Legal Practice Managemen Course (17 th Run)

Transcription

1 Insert document nam THE LAW SOCIETY OF SINGAPORE Legal Practice Managemen Course (17 th Run) Ashok Chablani 3 February 2015

2 THE LAW SOCIETY OF SINGAPORE FINANCIAL MANAGEMENT/ SOLICITORS ACCOUNTS RULES

3 Objectives Good practices in financial management Understand the importance of having a sound accounting system and proper financial management Understand key objectives of financial statements and basic accounting processes Understand the rules made under LPA relating to accounts. The Law Society Of Singapore 3

4 Financial management Legal Profession Act has 5 Rules on financial management Solicitors Accounts Rules, Solicitors Trust Accounts Rules, Deposit Interest Rules, Accountant s Report and practice rules made under the Professional Conduct Rules Compliance with these rules is necessary to meet the requirements of the Act Practice Directions of the Council of the law Society on duties of second signatory to a client account and engagement of an approved book keeper The Law Society Of Singapore 4

5 Financial management (cont d) Accountants Report Rules 1999 (Revised Edition) Deposit Interest Rules 1999 (Revised Edition) Solicitors Accounts Rules 1999 (Revised Edition) Solicitors Trust Accounts Rules 1999 (Revised Edition) Practice Directions of the Council of the Law Society The Law Society Of Singapore 5

6 Revenue Billings should be detailed and itemized Court attendance Drafting of documents Research Meetings Correspondence and Items of disbursements The Law Society Of Singapore 6

7 Revenue (cont d) Have a Bill Register Maintain a copy of all Bills Issue a receipt or acknowledgment for all payments received-rule 18 of the Professional Conduct Rules 1998 GST must be accounted to the Comptroller at the end of each quarter The Law Society Of Singapore 7

8 Goods and Services Tax (GST) concepts To register with IRAS as GST-registered person if turnover of business for past 1 year exceeds $1 million, or expected to be more than $1m To file GST returns (GST Form 5) stating value of supplies, output tax collected and input tax claimed with IRAS quarterly The Law Society Of Singapore 8

9 Goods and Services Tax (GST) concepts (cont d) Accounting for tax at the right time -time of supply -14-day rule -date of payment for cheques -ime of supply for continuous supply of services -tax point for on-supplies by agent under Section 33(4) of GST Act The Law Society Of Singapore 9

10 Goods and Services Tax (GST) concepts (cont d) Definition of supply Included in GST: -standard-rated supplies -business assets put to non-business use Excluded from GST: -reimbursements from clients e.g. stamp duties paid on behalf of clients for property transactions The Law Society Of Singapore 10

11 Goods and Services Tax (GST) concepts (cont d) Conditions for claiming input tax on business purchases -GST registered trader - goods/services supplied to you - goods/services used for the purpose of business - input tax directly attributable to taxable supplies - input tax claims supported by tax invoices addressed to you - input tax claims are not disallowed expenses The Law Society Of Singapore 11

12 Goods and Services Tax (GST) concepts (cont d) Disallowed input tax - club subscription fees - medical expenses, medical and accident insurance premiums incurred by employees -benefits provided to family or relatives of employees - costs and running expenses of motor car (except for Q-plated cars with COE issued in 1998) - any transaction involving betting, sweepstakes, lotteries and fruit machines The Law Society Of Singapore 12

13 Income tax To keep proper business and accounting records To report business performance to IRAS based on certified statement of accounts by 15th April each year To prepare Forms IR8A, Appendix 8A and Appendix 8B and give to employees, if any, by 1 st March each year Electronic filling of employees remuneration by1 st March each year The Law Society Of Singapore 13

14 Income Tax Claimable Business Expenses Staff costs salary, employers CPF, insurance Running costs rent, utilities, cost of travelling on public transport, upkeep of business Finance & professional fees interest on money borrowed for use in business, HP interest, accountancy fees, legal fees for recovery of debt The Law Society Of Singapore 14

15 Income Tax Disallowable Expenses Staff costs employees medical expenses exceeding 2% of their total remuneration, CPF contributions above statutory limit, own salary& CPF, personal drawings Private expenses food, household & entertainment, repair, maintenance of private vehicles, cost of travel between home & office Capital expenses The Law Society Of Singapore 15

16 Central Provident Fund (CPF) contributions Contributions of certain percentage of net trade income to CPF Medisave account compulsory Net trade income computed by IRAS for the relevant Year of Assessment Net trade income currently is $6,000 The Law Society Of Singapore 16

17 Central Provident Fund (CPF) contributions It is mandatory for all self employed persons to contribute to their Medisave Account Any excess over the prevailing ceiling is transferred to the Special Account for members below 55 For members 55 and above, the excess is transferred to the Retirement Account The Law Society Of Singapore 17

