As part of ongoing efforts to maintain transparency and accountability within the legal profession, South African law firms are once again reminded of their obligations regarding the audit of attorney trust accounts. These audits are not only a regulatory requirement but also serve a broader purpose, protecting the public and reinforcing the integrity of the legal profession.
Under the Legal Practice Act and the Rules issued by the Legal Practice Council (LPC), every law firm that holds clients’ funds in trust is required to have its trust account audited annually. These audits must be conducted by a registered auditor who examines the firm’s compliance with the Legal Practice Act, relevant LPC Rules, and the prescribed financial management and trust accounting standards.
Key elements of the trust account audit
The audit must assess whether:
- Client funds are properly segregated and not intermingled with operational funds.
- Trust monies are recorded accurately and reconciled regularly.
- All interest earned is accounted for in accordance with LPC regulations.
- The firm has complied with the requirements for maintaining accounting records and producing them for audit within the required timelines.
Timelines and compliance
Audits must be submitted to the LPC within six months after the financial year-end. It is advisable to schedule engagements with your auditor well in advance to allow sufficient time for both the trust account audit and any additional engagements such as AUPs related to refund applications.
Who qualifies for exemption?
The LPC does provide limited exemptions from the annual audit requirement under specific circumstances. A practitioner or firm may apply for exemption if:
- They did not operate a trust account during the financial period.
- No trust monies were received or held during the year.
- They are newly registered and have not yet engaged in trust-related transactions.
Even in cases of exemption, practitioners are often required to submit a nil return or an affidavit confirming non-use of the trust account. It is essential to seek clarity from the LPC before assuming exemption applies.
A closer look at refund applications
While audit requirements have long been part of practice management, a recent procedural refinement by the LPC is worth noting. The requirement for an Agreed-Upon Procedures (AUP) engagement in relation to refund applications. Law firms seeking to apply for a refund from the LPC must now submit a separate AUP report prepared by their auditor. This is not part of the regular audit but is a distinct engagement under ISRS 4400. This AUP engagement, while not a full audit, involves a targeted verification of specific financial data and is designed to add credibility and independence to the refund request process. Importantly, it is not covered under the standard trust audit and must be planned for and budgeted separately.
Conclusion
Whether your firm actively holds trust funds or qualifies for an exemption, the need for compliance with trust account audit requirements is not merely a matter of administrative formality, it is a cornerstone of professional responsibility. As the regulatory environment evolves, firms are encouraged to stay abreast of new requirements and engage proactively with their auditors to ensure that all reporting obligations are met efficiently and accurately.
If you have any enquiries, please contact JC Laubscher of Broodryk Kotzé Inc at jc@bkaudit.co.za