SQE1 - Solicitors Qualifying Examination Part 1 Solicitors Accounts Rules Questions and Answers — Questions and Answers
Question 1: A solicitor receives a single electronic payment of £10,000 from a new client. The client's instructions state that £8,000 is to be held on account for the purchase price in a conveyancing transaction, and £2,000 is for the firm's agreed fixed fee. What is the correct procedure for handling this mixed receipt under the SRA Accounts Rules?
- Pay the full £10,000 into the business account and immediately transfer £8,000 to the client account.
- Request the client to make two separate payments, one to the client account and one to the business account.
- Pay the full £10,000 into the client account and then promptly transfer £2,000 to the business account. (Correct answer)
- Pay £8,000 into the client account and £2,000 into the business account directly from the firm's holding account.
Correct answer: Pay the full £10,000 into the client account and then promptly transfer £2,000 to the business account.
SRA Accounts Rule 4.1 requires client money to be kept separate. When a mixed payment is received, Rule 4.2 allows for the entire sum to be paid into a client account, but the firm must then 'promptly' allocate the funds to the correct accounts. This means the firm's own money (£2,000) must be transferred to the business account without delay, leaving the client money protected in the client account.
Question 2: Under which of the following circumstances is a withdrawal from a firm's client account permitted according to the SRA Accounts Rules?
- To provide a short-term loan to another client who has a temporary funding shortfall.
- To pay the firm's quarterly VAT bill.
- To purchase office stationery as the business account is overdrawn.
- To pay an expert's fee on behalf of a client, for which the money is specifically being held. (Correct answer)
Correct answer: To pay an expert's fee on behalf of a client, for which the money is specifically being held.
SRA Accounts Rule 5.1 states that money can only be withdrawn from a client account 'for the purpose for which it is being held'. Paying an expert's fee is a proper disbursement related to the client's matter. The other options represent improper use of a client account, such as using one client's money for another's benefit or for the firm's own expenses, which is a serious breach of the rules.
Question 3: A law firm concludes a matter and has £25 remaining in the client ledger. For 18 months, the firm has made reasonable, documented attempts to trace the client to return the funds, without success. According to the SRA Accounts Rules, what is the most appropriate action for the firm to take?
- Transfer the £25 to the business account to cover the administration costs of the tracing attempts.
- Keep the money in the client account indefinitely until the client makes contact.
- Pay the £25 to a registered charity of the firm's choice. (Correct answer)
- Send a cheque for £25 to the Solicitors Regulation Authority.
Correct answer: Pay the £25 to a registered charity of the firm's choice.
Under Rule 5.1(c) and the SRA's prescribed circumstances, if a residual client balance is £500 or less, and the firm has taken reasonable steps to return the money to the rightful owner, the firm can pay the money to a charity. The firm must record the steps taken and cannot deduct its own costs from the amount. Keeping the money indefinitely or transferring it to the business account would be a breach of the rules.
Question 4: What is the overriding principle concerning the payment of interest on money held for a client in a general client account under the SRA Accounts Rules?
- The firm must account to the client for a fair sum of interest. (Correct answer)
- The firm is entitled to keep all interest earned to cover bank charges.
- Interest must always be paid at the official Bank of England base rate.
- No interest needs to be paid unless the amount held exceeds £10,000.
Correct answer: The firm must account to the client for a fair sum of interest.
SRA Accounts Rule 7.1 explicitly states that a firm must 'account to clients or third parties for a fair sum of interest on any client money held'. While a firm can have a written agreement with a client to the contrary, the default position is one of fairness. There is no specific monetary threshold or requirement to use the Bank of England base rate, but the policy must be fair and reasonable in the circumstances.
Question 5: To comply with the SRA Accounts Rules, what is the maximum permitted interval between completing client account reconciliations?
- Every calendar month.
- Every two weeks.
- At least every five weeks. (Correct answer)
- At least every quarter.
Correct answer: At least every five weeks.
SRA Accounts Rule 8.3 requires that a firm must complete a reconciliation of its client accounts at least every five weeks. This reconciliation must compare the bank statement balance with the cash book balance and the total of the client ledger balances, and must be signed off by the COFA or a manager of the firm.
Question 6: Which of the following is explicitly defined as 'client money' under the SRA Accounts Rules?
- A loan provided to the firm by one of its partners.
- Money received from a client specifically for a bill that has already been delivered.
- Money held by the firm to pay for its own general office running costs.
- Money received from a client on account of costs and unpaid disbursements, before a bill has been delivered. (Correct answer)
Correct answer: Money received from a client on account of costs and unpaid disbursements, before a bill has been delivered.
SRA Accounts Rule 2.1(d) defines client money as including money held 'in respect of your fees and any unpaid disbursements if held or received prior to delivery of a bill for the same'. Once a bill has been delivered, money received for it becomes office money. Partner loans and money for office expenses are the firm's own business money, not client money.
SQE1 - Solicitors Qualifying Examination Part 1 Solicitors Accounts Rules Questions and Answers
A solicitor receives a single electronic payment of £10,000 from a new client.
The client's instructions state that £8,000 is to be held on account for the purchase price in a conveyancing transaction, and £2,000 is for the firm's agreed fixed fee.
What is the correct procedure for handling this mixed receipt under the SRA Accounts Rules?