costs?

A

Central record of all bills of costs issued to clients and any reductions in those bills

60
Q

What is recorded in the VAT ledger?

A

VAT on bills of costs and disbursements

61
Q

How are a bill of costs recorded?

A

On the business side of the client ledger (but not in the business account)
Also, an entry into profit costs account

62
Q

What are the 2 rules on reconciliation?

A

8.2: obtain statements and carry out at least every 5 weeks, bank/building society statements, for all client and business accounts held or operated by you
8.3: complete, at least every 5 weeks, for all client accounts, a reconciliation of bank statement balance with cash book balance and client ledger total, which must be signed off by COFA

63
Q

For the client ledger, if money is received/paid in, what is it recorded as? And for money withdrawn?

A

Received: Credit
Withdrawn: Debit

64
Q

How are transfers between accounts recorded? (general description)

A

With 2 sets of double entries

65
Q

How would a receipt of deposit monies by a seller’s solicitor to be held as stakeholder at exchange be recorded at a) when deposit received and b) at completion?

A

Deposit Received: Credit stakeholder ledger; Debit cash sheet client account
At completion: Debit stakeholder ledger; Credit client ledger client account for that client

66
Q

How would a receipt of deposit monies by seller’s solicitor be recorded if held as agent?

A

Credit client ledger client account
Debit cash sheet client account

67
Q

When mortgage monies are paid from lender to the borrower, what must be checked before recording?

A

If there is a separate client ledger for the buyer’s lender
If so: normal money received entries for lender client, and then, it’s transferred from lender to buyer, so debit CLCA (lender) & credit CLCA (buyer)
If not: normal money received entries for the buyer client
Must check if redemption monies paid out from borrower to lender as well

68
Q

What does recording an issuance of a bill plus VAT involve?

A

Two sets of double entries

69
Q

What is the general rule regarding payment of interest on client money? What is allowed as an exception to this rule?

A

A fair sum of interest on client money held by the firm must be paid to the client
However, the firm and client can come to a different arrangement if this is made in writing and the firm provides sufficient information to enable the client to given informed consent

SQE (15 decks)

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