As announced in the December 2014 issue of the Legal eZine for Members, the Solicitors Accounts Regulations 2014 (SI 516 of 2014) came into law on 1 December 2014. They can viewed on the Law Society website under www.lawsociety.ie/regulations.
Prior to the introduction of the 2014 regulations, regulations relating to solicitors’ accounts were set out in the following five statutory instruments:
From 1 December 2014, there is one statutory instrument to deal with all the solicitors accounts regulations. The primary purpose of the Solicitors Accounts Regulations 2014 is to consolidate the five statutory instruments. There are no fundamental changes to provisions of the previous statutory instruments. Some additional definitions were included for clarification purposes. Amendments were made to include controlled trusts and insolvency arrangement accounts in the balancing statements that solicitors are required to prepare. Reporting accountants are specifically required to include controlled trusts and insolvency arrangement accounts in their examination of solicitors’ accounting records.
Definitions
Additional definitions and amendments to existing definitions have been introduced to include definitions of ‘client ledger account’, ‘controlled trust ledger account’, ‘deposit account’, ‘non-controlled trust ledger account’, ‘matter’, ‘insolvency arrangement ledger account’, ‘office account’, ‘office ledger account’ and ‘office side of the client ledger account’.
Personal Insolvency Act 2012
In circumstances where there is a conflict between the Solicitors Accounts Regulations 2014 on the one hand and the provisions of the Personal Insolvency Act 2012 and the Personal Insolvency Act 2012 (Accounts and Related Matters) Regulations 2013 on the other hand, the Personal Insolvency Act 2012 and the Personal Insolvency Act 2012 (Accounts and Related Matters) Regulations 2013 take precedence over the Solicitors Accounts Regulations 2014.
Interest on client moneys
The provisions on interest on client moneys, previously set out in the Solicitors (Interest on Clients’ Moneys) Regulations 2004, are now contained within the Solicitors Accounts Regulations 2014.
The provisions have been re-drafted for clarity regarding a solicitor’s obligation to account for interest on client moneys. There is no change in the substance of the existing obligation. Where client moneys are held in a dedicated account (that is, an account opened and kept by the solicitor in respect of a specific client), the solicitor discharges that obligation by ensuring that all interest that accrues on such account is lodged to the credit of that account as additional, as the case may be, client moneys, controlled trust moneys, non-controlled trust moneys or insolvency arrangement moneys.
Where client moneys are held in a general client account, a solicitor discharges the obligation by accounting for all interest, in excess of €100, that would have been earned on such moneys had they been held as an individual amount to the credit of an interest-bearing dedicated account of the solicitor’s choosing at the bank to the practice.
A provision in the Solicitors (Interest on Clients’ Moneys) Regulations 2004, whereby the reporting accountant was specifically not required to carry out an examination as to whether a solicitor had complied with the regulations in relation to accounting to clients for interest on client moneys, has now been excluded.
Balancing statements
The balancing statements that solicitors are required to prepare must now include the following:
- Credit balances on the controlled trust ledger accounts and insolvency arrangement ledger accounts,
- Balances on the controlled trust ledger control account and the insolvency arrangement ledger control account,
- Balance or balances on each controlled trust bank account and insolvency arrangement bank account opened and kept by the solicitor, as appearing from up-to-date statements from the bank in which the accounts are kept as adjusted for outstanding withdrawals and lodgments.
The office balancing statements must include the total of debit and credit balances as extracted from the office side of the controlled trust ledger accounts and insolvency arrangement ledger accounts.
Controlled trusts
For the avoidance of doubt, it is a breach of the regulations:
- For a debit balance to arise on any controlled trust ledger account, other than a debit balance that is totally offset by a credit balance arising on another controlled trust ledger account, in respect of the same controlled trust, and
- For a solicitor to discharge personal or office expenditure from a controlled trust account.
Non-controlled trusts
For the avoidance of doubt, it is a breach of the regulations for a solicitor to discharge personal or office expenditure from a non-controlled trust account.
Insolvency arrangements
For the avoidance of doubt, it is a breach of the regulations:
- For a debit balance to arise on an insolvency arrangement ledger account, other than a debit balance that is totally offset by a credit balance arising on another insolvency arrangement account in respect of the same insolvency arrangement, and
- For a solicitor to discharge personal or office expenditure from an insolvency arrangement account.
Accounting records
Solicitors are specifically required to maintain a record of lodgments to insolvency arrangement accounts. The bank account register must include a record of all insolvency arrangement accounts. Solicitors are also required to obtain returned paid cheques and copies of bank drafts in relation to insolvency arrangement accounts.
Reporting accountants’ reports
All reporting accountants must be approved by the Law Society.
The reporting accountant is required to check the extraction of balances on controlled trust ledger accounts and insolvency arrangement ledger accounts and:
- Compare the total, as shown in such controlled trust ledger accounts and insolvency arrangement ledger accounts, of the liabilities in respect of controlled trusts and insolvency arrangements with the cash book balance on the controlled trust and insolvency arrangement accounts,
- Check the reconciliation of the cash book balance with each controlled trust account balance and insolvency arrangement account balance as confirmed directly to the reporting accountant by the bank concerned, and
- Check the arithmetical accuracy of the books of account by ensuring that the closing balance of the control accounts in respect of controlled trust ledger accounts and insolvency arrangement ledger accounts for the accounting period under review is reconciled to the individual controlled trust ledger balances and insolvency arrangement ledger balances.
The reporting accountant is not required to extend his or her examination to enquiries concerning the solicitor’s compliance with the provisions of the Personal Insolvency Act of 2012 and the Personal Insolvency Act 2012 (Accounts and Related Matters) Regulations 2013.
The layout of the reporting accountant’s report, in particular appendix 3 (client account and controlled trust account and insolvency arrangement account balancing statement), has been amended to specifically require information in relation to controlled trusts and insolvency arrangements.
With regard to the filing of the annual reporting accountant’s report, the provisions of the Solicitors Accounts Regulations 2001-2013 remain in full force in respect of any accounting period that has commenced before 1 December 2014 until such time as the solicitor has duly complied with those regulations as regards the furnishing to the Law Society of a reporting accountant’s report for such accounting period. Reporting accountants’ reports for firms with an accounting date after 30 November 2015 will have to be submitted in the new format required under the Solicitors Accounts Regulations 2014.
A closing accountant’s report must be filed up to the date the solicitor ceased to receive, hold, control or pay controlled trust money and insolvency arrangement moneys.
John Elliot, Registrar of Solicitors and Director of Regulation