17 February 2010 CIRCULAR 2010 / 1

Transcription

1 17 February 2010 CIRCULAR 2010 / 1 ADOPTION OF SAICA GUIDANCE FOR AUDITORS THE AUDIT OF ATTORNEY S TRUST ACCOUNTS AND RECOMMENDED WORDING FOR ATTORNEY S TRUST ACCOUNT ENGAGEMENT LETTERS AND AUDIT REPORTS In terms of this Circular ICAN adopts the South African Institute of Chartered Accounts (SAICA) Guidance for Auditors The Audit of Attorney s Trust Accounts as a Guide to practitioners in Namibia when accepting and carrying out audits of Namibian attorney s trust accounts. In applying the Guide all references in the Guide to the Attorney s Act, No. 53 of 1979 should be taken as references to the Legal Practitioners, Act 15 of References in the Guide to the Rules of provincial societies should be taken as references to the Rules of the Law Society of Namibia. The SAICA Guide includes five appendices: Appendix 1 Illustrative Audit Report; Appendix II Internal Control Questionaire; Appendix III Specimen Engagement Letter; Appendix IV Specimen Management Representation letter; and Appendix V Minimum procedures to be carried out by an auditor engaged to perform the audit of Attorneys Trust Accounts. This Circular provides a revised specimen for attorney s trust account engagement letters (Annexure 1) and a revised specimen illustrative audit report (Annexure 2). These two Annexures replace the versions of Appendix I and Appendix III of the Guide. This wording of the revised specimens has been approved by the Council of the Institute. The effective date for the use of the revised audit report wording is the date of issue of this Circular. J dlr du Toit CA(Nam) CEO

2 [Name of Firm] PO Box?? Windhoek initials/file number Date Dear Sir(s) / Madam(s) Terms of engagement: year As mentioned at our meeting on [insert date] we are pleased to confirm acceptance of our engagement as auditors of the trust account of [insert name of attorney s firm] (hereafter referred to as the firm / management ) in terms of Rule 20 of the Rules of the Law Society and Section 25 of the Legal Practitioners Act, 1995, and look forward to working with you. We enclose two copies of the letter of engagement. This letter sets forth, our understanding of the terms and objectives of our engagement, and the nature and scope of the services that we will provide. It does not seek to limit our professional responsibilities below the reasonable standards which are expected of our profession. I shall be grateful if you will arrange to have the letter tabled at a [Partner/Directors ] meeting and for the approval of the terms of our engagement to be recorded in the Minutes of the Meeting. This engagement letter will lapse if not duly signed by both parties within 90 days from the date appearing on the face of the letter. Please return a copy of our letter of engagement for our records, signed on behalf of the board. Yours sincerely... (Name and position) for and on behalf of [the Firm] Page 2 of 15

3 [Name of Firm] PO Box?? Windhoek initials/file number Date Dear Sir(s) / Madam(s) Terms of Engagement: year The purpose of this letter is to set out the basis on which ABC Namibia (hereafter referred to as ABC, we, us or our ) act as auditors of the Trust Account of [insert name of attorney s firm] (hereafter the Trust account ). It also sets out the respective areas of responsibility of the firm and of ourselves, together with our understanding of the additional services you require us to perform. Additional Services The letter also sets out the basis and conditions for the provision of the following additional services: Accountancy Services for the partnership Preparation of annual financial Statements for the partnership Responsibilities of firm As firm, you are responsible for the preparation of books of account for the Trust account in accordance with your accounting policies and in accordance with the Rules of the Law Society and the Legal Practitioners Act, 15 of Our auditor s report will explain that the firm isresponsible for the preparation and the fair presentation of the books of account in accordance with the applicable financial reporting framework, and this responsibility includes: Designing, implementing and maintaining internal control relevant to the preparation of books of account that are free from misstatement, whether due to fraud or error; Selecting and applying appropriate accounting policies; and Making accounting estimates that are appropriate in the circumstances. Page 3 of 15