18 Central Provident Fund (CPF) contributions Tax deductions are available on compulsory and voluntary contributions The available deductions are 37% of assessable income or $ 31,450 whichever is less For those with employment, if total CPF contributions (employee and self-employed) are more than $31,450, there is no relief for voluntary contributions The Law Society Of Singapore 18

19 Central Provident Fund (CPF) contributions Payments can be made by E-payment GIRO NETS / Cashcard Cheque Cash The Law Society Of Singapore 19

20 Office Organisation Files are kept in an orderly manner Incoming mails supervised and sorted Outgoing mails checked and recorded File movements are tracked Proper message retrieval system Duties and authorisation of staff clearly defined in writing in contract of employment or office manual (visit the law society s website > Primelaw to download free Word copy document of a precedent office manual The Law Society Of Singapore 20

21 Financial planning prior considerations before setting up practice Set up a budget comprising : -office expenses -income required to meet the expenses -income required to maintain reasonable standard of living -super profits The Law Society Of Singapore 21

22 Financial planning - prior considerations before setting up practice (cont d) Recurring costs -Rent -Salary -Utilities -Maintenance -Professional fees PC, audit, professional insurance The Law Society Of Singapore 22

23 Financial planning - prior considerations before setting up practice (cont d) Start up costs -Furniture and Fixtures -Rental deposits -Renovation -Computers -Advertising and promotion The Law Society Of Singapore 23

24 Accounting Records Minimum as required by Solicitors Accounts Rules (SAR) The Law Society Of Singapore 24

25 Money Management Bank reconciliation reconcile accounts monthly promptly Banking of receipts all receipts should be banked promptly Withdrawal of funds accounts and records complete Inter bank transfers make regular checks to confirm funds have been paid/received The Law Society Of Singapore 25

26 Money Management (cont d) Proprietors, partners and directors must exercise overall supervision for the day-to-day financial management of the practice a) review reconciliations a) review client ledger balances a) review long outstanding debts, disbursements The Law Society Of Singapore 26

27 Money Management (cont d) Monitor financial performance of the firm a) prepare budgetsb) monitor budgets against actual performance Controlling firm s bank accounts and clients money held in banks The Law Society Of Singapore 27

28 Money Management (cont d) Insufficient information follow up on missing information Delay in raising bills to clients investigate No fees charged to clients investigate File closed without a bill investigate Several unpresented Cheques -Investigate The Law Society Of Singapore 28

29 Information technology Acquire accounting software which has been tested Adequate security features to protect sensitive client/accounting data Regular backup of data Broadband as it can support large files The Law Society Of Singapore 29

30 Governance challenges in legal practices Separate personal and business relationships and expenditure from the office account Formalising governance practices- e.g. No use of ATM Cards for office account withdrawals Lack of framework for controls and reporting Inadequately resources for monitoring Challenges increase with growth Management succession planning The Law Society Of Singapore 30

31 Summary of Next Section Key financial statements of legal firms and their users Key accounting concepts Regular accounting transactions An overview of the accounting process Books and records Internal control The Law Society Of Singapore 31

32 Summary of Next Section (cont d) Proprietors/ Partners / directors responsibilities towards accounts The rules made under LPA vis a vis accounts Absolute obligation to comply with Solicitor's Accounts Rules-The case of The law Society of Singapore v Allan Tan The Law Society Of Singapore 32

33 Key Financial Statements and their Users Balance sheet Profit and loss account Cash flow statement Other management reports The Law Society Of Singapore 33

34 What is a Balance Sheet? A statement that lists all the assets, partners equity and liabilities at a particular date Law corporation would show share capital and reserves instead of partners equity The Law Society Of Singapore 34

35 What is a Balance Sheet? (cont d) $ $ Equity Assets Capital 100,000 Property, plant Retained profit 5,000 and equipment 50,000 Liabilities Receivables 10,000 Loan 5,000 Payables 4,000 Cash 54, , ,000 ====== ====== The Law Society Of Singapore 35

36 Law Corporation Legal Profession (Law Corporation) Rules passed on 1 st October 2000 Companies Act and other laws applicable to companies apply Financial Reporting Standards No need to file accounts as exempt private company The Law Society Of Singapore 36

37 Law Corporation (cont d) Policy for bad debts incurred basis Recovery of bad debts Work in progress The Law Society Of Singapore 37

38 Balance Sheet Classification Assets less Liabilities equals Owners Equity Items of value owned by the business Amounts owed by a business to external parties Owners claim on the business A L = E The Law Society Of Singapore 38

