LPC: Advisory notice - Audit of LP business accounts

LPC: Advisory notice - Audit of LP business accounts

• 16 May 2024
• Legal and Compliance
• South African Accounting Academy

The South African Legal Practice Council Rules (“the Rules”) and Legal Practice Act, No. 28 of 2014 (“the Act”) require an audit engagement to be undertaken on the compliance of the legal practitioner’s trust accounts with the Act and the Rules. The Rules and Act however, do not require a legal practitioner’s’ financial statements to be audited (i.e the business accounts of the firm).

A legal practitioner who practices as a sole proprietor/partnership is not required to have his/her annual financial statements audited however, he/she can elect to do so on a voluntary basis.

Regulation 28(2) of the Companies Regulations provides that, in addition to public companies and state owned companies (SOC), where the audit of any other company is desirable in the public interest, as indicated by prescribed criteria in any particular financial year, the Annual Financial Statements (AFS) of that company must be audited. One of the prescribed criteria (among others), is that an audit is required if in the ordinary course of its primary activities, a profit or non‐profit company holds assets in a fiduciary capacity for people who are not related to the company, and the aggregate value of such assets held at any time during the financial year exceeds R5 million.

Since the withdrawal of the non-binding opinion by CIPC on 30 October 2019, practitioners who practiced in the form of a personal liability company and held more than R5 million in the firm’s trust account were subject to the audit requirements as contained in Regulations 28 (2) as pertains to the firm’s business accounts.

Recently, the Law Society of South Africa (LSSA) brought an application against CIPC which resulted in a court order being granted by Honourable Bruinders AJ in the High Court of South Africa, Gauteng Division under case no. 2023-062245 on 8 March 2024. In terms of the court order legal practitioners who practice in the form of a personal liability company (i.e an Inc.) are exempt from having their annual financial statements (i.e the firm’s business accounts) audited or reviewed. A copy of the court order is attached to the advisory notice.

Please note that the audit requirements pertaining to the firm’ trust accounts still exist in terms of the Rules and Act.

However, this advisory notice does not argue against the Companies Act requirement for an incorporated entity of legal practitioners to have their annual financial statements audited if their Public Interest Score exceeds 350.

This matter is already on the agenda of the next meeting with SAICA, the LSSA, LPFF and LPC. Auditors are advised to await the outcome of this discussion.

Click here to download the Advisory Notice:

https://lpc.org.za/wp-content/uploads/2024/05/Advisory-notice-Audit-of-LP-business-accounts.pdf

Relevance to Auditors, Independent Reviewers & Accountants:

• The Legal Practitioners Act and Rules are both pieces of legislation that your clients must comply with, and which you must assess compliance with.  If they don’t comply with the relevant laws and regulations, you have certain reporting obligations in terms of NOCLAR (NOn-Compliance with Laws And Regulations) – this could include reporting to management, qualifying your audit opinion, reporting a Reportable Irregularity, etc.
• As an auditor, you need to consider and assess compliance with the LPA and Guidance documents issued by the legal regulators.
• As an accountant, you may need to advise your clients who are legal practitioners on compliance with the LPA and adherence to the Companies Act and Regulations, as well as guidance issued by the LPFF and SAICA.

Relevance to Your clients:

• A legal practitioner has a duty to comply with the Legal Practitioners Act and Rules.
• Your clients who are legal practitioners, must not only comply with the LPA, but they also have to adhere to the latest guidance documents issued by the LPFF and SAICA.

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