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 is not required to have his/her annual financial statements audited, however, he/she can elect to do so on a voluntary basis.
- Similarly, there is no requirement for legal practitioners who practice in the form of a partnership to have their annual financial statements audited unless such a requirement is contained in their partnership agreement, or the partners elect to have an audit conducted.
Regulation 28(2) of the Companies Act 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 of that company must be audited. One such criteria, among others, is that if a profit or non‐profit company holds assets in a fiduciary capacity for people who are not related to the company, in the ordinary course of its primary activities, and the aggregate value of such assets held at any time during the financial year exceeds R5 million, an audit is required.
A notice released by CIPC in October 2019 stated that all categories of companies which, in the ordinary course of their primary activities, hold assets in a fiduciary capacity for persons who are not related to them, the value of which exceeded R5 million in the preceding financial year, must have their annual financial statements audited. The notice specified legal practitioners, conveyancers and notaries as examples of companies which would require an audit under the provisions of Regulation 28 (2). This meant that 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) and the firm’s business accounts had to be audited.
Recently, the Law Society of South Africa (LSSA) brought an application against CIPC which resulted in a court order being granted on 8 March 2024. In terms of the court order legal practitioners who practice in the form of a personal liability company are exempt from having their annual financial statements audited or reviewed.
It is important to note that the audit requirements pertaining to the firm’ trust accounts have not changed and is still required in terms of the Rules and Act. For further details on this ruling and its implications, practitioners are encouraged to visit the Legal Practice Council’s official website for comprehensive updates and guidance. If you have any enquiries regarding these associated services, please do not hesitate to contact JC Laubscher at jc@bkaudit.co.za
Source Reference:
LPC: Advisory Notice Audit op LP Business Accounts