39 What is a profit and loss account or income statement? Results of the business activities of the company over a period of time Links the balance sheet (retained earnings) at the beginning to the end of the period opening RE + net profit for the year - dividends = ending RE B/S P/L B/S The Law Society Of Singapore 39

40 Example of an Income Statement Year ended Year ended 31/12/ /12/2005 Revenue 300, ,000 Other operating income 3,000 4,500 Staff costs ( 24,000) (23,050) Depreciation of fixed assets ( 10,000) ( 9,800) Finance Costs (4,800) (4,300) Other operating expenses ( 12,500) ( 14,000) Profit for the year 251, ,350 The Law Society Of Singapore 40

41 Books and Records Cashbook- Office & Client Bills Ledger Bills Delivered Book General Ledger Petty Cash Book General Journal Clients Ledger Bank Reconciliations- Office & Client Copies of bills Bank Statements-Office & Client Cheque book and stubs office and client The Law Society Of Singapore 41

42 Approved Finance Companies DBS Finance Ltd. HSBC Mortgage and Finance (Singapore) Ltd. OCBC Finance Ltd. Overseas Union Trust Ltd. United Overseas Finance Ltd. Hong Leong Finance Ltd. The Law Society Of Singapore 42

43 Internal Controls Objectives Basic principles The Law Society Of Singapore 43

44 Objectives of Internal Controls To control the flow of transactions through the accounting system Ensure adherence to management s policies Safeguard the assets Secure as far as possible the completeness and accuracy of the records Facilitate timely preparation of financial information The Law Society Of Singapore 44

45 Basic Principles of Internal Controls Checking of the work of one person by another Segregation of duties a) Authorising b) Recording c) Custody d) Reconciliation Supervision by partners Additional controls The Law Society Of Singapore 45

46 THE LAW SOCIETY OF SINGAPORE SOLICITORS ACCOUNTS RULES

47 Rules made under LPA relating to accounts The Solicitors Accounts Rules as amended in 2007 The Solicitors Trust Accounts Rules The Accountant s Report Rules as amended in 2004 The Deposit Interest* Rules * Legal Profession Act (Cap 161) The Law Society Of Singapore 47

48 The Solicitors Accounts Rules AIM OF THE RULES To ensure that fair treatment of client s money and to maintain adequate book-keeping and recording systems. The Law Society Of Singapore 48

49 The Solicitors Accounts Rules (cont d) Rules Subject Matter 2 Definitions 3,4,5 & 6 Payments into client account 7 & 8 Withdrawals from client account 9 Client s money withheld from client account The Law Society Of Singapore 49

50 The Solicitors Accounts Rules (cont d) Rules Subject Matter 10 Transfers between clients 11 Books of account 11A Engagement of book-keeper 12 Powers of the Law Society to Inspect books of and other relevant documents/ accounts The Law Society Of Singapore 50

51 Books of account (Rule 11) KEY ELEMENTS: 1) Records in the English Language Cash Books Ledgers Journal Such other books as necessary (Separate record of transactions on behalf of individual clients.) The Law Society Of Singapore 51

52 Rule 11 (cont d) 2) Records of all dealings with client s money Client cash Book Client s ledger Journal (to record transfers) 3) Record of all bills of costs The Law Society Of Singapore 52

53 Rule 11 (cont d) 4) Bank reconciliation statements (monthly) Reconcile balance per clients cash book with client account bank statement monthly and retain the reconciliation statements. The Law Society Of Singapore 53

54 Rule 11 (cont d) 5) Retention of books of account, records and client account bank statements For at least 6 years. 6) Authority for withdrawal from client bank account or deposit account Solicitor with a current practicing certificate. 7) Rule 11(8) Solicitor may engage a book-keeper to keep his books and accounts The Law Society Of Singapore 54

55 New Rule 11A Engagement of book-keeper - Approval of council in writing. - Council s Practice Direction of 15 July 2007 and the Rules specifying the Professional Qualification, Independence and Experience Criteria. The Law Society Of Singapore 55

56 Professional Qualification - LCCI, AAT, CAT, diploma in accountancy from a polytechnic, with 1 year's experience in writing the books of a law practice - level 2 ACCA, - degree in accountancy - 5 year s experience as of 31/12/03 in writing books of accounts for a law practice. The Law Society Of Singapore 56

57 Independence -If the Book-keeper is an accounting firm or accounting corporation then the proprietor or managing partner or director has to declare a SD that they are independent of the law practice. -If Book-keeper is a firm or Corporation, the proprietor, managing partner or director must declare a SD that no partner or director or employee of the firm or corporation is an immediate family member. The Law Society Of Singapore 57

