Saica circular - Audit of attorneys' trust account
The South African Institute of Chartered Accountants Circular 10/2005
1 Issued August 2005
REPORTING ON ATTORNEYS’
TRUST ACCOUNTS IN TERMS OF
THE ATTORNEYS ACT AND THE
RULES OF THE LAW SOCIETIES
Introduction
In terms of section 78 of the Attorneys Act, 1979 (the Act) and specific
rules of the respective Law Societies, an attorney’s trust account is
required to be audited. Where an attorney’s practice is not incorporated
in terms of the Companies Act, there is no further requirement for audit
other than that referred to above. There has been some debate about the
ambit of the auditor’s duties in terms of the Act and the specific rules
of the Law Societies, particularly with regard to whether such rules
extend to the business accounts of the attorney’s practice. SAICA has
sought Senior Counsel’s opinion on this matter.
Legislation and rules
An attorney’s practice must comply with the requirements of the Act
and with the provisions of the rules of the statutory provincial Law
Society applicable to that attorney. There are four statutory Law
Societies, namely:
• The Cape Law Society;
• The KwaZulu Natal Law Society;
• The Law Society of the Free State; and
• The Law Society of the Northern Provinces.
In pursuance of their powers in terms of the Act, each of the Law
Societies has published rules regulating various aspects of the
attorneys’ practices within their jurisdiction. The rules of the Law
Societies generally are similar to each other. In this circular, reference
is made to the rules of the Law Society of the Northern Provinces, as
these were the rules referred to by Senior Counsel in his opinion.
.01
.02
.03
CIRCULAR 10/2005 REPORTING ON ATTORNEYS’ TRUST
ACCOUNTS IN TERMS OF THE ATTORNEYS
ACT AND THE RULES OF THE LAW SOCIETIES
Issued August 2005 2
In terms of the Third Schedule (the form of report of the independent
accountant) of the rules of the Law Society of the Northern Provinces,
an auditor is required to report that the attorney’s practice has complied
with certain sections of the Act and the rules of the Law Society. The
most important sections of the Act and the rules, which has
interpretation difficulties, are sections 78(4) and 78 (6)(d) and
Rule 68.1.
Section 78(4) provides as follows: “Any practising practitioner shall
keep proper accounting records containing particulars and information
of any money received, held or paid by him for or on account of any
person, of any money invested by him in a trust savings or other
interest-bearing account referred to in subsection (2) or (2A) and of
any interest on money so invested which is paid over or credited to
him”.
Section 78(6) provides as follows: “For the purposes of subsections (4)
and (5), 'accounting records' includes any record or document kept by
or in the custody or under the control of any practitioner which relates
to - …………………
(d) his practice”.
Rule 68.1 provides as follows: “A firm shall keep in an official
language of the Republic such accounting records as are necessary to
represent fully and accurately in accordance with generally accepted
accounting practice the state of affairs and business of the firm and to
explain the transactions and financial position of the firm including
and without derogation from the generality of this rule —
68.1.1 records showing its assets and liabilities;
68.1.2 records containing entries from day to day of all moneys
received and paid by it on its own account;
68.1.3 records containing particulars and information of all moneys
received, held and paid by it for and on account of any person
as well as of all moneys invested by it in terms of section 78(2)
or section 78(2A) of the Act and of any interest referred to in
section 78(3) of the Act which is paid over or credited to it, as
.04
.05
.06
.07
REPORTING ON ATTORNEYS’ TRUST CIRCULAR 10/2005
ACCOUNTS IN TERMS OF THE ATTORNEYS
ACT AND THE RULES OF THE LAW SOCIETIES
3 Issued August 2005
well as any interest credited to or on any separate trust
savings or other interest-bearing account referred to in section
78(2A)”.
Issue
Section 78(6)(d) refers specifically to the accounting records of an
attorney’s practice despite the fact that the heading to section 78 of the
Act refers to “trust accounts”. It could be interpreted that the
accounting records of an attorney’s practice as specified in this section
include the business accounts of the practice.
