Activities / Services Accounting Issues Acts & Regulations Accountants Report Accounts & FS

Preparation of documents Litigation Consultation Agent / trustee

 Separation of firms asset and trust asset tSeparation of trust account tCash basis vs accrual basis

 The Legal Profession Act 1976 y The Solicitors Accounts Rules 1990 y The Accountants Report Rules 1990 The Solicitors Remuneration Order

1.the trust assets and the trust liabilities are distinguished from the firms assets and liabilities 2.proper and complete records are maintained for all receipts and payments 3.proper and complete records are maintained for each clients account

4. each clients money are distinguished from other clients money 5. the firm apply for the certificate to accept clients money annually 6. the firm to send the accountants report if it had received clients money during the accounting period 7. all clients accounts do not have a debit balance

S79 (Legal Profession Act 1976) : legal firms must submit the accountants report to the Secretary of the Bar Council together with the application for annual certificate report is required annually report does not require for financial statements (IS and BS) and detailed audit

 report is prepared according to a specified format and must consist of: 1. information about the firm 2. a statement that inspection has been done on the firms books, accounts and documents to ensure comliance to the acts and regulations 3. a statement whether the accountant is satisfied or not with the information obtained from the documents and expalanation

1. 4. the accountants view on the compliance, list of clients, and figures 5. information about the accountant preparing the report Exemption on the submission of the Accountants Report can be given to firms: 1.1. in the first year of practice 2.2. which do not receive payment from clients 3.3. no longer holding the practice certificate

 1.Solicitor's Full Name : 2.Firm Name and Address: 3.Whether practising alone or in partnership: 4.Accounting Periods: Beginning . Ending

1. In compliance with Section 79 of the Legal Profession Act 1976 and the Accountant's Report Rule 1990. 2.Particulars of client's accounts examined: Name of Bank Address Account No

3. The results of the comparison required. At the dates selected: i. The figures were in agreement. ii. There was a difference computed as follows: Liabilities to clients (client's ledger) xx Cash held in client account.. xx XX

Firm has to prepare 2 sets of accounts (firm account & clients account) Firm also has to prepare subsidiary ledger for each client Separation of trust assets & liabilities with the firms assets & liabilities is very important

Firms account: to record firms daily transactions Clients account to record transactions involving clients; e.g. receipt / payment of clients money separate account for each client

1.Each Dr in trust account must be accompanied by a Cr in trust account 2. Each Dr in firms account must be acompanied by Cr in firms account Example : 1. Receive RM500 from client A as payment for insurance premium prepaid by firm. Dr. Cash office/firm RM500 Cr. Mr. A Office/firm RM500

 2. Receive a check from a finance company, RM10,000 to be deposited to client Bs account. Dr. Cash trust RM10,000 Cr. Mr. B trust RM10,000

Before making any payment from a clients account, firm must ensure that: 1. the account has enough money 2. the payment is allowed for

The Solicitors Account Rules allow legal firms to withdraw money from clients account under these circumstances: a. payment on behalf of the client b.with the clients permission c. transfer to another account (e.g from current account to fixed deposit account) d. payment of debt to the firm e. payment of fees to the firm

f. withrawal of money mistakenly deposited to the account g. withdrawal of firms money used to open an aacount and is no longer required h. withdrawal of firms money that is part of a split check paid to clients account

Example A firm represents C in an insurance claim. C does not have any money in his account (with the firm). The firm paid RM200 (using firms money) to obtain information regarding the case. Dr. Mr. C office RM200 Cr. Cash Office RM200

Assume that C has RM150 in his account with the firm: Dr. Mr. C trust RM150 Cr. Cash trust RM150 Dr. Mr. C office RM50 Cr. Cash office RM50

 Revenue is normally recognised when bill is sent Client A - firm XX Revenue firm XX Cash firm XX Client A firm XX

Payment can also be made through transfer of money from the clients account to the firms account Example 1/2/12 : Sent a bill to client D, RM1,000. The firm holds RM1,500 of client Ds money. 10/2/12 : Transfer RM1,000 from client Ds account to the firms account.

1/2

Dr D - office Cr Service fee revenue

RM1000 RM1000

10/2

Dr Cash office Cr D office

RM1,000 RM1,000

Dr D trust Cr Cash trust

RM1,000 RM1,000

Example - Split Check Firm receives RM10,000 on behalf of client E. The service fee charged by the firm is 5% from the amount received. To record receipt on behalf of the client:

Cash - trust Mr. E - trust

10,000 10,000

Cash firm Service fee

500 500

To record service fee from E: Dr. Mr. E trust 500 Cr. Cash trust (5% x 10,000) 500 To record receipt of service fee to firms account: Dr. Cash firm 500 Cr. Service fee 500

Conditions that gave rise to this situation are when the solicitor has overdrawn or accidentally withdrawn client account. Example: Due to a mistake, a legal firm has to transfer RM200 from office to client Bs account.

The journal entry to record the transfer is: Dr B - office ? Cr Cash office ? Dr Cash trust Cr B trust ?

Money is not moved from one bank account to another and therefore no entries are needed in the cash account. A transfer can be made from one client account to another if it permissible within the rules.

Example: Under clear instruction, a legal firm transfers RM3,000 from client As account to client Ns account. Dr A- trust ? Cr N trust ?

Split cheque refers to a single cheque that contains a clients money and the firms money. Example: A legal firm receives a cheque from client C, RM6,000. From the amount, RM5,000 is to be paid to Cs account and RM1000 is to be paid to the firm as service fee. The journal entries to record this transaction is:

Dr Cash- trust Cr Client C trust Dr Client C- trust Cr Cash trust Dr Cash- office Cr Service fee revenue office

RM6,000 RM6,000 ? ? ? ?

 Many legal firms use the cash basis to recognise revenues and expenses Convert to the accrual basis at year end by recognising prepaid and accrual accounts to measure the performance of the firm during the year

 interest earned by the clients should be paid to the clients due to tedious calculation required and the immateriality of the amount, firms normally offset the interest with the bank charges (not distributed among clients) in some circumstances, interest earned by clients will be paid back to clients account (e.g. amount separately deposited, material amount)

 charges

incurred by clients should be charged back to clients as in the case with interests, bank charges are normally debited to the firms account in some circumstances, bank charges will be charged back to client (e.g. separately identifiable amount, material amount)

 similarly

with other enterprises income statement & balance sheet partnership: statement of allocation

of profit / loss

Fee Revenue (+) Ending work in process ** (-) Beginning work in process Other revenues Expenses Net income

** work in process -services have been performed but clients have not beenbilled -reported inthe balance sheet as current asset