Auditors faced various challenges during 2019, after the South African Legal Practice Council Rules (Rules), issued by the Legal Practice Council (LPC), came into effect on 1 November 2018, as the guidance available to auditors had not yet been updated and re-issued at the time. After following a thorough and consultative process, the IRBA has now finally issued the Guide for Registered Auditors: Engagements on Legal Practitioners’ Trust Accounts (Revised March 2020) (IRBA Guide). This article highlights the key changes and practical considerations in this regard.

General changes to the IRBA Guide

The IRBA Guide has been updated based on the following:

  • The Legal Practice Act, No. 28 of 2014 (the Act), which was implemented on 1 November 2018
  • The Rules that came into effect on 1 November 2018
  • The IRBA Code of Professional Conduct for Registered Auditors (Revised, November 2018)
  • Other editorial changes.

The revised content included clarification on the purpose of engagements on legal practitioners’ trust accounts. This further entailed updating the definitions, references and wording, in line with the new requirements, revising and expanding illustrative procedures, and updating illustrative letters and reports contained in the Appendices to the IRBA Guide.
The revised IRBA Guide is effective for financial periods commencing on or after 1 March 2019. This means that it applies to engagements performed on legal practitioners’ trust accounts with February 2020 year-ends and onwards.

Purpose of engagements on legal practitioners’ trust accounts

The purpose of engagements on legal practitioners’ trust accounts has been clarified and is set out below. The LPC issued an advisory on 17 April 2020 to confirm the areas on which auditors are required to report when performing an engagement on legal practitioners’ trust accounts. The IRBA Guide sets out these responsibilities clearly, together with the auditor’s responsibility to report on investment practices of legal practitioners.

The main purpose of this type of engagement is to express a reasonable assurance opinion on whether the legal practitioner’s trust accounts were maintained, in compliance with the Act and the Rules.

The auditor is also required to report on the Legal Practitioner’s Annual Statement on Trust Accounts (Statement):

  • Whether the information included in the Statement agrees with the underlying records
  • Whether any inconsistencies were identified between the legal practitioner’s representations, disclosures and other information contained in the Statement, and the auditor’s knowledge obtained during the engagement.

Lastly, the auditor is required to report on whether the legal practitioner carried out the business of an investment practice and complied with the related investment practice Rules.

Illustrative procedures

The illustrative procedures contained in Appendix 1 of the IRBA Guide have been revised to more specifically address the clarified reporting requirements of the auditor. For example, procedures with regard to investment practices have been expanded, as well as procedures relating to the Statement.

The current procedures also make specific reference to the new Rules, and specific procedures have been included to address interest earned on the different types of investment accounts. Procedures have further been expanded, in an attempt to better address areas susceptible to fraud.

Specific changes to illustrative procedures from the proposed IRBA Guide, November 2019:

Please update your methodologies with the following additional procedures:

Act S87(1) Rule 54.9 — Retention of accounting records and files
Obtain an understanding and document the key controls relating to the control objective listed below, in respect of electronic accounting records or files hosted offsite:
Access controls are in place to ensure that only authorised persons have access to the electronic records or files hosted offsite.

Rule 54.14 — Accounting requirements: accounting records
Conversion of records from legacy systems to later systems or software, included in substantive procedures.

Rule 54.15.1 to 54.15.3 — Lists of balances
Consider the appropriateness of negative confirmations that could be sent to a sample of trust creditors.

Rule 55.5 — Report to clients
Consider the appropriateness of negative confirmations that could be sent to a sample of trust creditors.

Auditor’s assurance report

The illustrative auditor’s reports contained in Appendix 4 (unmodified opinion) and 5 (qualified opinion) of the IRBA Guide have been significantly revised.

  • Paragraph references to the Act and the Rules have been updated.
  • Auditor’s independence and quality control: the wording has been updated to refer correctly to the IRBA Code of professional conduct for registered auditors (Revised, November 2018) (IRBA Code), considering the effective dates of the different parts of the IRBA Code.
  • Reporting on other legal and regulatory requirements: the following reporting requirements are now specifically included in this section of the auditor’s report:
    o Report on the legal practitioner’s annual statement on trust accounts
    o Report on the legal practitioner’s investment practice.

Legal practitioner’s annual statement on trust accounts

Based on the clarified purpose of engagements on legal practitioners’ trust accounts and the reporting requirements confirmed by the advisory issued by the LPC, it is important for auditors to understand the work effort required in this regard.

The Statement contains qualitative and quantitative information. The auditor must agree all the information reflected in the Statement (not only amounts) with what is contained in the underlying records, and compare this to the auditor’s knowledge obtained to identify whether there are any inconsistencies.

In summary

It is important to be aware of what is required of auditors when performing this type of engagement, as well as the latest procedures and illustrative templates contained in the IRBA Guide. If you have any questions, or need assistance in this regard, you are welcome to contact LEAF for expert technical advice, thorough file reviews and practical guidance.

References

1. IRBA: Guide for Registered Auditors. Engagements on Legal Practitioners’ Trust Accounts (Revised March 2020)
2. Legal Practice Council: Advisory. Engagements on Legal Practitioners’ Trust Accounts (17 April 2020)

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