Rule 68.1 seems to support this interpretation, as it makes reference to
an attorney’s practice being required to keep proper accounting records
in accordance with generally accepted accounting practice, which will
represent fully and accurately the transactions and financial position of
the practice, including records showing its assets and liabilities.
An alternative view, however, is that the auditor has no statutory duty
in terms of section 78 of the Act to report on the business accounting
records. In so far as the rules purport to impose such a duty, they are
ultra vires the provisions of the Act.
The alternative view holds that section 78 of the Act addresses trust
money. Section 78(4) refers specifically to the duties of an attorney in
relation to trust money, and section 78(6) in turn refers back to section
78(4). The auditor’s duties therefore extend to reporting on the trust
accounting records of the attorney’s practice and no more.
In the light of these divergent interpretations SAICA sought Senior
Counsel’s opinion on whether, in terms of the Act and the rules of the
Law Society of the Northern Provinces, an auditor is required to audit
the attorneys’ practice business accounting records.
Legal opinion
Senior counsel, Schalk Burger’s opinion on the above issue is that the
reference to “his practice” in section 78(6)(d) of the Act is not a
reference to all accounting records of the practice including the
business accounting records, but includes the business accounting
.08
.09
.10
.11
.12
.13
CIRCULAR 10/2005 REPORTING ON ATTORNEYS’ TRUST
ACCOUNTS IN TERMS OF THE ATTORNEYS
ACT AND THE RULES OF THE LAW SOCIETIES
Issued August 2005 4
records only to the extent necessary to enable the auditor to perform his
mandate in terms of Rule 70.4 (duties of an auditor). This involves an
investigation into the attorney’s trust account. This follows from the
introduction to section 78(6) (“For the purposes of sub-sections (4) and
(5)”).
The Third Schedule of the rules (the form of report by the independent
accountant) was reviewed by Senior Counsel for purposes of his
opinion. He pointed out that, in terms of the Third Schedule, the
independent accountant (reference used in the Third Schedule for
independent auditor) has to certify, inter alia, as follows:
2. “I/we examined … the trust accounting records and trust account
transactions of the firm with specific reference to the following
provisions of the Act and the following rules of your Society:
2.1 …
2.2 Rules 68.1, 68.6 …”
In Senior Counsel’s opinion, the introduction to paragraph 2 makes it
clear that the accounting records were examined only in the context of
the trust account and trust account transactions and not in the wider
context, suggested by an unqualified reading of Rule 68.1.
Since Senior Counsel gave his opinion, the Third Schedule of the rules
has been replaced by a new form of report. The opening paragraph of
the report now reads as follows:
“I/We have audited the trust accounts of the abovementioned firm to
determine whether those accounts were maintained in compliance with
sections 78(1), 78(2), 78(2A), 78(3) and 78(4) … and with
rules 68.1 …”
The third paragraph of the report reads as follows:
“This report covers the accounting records relating to the firm's trust
accounts and does not extend to the financial statements of the
abovementioned firm taken as a whole”.
.14
.15
.16
REPORTING ON ATTORNEYS’ TRUST CIRCULAR 10/2005
ACCOUNTS IN TERMS OF THE ATTORNEYS
ACT AND THE RULES OF THE LAW SOCIETIES
5 Issued August 2005
Senior Counsel’s opinion was given on the basis of the earlier version
of the Third Schedule of the rules. The portions of the Third Schedule
quoted above lend further support to Senior Counsel’s opinion that the
“accounting records” of an attorney’s practice may be examined by the
auditor only to the extent that the auditor is required to perform his
mandate of carrying out an investigation into the attorney’s trust
accounts.
Conclusion
On the basis of Senior Counsel’s opinion, auditors of attorneys’ trust
accounts should investigate the business accounts only to the extent that
they need properly to audit the trust accounts.
Johannesburg I Sehoole
August 2005 Executive President