- (i)
It is strongly recommended that accounting records are written up at least weekly, even in the smallest practice, and daily in the case of larger firms.
- (ii)
Rule 32(1) to (6) (general record-keeping requirements) and rule 32(7) (reconciliations) do not apply to:
- (a)
solicitor liquidators, trustees in bankruptcy, Court of Protection deputies and trustees of occupational pension schemes operating in accordance with statutory rules or regulations under rule 9(1)(a);
- (b)
joint accounts operated under rule 10;
- (c)
a client's own account operated under rule 11; the record-keeping requirements for this type of account are set out in rule 33;
- (d)
solicitor-trustees who instruct an outside administrator to run, or continue to run, on a day to day basis, the business or property portfolio of an estate or trust, provided the administrator keeps and retains appropriate accounting records, which are available for inspection by the SRA in accordance with rule 34. (See also note (v) to rule 23.)
- (iii)
When a cheque or draft is received on behalf of a client and is endorsed over, not passing through a client account, it must be recorded in the books of account as a receipt and payment on behalf of the client. The same applies to cash received and not deposited in a client account but paid out to or on behalf of a client. A cheque made payable to a client, which is forwarded to the client by the solicitor, is not client money and falls outside the rules, although it is advisable to record the action taken.
- (iv)
For the purpose of rule 32, money which has been paid into a client account under rule 19(1)(c) (receipt of costs), or under rule 20(2)(b) (mixed money), and for the time being remains in a client account, is to be treated as client money; it should be recorded on the client side of the client ledger account, but must be appropriately identified.
- (v)
For the purpose of rule 32, money which has been paid into an office account under rule 19(1)(b) (receipt of costs), rule 21(1)(a) (advance payments from the Legal Services Commission), or under rule 21(1)(b) (payment of costs from the Legal Services Commission), and for the time being remains in an office account without breaching the rules, is to be treated as office money. Money paid into an office account under rule 21(2)(b) (regular payments) is office money. All these payments should be recorded on the office side of the client ledger account (for the individual client or for the Legal Services Commission), and must be appropriately identified.
- (vi)
Some accounting systems do not retain a record of past daily balances. This does not put the solicitor in breach of rule 32(5).
- (vii)
"Clearly identifiable" in rule 32(6) means that by looking at the ledger account the nature and owner of the mortgage advance are unambiguously stated. For example, if a mortgage advance of £100,000 is received from the ABC Building Society, the entry should be recorded as "£100,000, mortgage advance, ABC Building Society". It is not enough to state that the money was received from the ABC Building Society without specifying the nature of the payment, or vice versa.
- (viii)
Although the solicitor does not open a separate ledger account for the lender, the mortgage advance credited to that account belongs to the lender, not to the borrower, until completion takes place. Improper removal of these mortgage funds from a client account would be a breach of rule 22.
- (ix)
Reconciliations should be carried out as they fall due, and in any event no later than the due date for the next reconciliation. In the case of a separate designated client account operated with a passbook, there is no need to ask the bank, building society or other financial institution for confirmation of the balance held. In the case of other separate designated client accounts, the solicitor should either obtain statements at least monthly, or should obtain written confirmation of the balance direct from the bank, building society or other financial institution. There is no requirement to check that interest has been credited since the last statement, or the last entry in the passbook.
- (x)
In making the comparisons under rule 32(7)(a) and (b), some solicitors use credits of one client against debits of another when checking total client liabilities. This is improper because it fails to show up the shortage.
- (xi)
The effect of rule 32(9)(b) is that the solicitor must ensure that the bank issues hard copy statements. Statements sent from the bank to its solicitor customer by means of electronic mail, even if capable of being printed off as hard copies, will not suffice.
- (xii)
Rule 32(9)(d) - retention of client's instructions to withhold money from a client account - does not require records to be kept centrally; however this may be prudent, to avoid losing the instructions if the file is passed to the client.
- (xiii)
A solicitor who holds client money in a currency other than sterling should hold that money in a separate account for the appropriate currency. Separate books of account should be kept for that currency.
- (xiv)
The requirement to keep paid cheques under rule 32(10)(b) extends to all cheques drawn on a client account, or on an account in which client money is held outside a client account under rule 16(1)(a) or rule 17(ca).
- (xv)
Solicitors may enter into an arrangement whereby the bank keeps digital images of paid cheques in place of the originals. The bank should take an electronic image of the front and back of each cheque in black and white and agree to hold such images, and to make printed copies available on request, for at least two years. Alternatively, solicitors may take and keep their own digital images of paid cheques.
- (xvi)
Microfilmed copies of paid cheques are not acceptable for the purposes of rule 32(10)(b). If a bank is able to provide microfilmed copies only, the solicitor must obtain the original paid cheques from the bank and retain them for at least two years.
- (xvii)
Certificates of verification in relation to digital images of cheques may on occasion be required by the SRA when exercising its investigative and enforcement powers. The reporting accountant will not need to ask for a certificate of verification but will be able to rely on the printed copy of the digital image as if it were the original.