4 The establishment and maintenance of an internal control structure, necessary to provide reasonable assurance that adopted policies and prescribed procedures are adhered to for the prevention of errors and irregularities, including fraud and illegal acts, rest with you as legal practitioners. However, should you at any time require a specific investigation for the purpose of providing affirmation with regard to the operation of any aspect of your internal control structure, or for any other purpose, this would be done at your request. You are responsible for ensuring that adequate accounting records are kept for the Trust account. You are also responsible for making available to us, as and when required, all the Trust account s accounting records, all other relevant records, including minutes of all [partners /directors ] meetings (as the case may be), and information and explanations which we consider necessary for the performance of our duties as auditors. We look forward to full co-operation with your staff, and we trust that they will make available to us whatever records, documentation and other information we may require in connection with our engagement. Auditor s responsibilities We have been engaged to audit and report on whether the firm s trust accounts were maintained in compliance with sections 25(1) 26(1), 26(2)(a) and (b), 26(3), 26(4) of the Legal Practitioners Act, 15 of 1995, and in terms of Rules 18(3), 18(4), 18(5), 18(6), 18(7), 18(8), 18(11), 19(3) and 20(5) of the Law Society of Namibia. In terms of section 20 (5) (b) of the Legal Practitioners Act, 15 of 1995, we are also required to report in writing directly to the Council if, at any time during the performance of our duties as accountant : It comes to our notice that at any date the total of the balances shown on the trust accounts in the accounting records of the firm exceeded the total amount of the funds in its trust banking account, its trust investment account and its trust cash; Any material queries regarding its accounting records which we have raised with the firm have not been dealt with to our satisfaction; Any reasonable request made by us for access to its records or for any authority which may be required to enable us to obtain such information, certificates or other evidence as we may reasonable require, has not been met to our satisfaction. In arriving at our audit opinion, we shall inter alia consider the following matters, and report on any in respect of which we are not satisfied (where appropriate): whether adequate accounting records have been kept in respect of the Trust account; Page 4 of 15

5 whether the books of account for the year under review are in agreement with the accounting records and returns; and whether we have obtained all the information and explanations which we consider necessary for the purposes of our audit. Our engagement will furthermore be conducted in accordance with the statement of International Standards on Auditing ( ISA s ). Our Audit will include: examining, on a test basis, evidence supporting the amounts and disclosures in the trust account and trust investment accounts, and assessing the accounting principles used by the firm in respect of the said accounts. Our professional responsibilities also include considering whether other information contained in documents reflected in audited books of account is consistent with those books of account of the firm. Reporting to the firm We shall report to the firm, in writing, any significant weaknesses in, or our observations on, the internal control structure and any other areas that may come to our attention during the completion of our internal control questionnaire or performance of the audit and that we consider should be brought to the firm s attention. Representation by the firm As part of our normal audit procedures, we will request the firm to provide written confirmation of oral representations that we have received from the firm during the course of our audit. Scope of audit We will conduct our audit in accordance with International Standards on Auditing ( ISA s ). These standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance that the books of account under audit are free of material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the books of account. The procedures selected depend on the auditor s judgment, including the assessment of the risks of material misstatement of the books of account, whether due to fraud or error. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management in the preparation of the books of account, as well as evaluating the overall presentation of the books of account. Page 5 of 15

6 Because of the test nature and other inherent limitations of an audit, together with the inherent limitations of any accounting and internal control system, there is an unavoidable risk that some material misstatements may remain undiscovered. We shall expect to obtain such appropriate evidence as we consider sufficient to enable us to draw reasonable conclusions there from. The nature and extent of our procedures will vary according to our assessment of the firm s accounting system and,where we wish to place reliance on it, the internal financial control system. Our work will be planned in advance and incorporated into an audit plan. This may be varied on the basis of our findings during the course of an audit. Accordingly, we may [not necessarily visit the same or every location each year and we may]* modify our audit scope, rotate our audit emphasis and propose matters of special audit emphasis, as the circumstances dictate. The concept of materiality affects our audit planning and our consideration of matters arising from our audit. We take into account both qualitative and quantitative factors when assessing materiality. Detection of fraud, error and non-compliance with laws and regulations The responsibility, without limitation, for safeguarding the assets of the Trust account and for the prevention and detection of fraud, error and non-compliance with laws or regulations (and especially the Legal Practitioners Act and the Rules of the Law Society of Namibia) rests with the firm. However, we shall endeavour to plan our audit so that we have a reasonable expectation of detecting material misstatements in the books of account (including any material misstatements resulting from fraud, error or noncompliance with law or regulations), although our examination should not be relied upon to disclose all such material misstatements or frauds, errors or instances of noncompliance as may exist. Reports to the firm In making our risk assessments, we consider internal control relevant to the Trust account s preparation of the books of account in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Trust account s internal control. However,we expect to provide you with a separate letter concerning any material weaknesses in the design or implementation of internal control over financial reporting or financial control that come to our attention during the audit of the books of account and which, in our view, require management s attention. Our consideration of internal control relevant to the Trust account and the preparation of the books of account in respect thereof is only performed to the extent required to express an opinion on the books of account in respect of the firm s Trust Accounts and therefore our comments on these controls will not necessarily address all possible improvements that might be suggested during a more extensive special examination. Page 6 of 15

