A quick guide to solicitors' accounts rules

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Posted by Steve Collings in Financial reporting on Tue, 17/08/2010 - 10:15

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Steve Collings answers some frequently asked questions on solicitors’ accounts rules.

Q. My solicitor client has received a ‘mixed payment’. Could you clarify the rule concerning

the receipt of mixed payments?

A. A ‘mixed payment’ is a receipt which comprises of both office money and client money. Under Rule

20 of the Solicitors Accounts Rules (SARs) the mixed payment must either:

(a) Be split between a client account and office account as appropriate, or

(b) Be placed without delay into a client account.

Q. Is it correct that a small residual balance can be paid to a charity without application to

the Solicitors Regulation Authority (SRA)?

A. Yes. Rule 22(2a) was introduced from 14 July 2008. This rule states that residual balances of less

than £50 can be paid directly to a charity without applying to the SRA. Residual balances of more than

£50 should be dealt with through application to the SRA. However, before donation to a charity, the

solicitor must satisfy certain conditions:

1. The solicitor must take steps to identify the owner and repay the money, provided the costs

of doing so are not excessive.

2. The solicitor must pay the residual balance to a charity.

3. The solicitor must adequately record the steps in (1) and (2) above.

4. The solicitor must keep a central register of all such payments.

Q. My solicitor client’s bank has omitted the word ‘client’ from the client bank account. Can

this be considered a ‘trivial’ breach?

A. No. The reporting accountants’ report will be qualified. Rule 14(3) specifically requires the word

‘client’ to be included in the name of the bank client account. The word ‘client’ must also not be

abbreviated in the title of the client account. It may be appropriate to send a letter accompanying the

report where the solicitor has given the correct instructions together with how long it took for the error

to be discovered and what controls the solicitor has in place to avoid future errors.

Q. How often should the client account be reconciled?

A. Rule 32 requires separate designated passbook-operated accounts to be reconciled at least once

every 14 weeks. All other client accounts must be reconciled at least every five weeks.

Q. How long should books and statements relating to client accounts be kept?

A. Six years.

Q. The Land Registry took a direct debit twice in error on a general client account. Would

this be a breach of the rules?

A. There will be a breach of the rules where other client money has been used to cover the duplicated

payment.

Q. Can digital images of paid cheques be accepted by a reporting accountant?

A. Yes, but digital copies of both the front and back of the paid cheques must be supplied.

Steve Collings FMAAT FCCA DipIFRS is the audit and technical director at Leavitt Walmsley Associates

Ltd and a partner in AccountancyStudents.co.uk. He is also the author of ‘The Core Aspects of IFRS

and IAS’ and lectures on financial reporting and auditing issues