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ANALYSIS: Engagements on Attorney’ Trust Accounts.

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The Independent Regulatory Board for Auditors has recently issued a guide for registered auditors that sets out the scope, purpose and nature of the engagement on attorneys’ trust accounts. Vincent Faris has the details

After many years of research and consultation with all the role-players, an official guide for registered auditors (Engagements on attorneys’ trust accounts), has been issued by the Independent Regulatory Board for Auditors (IRBA). The research and consultation was an initiative by the IRBA to ensure that there is adequate compliance with international reporting standards. This required a detailed examination of the audit approach and procedures with an emphasis not only on compliance with the Attorneys Act 53 of 1979 and the Rules of the Provincial Law Societies but also on the early detection of fraud and related schemes and irregularities.

The Guide was prepared by a task group of the Committee for Auditing Standards (CFAS) of the IRBA and included members of the auditing and legal professions, as well as representatives of the Law Society of South Africa (LSSA), the Provincial Law Societies, and the Attorneys’ Fidelity Fund (AFF).

The Guide was approved for issue in February 2014 and is effective for all engagements commencing after 1 March 2014. The previous guide entitled Guidance for auditors: the audit of attorneys’ trust accounts in terms of the Attorneys Act, No 53 of 1979, and the applicable Rules of the Provincial Law Societies has accordingly been withdrawn.

Members who are engaged on the audit of attorneys’ trust accounts will know that a transitional report was issued to members in August 2008 pending the finalisation of the Guide. That report has now also been withdrawn but has been replaced by the auditor’s assurance report.

THE EFFECT OF THE GUIDE

The Guide is comprehensive and seeks to assist registered auditors in executing the audit engagement of attorneys’ trust accounts. It needs to be stressed that the organised legal profession relies on the work performed by auditors as part of the risk management initiatives of the AFF and there is a strong realisation that the work has become more specialised. This places more duties and responsibilities on the auditor with regard to the identification of irregularities, the compliance with the Act and the Rules and the reporting thereof. The understanding of the nature of the engagement and the various types of legal practice service activities is important for both the auditor and the attorney client.

Not only does the organised legal profession rely on the work performed by the auditor, but there is also an expectation by financial institutions, attorneys’ clients and members of the public in general. The main purpose of the engagement is not to detect fraud and theft but to evaluate compliance with the appropriate provisions of the Act and the Rules.

Auditors will be aware of the legislation dealing with money laundering, FICA, FAIS, Income Tax and VAT and the FSB and, while not forming part of the audit engagement of attorneys’ trust accounts, auditors need to consider their duties and responsibilities in reporting material irregularities to the IRBA.

WHAT IS NEW IN THE GUIDE?

The Guide sets out the scope, purpose and the nature of the engagement on attorneys’ trust accounts and contains nothing new from an audit approach perspective. The content of other sections of the Guide should also not be new to an auditor, as they set out the audit approach that should in any event be followed – not necessarily only for the audit of attorneys’ trust accounts, but also for normal audit engagements. Given the nature of the engagement, more attention has been drawn to the difficult decisions relating to materiality and risk assessment. Special attention is also drawn to the guidance issued in International Standard on Auditing (ISA 240), The Auditor’s Responsibilities Relating to Fraud in an Audit of Financial Statements, to encourage the adaption thereof in an engagement on attorneys’ trust accounts.

Apart from Appendix 1, which deals with compliance of the various sections of the Act and the Rules and the risks relative thereto, all of which have been updated, there are other appendices which members should find extremely helpful. These include extracts from the Act and Rules, illustrative engagement letters, representation letters, and auditor’s reports for unmodified and qualified opinions.

What is new is Appendix 6. This appendix now places a responsibility to report to the relevant Provincial Law Society on compliance representations and information extracted from the trust accounting records previously dealt with by the auditor. The attorney is required to prepare and sign the ‘Attorney’s Annual Statement on Trust Accounts’ which is to accompany the auditor’s report.

THE LEGAL PRACTICE ACT

The Legal Practice Act (LPA) was enacted on 22 September 2014 as Act 28 of 2014. It is the culmination of years of negotiation between the organised legal and advocates’ professions and the Department of Justice. The Act is being studied to determine the impact on both the legal and auditing professions. It provides for the establishment of the South African Legal Practice Council, with specified objects, powers and functions. The structure and status of the Provincial Law Societies and the Law Society of South Africa will change. Provision has been made for the activities and requirements of the LPA to be phased in over a two-year period. Consideration is accordingly being given to the presentation of seminars in 2015 dealing with the LPA, the impact thereof on the auditors, and certain aspects of the Guide.

CONCLUSION

Members are encouraged to study the Guide, which is exactly what the name implies, namely a guide, and adapt it to suit the specific requirements of each engagement. The Guide is a living document and will be updated from time to time as and when necessitated by changing circumstances.

The enactment of the LPA has cleared the way for the Provincial Law Societies to approve the uniform rules, which will in due course form part of the Guide. The task group of CFAS is also aware of the enactment of the Legal Practice Act, which no doubt will result in the updating of the Guide.

The Guide is available in both PDF and Word formats and may be downloaded free of charge from the IRBA website at www.irba.co.za.

In conclusion I would like to thank the various role-players for their time and effort in bringing the Guide to fruition and in particular Sandy van Esch, the retired Director of Standards at the IRBA. A special word of thanks must also go to all colleagues for their commitment and initiative to make representations to the committee while the draft Guide was open for discussion.

Author: Vincent Faris CA(SA) is chairman of the Accountant members of the Joint Attorneys and Accountants Committee

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