7 No such report may be provided to a third party without our prior written consent. Such consent will be granted only on the basis that such reports are not prepared with the interests of anyone other than the Trust account in mind and that we accept no duty or responsibility to any other party. Communications with those charged with governance Audit matters of governance interest are those matters that arise from the audit of books of account and which, in our opinion, are both important and relevant to those charged with governance in overseeing the financial reporting and disclosure process. Audit matters of governance interest will be communicated to the firm. We will communicate only those matters of governance interest that come to our attention as a result of the performance of the audit. We are not required to design procedures for the specific purpose of identifying matters of governance interest. Firm representations The information used by the senior management in preparing the books of account will invariably include facts or judgements which are not themselves recorded in the accounting records. As part of our normal audit procedures, we shall request the firm / [appropriate senior officials] to confirm to us in writing each year such facts or judgements and any other oral representations which we have received from them during the course of the audit on matters having a material effect on the books of account. We will also ask them to confirm in that letter that all important and relevant information has been brought to our attention. [Meetings To provide an opportunity for you (and [the audit committee/ other relevant body to whom audit matters of governance interest will be communicated]) to discuss the matters raised in our various reports, we expect to attend the firm [tailor as appropriate] meetings prior to the commencement of our audit and before the finalisation of our report.]* Other requirements In order to assist us with the examination of the trust account s books of account, we shall request early sight of all documents or statements [(including the trust account statement and operating and financial reviews)]* which are to be issued with the books Page 7 of 15

8 of account. We are also entitled to attend all management meetings of the firm and to receive notice of all such meetings. Once we have issued our audit report we have no further direct responsibility in relation to the books of account. However, we expect that you will inform us of any material event occurring between the date of our report and the date of sign off which may affect the books of account. Accountancy Services We shall assist you with certain accounting services as follows: Accountancy Services for the partnership Preparation of annual financial Statements for the partnership Whilst we may examine the accounting records and make certain enquiries in order to facilitate this work, an audit will not be carried out. In addition, our services are not designed to detect irregularities, including fraud. Our report on the financial statements is expected to read as follows: On the basis of information provided by management, we have also compiled, in accordance with the International Standard on Related Services applicable to compilation engagements, the balance sheet as at 28 February 2009, and the related statements of income and cash flow for the year then ended as set out on pages... to... Management are responsible for these financial statements. We have not audited or reviewed these financial statements, and accordingly express no assurance thereon. Other services We shall not be treated as having notice, for the purposes of our audit responsibilities, of information provided to employees of our firm other than those engaged on the audit (for example information provided in connection with accounting, taxation and other services). Reporting to third parties Our audit opinion is intended for the benefit of those to whom it is addressed. The audit will not be planned or conducted in contemplation of reliance thereon by any third party or with respect to any specific transaction, save that we acknowledge that the firm will be required to provide our audit report to the Law Society of Namibia in terms of Rule 20(5). Therefore, items of possible interest to a third party will not be specifically addressed and matters may exist that would be assessed differently by a third party, possibly in connection with a specific transaction. There may be situations, for example, in relation to investment agreements, where a third party seeks to request us, in our capacity as auditors, to report to it. Any contractual arrangements between you and a third party which seek to impose such requirements upon us will not, as a matter of law, be binding on us. However, Page 8 of 15

9 depending on the circumstances, we may agree to provide reports to third parties, but not in our capacity as auditors. Any such possible requirements must be discussed with us at the earliest opportunity and well before the investment agreement or other arrangement is finalised. In this regard, however, it is our policy not to extend our duty of care in respect of our audit report in the books of account. As noted above, our opinion will be prepared only for the firm and for no other purpose. In those circumstances, we will not, in giving our opinion, accept or assume responsibility (legal or otherwise) or accept liability for or in connection with any other purpose for which our report or opinion may be used, or to any other person to whom our report is shown or into whose hands it may come, and no other persons shall be entitled to rely on our opinion save where they have obtained our prior written consent that they may do so. Fees Our fees are computed on the basis of the time spent on your affairs by our directors, partners and staff and on the levels of skill and responsibility involved. The fees will be subject to review by us each year and will vary in accordance with a number of factors, including the extent of [our reliance upon the work of the internal auditors and]* the assistance we receive from [them and other]* members of staff in preparing routine schedules and analyses. It is our usual practice to provide estimates of our fees in advance of the work commencing and we shall require payments on account as our work progresses. Fee notes for services rendered will be issued on a regular basis as the work is conducted. In particular, our fees will be billed when a return is submitted or a particular item of work is completed, or on an interim basis as the work progresses where we consider this to be more appropriate. Out-of-pocket expenses incurred by us in connection with your affairs will be charged to you separately in addition to the fee. Individual hourly rates vary according to the degree of responsibility involved and the experience and skills required. In the event that invoices are not settled within 30 days of presentation, we reserve the right to charge compound interest monthly at 3% above bank prime rate until the debt is settled. At our option, in any action or application for the collection of any amounts in respect of services rendered and interest thereon, the jurisdiction of the Magistrate's Court shall apply in compliance with Section 45 of the Magistrate's Court Act, Act no 32 of 1944, as amended, notwithstanding the fact that such claim may exceed such jurisdiction and you will be liable for costs on the scale as between attorney and own client, including collection commission. Our estimated fees will exclude VAT. Applicable law The contract formed by this engagement letter when accepted by you shall be governed by, and construed in accordance with, Namibian law. The Courts of Namibia shall have Page 9 of 15