58 Independence declaration by Book- Keeper -If the Book-keeper is an individual then he must submit a SD stating that he is not an immediate family member of the solicitor. -SD must be submitted two weeks prior to the engagement The Law Society Of Singapore 58

59 Application to Employ or Engage a Book keeper Approval form must be completed and accompanied by a statutory declaration as required by Rule 11A(2). SD must be submitted annually not later than 2 weeks after each anniversary of the date when Council granted approval The Law Society Of Singapore 59

60 Council s Power Council has the power to refuse employment or engagement of the book-keeper if the book keeper -Does not possess requisite professional qualification -Does not possess relevant experience -Is an immediate family member of the Solicitor -Unlikely to act independently -Accountant is disqualified from producing an accountant s report The Law Society Of Singapore 60

61 Duty of Book-keeper to advise Council of Difficulties in writing up the books of Accounts Book-keeper has to inform Council in a SD if he is -unable to reconcile the client s cash book with client bank account in any month. -unable to write up the books and accounts required by rule 11. -Solicitor fails to respond to queries necessary to enable the book-keeper to carry out the duties. The Law Society Of Singapore 61

62 Practice Direction 8 January 2007 Duties and responsibility of second signatory Every withdrawal complies with Rule 7 Take reasonable steps to check that monies withdrawn were deposited into the client account Review supporting documents shown by the first signatory lawyer to support the withdrawal If the first signatory does not disclose sufficient information / documents, the second signatory should not sign the cheque The Law Society Of Singapore 62

63 Practice Direction 8 January 2007 Examples of documents to be sighted For costs and disbursements- written intimation of costs sent to client with the mandatory two days notice requirement Withdrawal to pay for damages due to client, relevant settlement letter or agreement or order of court evidencing the sum payable to the client / third party Payments made to agent written letter of authority The Law Society Of Singapore 63

64 Second Practice Direction 15 July 2007 Second signatory is permitted to charge a fair & reasonable fee for carrying out his duties Must be for duties set out in PD of 8 January 2007 First & second signatories must agree the fees payable Client must be informed and explained the need for the arrangements for the second signatory The Law Society Of Singapore 64

65 Amendments to SAR w e f 15/5/2007 No cash or bearer cheques from the client account except with the leave of Court No withdrawals from ATM / telephone banking or online banking service The Law Society Of Singapore 65

66 Amendments to SAR w e f 15/7/2007 Receipt or holding of conveyancing money only permitted if the practice has 2 signatories Council has to be informed of the names of the signatories, any change in the names must be notified to the Council within 7 days by a further SD Only legal officers of not less than 3 years service or solicitor who has been in practice for not less than 3 years can be a signatory The Law Society Of Singapore 66

67 Amendments to SAR w e f 15/7/2007 Second signatory mandatory for withdrawals from client account for amounts exceeding $30,000 or withdrawals exceeding $5,000 where an independent book-keeper approved by the Council who has submitted required annual Statutory undertakings to the Council has not been engaged Sole signatory permitted for withdrawals of more than $5,000 but not exceeding $30,000 if the practice has engaged an approved book-keeper Abolition of approved employee book-keepers Mandatory training requirement to qualify as an approved bookkeeper The Law Society Of Singapore 67

68 The Accountant s Report Rules Period covered should not be more than 12 months Given in respect of each partner in practice and every salaried partner The Law Society Of Singapore 68

69 Accountant s Report Solicitor s application for a practising certificate. Accountant s report in the form prescribed in the ARR. The Law Society Of Singapore 69

70 Accountant s Report (cont d) Reporting requirements: a) He has examined to the extent required by the ARR the books, accounts and documents of the solicitor s practice. b) Whether or not he is satisfied from his examination that the solicitor has complied with the SAR The Law Society Of Singapore 70

71 Accountant s Report (cont d) Extent and nature of accountant s examination are laid down in Rule 4 of the ARR. The Law Society Of Singapore 71

72 The ARR (Rule 4) Nature of Accountant s Examination A complete audit of Solicitors Accounts. Preparation of a profit and loss account or a balance sheet. The Law Society Of Singapore 72

73 The ARR (Rule 4) Nature of Accountant s Examination (cont d) Particulars of all bank accounts Examine the systems of book keeping in every office Make test check of posting to clients ledger Compare sample of lodgements into and payments from client account The Law Society Of Singapore 73

74 The ARR (Rule 4) Nature of Accountant s Examination (cont d) Test check recording of costs and making transfers Examine documents relating to the transaction Test examination of clients ledger accounts The Law Society Of Singapore 74

75 THE LAW SOCIETY OF SINGAPORE Thank You