10 exclusive jurisdiction in relation to any claim, dispute or difference concerning the engagement letter and any matter arising from it. Each party irrevocably waives any claim that the action has been brought in an inconvenient forum or to claim that such Courts do not have jurisdiction. Resolving disputes Should any dispute arise in connection with this engagement each party will work together in good faith with a view to resolving the dispute. Where each party agrees, the parties will seek to resolve the dispute through mediation. Each party agrees that if the dispute is not resolved through negotiation or mediation, the parties irrevocably agree to submit to the exclusive jurisdiction of the Namibian Courts. Engagement leader [First name and surname of partner], a partner of ABC, will be the partner responsible for the audit. Acknowledgement and acceptance Once it has been agreed, this letter will remain effective until it is replaced. Please sign and return the attached copy of this letter to indicate that it is in accordance with your understanding of the terms of the engagement, including the specific procedures that we have agreed to perform. Yours faithfully. ABC The terms of this engagement are accepted by [Name of Engagement Partner] who represents that he/she is authorised to accept these terms on behalf of [insert name of Firm]. Signed:... (Name and position) for and on behalf of [the Firm] Page 10 of 15

11 ANNEXURE 2 TO CIRCULAR 2010 / 01 Assurance Report of the Independent Auditor to the <Proprietor / Partners / Directors 1 > of (Insert the Name of Firm) and the Law Society of Namibia 1. We have completed our assurance engagement in respect of the legal practitioner s trust accounts of (insert the name of the attorney s firm) to determine whether those accounts were maintained in compliance with Section 25(1), and subsection (1), (2) and (3) of section 26 of the Legal Practitioners Act, 1995(the Act ), and in terms of the Rules 18(3), 18(4), 18(5), 18(6), 18(7), 18(8), 18(11), 19(3) and 20(5) of the Law Society of Namibia for the <period from (insert date) to (insert date)> <or year ended <insert date>>. 2. <Proprietor/Partners /Directors > responsibility for the trust accounts The <proprietor/partners/directors> of (insert the name of the attorney s firm) is/are responsible for ensuring that the legal practitioner s trust accounts are maintained in compliance with the provisions of the Act and the Rules of the Law Society of Namibia. The <proprietor/partners/directors> is/are also responsible for the implementation of accounting and internal control systems. and the completion of the Internal Control Questionnaire in the SAICA Guide: Guidance for Auditors: The audit of attorneys trust accounts as adopted by ICAN in Circular 2010 / Auditor s responsibility Our responsibility is to express our conclusion on whether the legal practitioner s trust accounts were maintained in compliance with Section 25(1), and subsection (1), (2) and (3) of section 26 of the Legal Practitioners Act, 1995(the Act ), and in terms of the Rules 18(3), 18(4), 18(5), 18(6), 18(7), 18(8), 18(11), 19(3) and 20(5) of the Law Society of Namibia for the period (insert date) to (insert date) <or year ended <insert date>> based on our assurance engagement. Our assurance engagement was conducted in accordance with the International Standards on Auditing (ISAs) including the International Standard on Assurance Engagements (ISAE 3000) Assurance Engagements other than Audits or Reviews of Historical Financial In addition, we have performed such other procedures as we considered necessary to obtain sufficient appropriate evidence to support our reasonable assurance conclusion. We have not performed any procedures on records or documents relating to accounting for deceased and insolvent estates and trusts other than those dealt with via the firm s trust banking account(s). Accordingly, we do not express any conclusion in this regard. We believe our assurance engagement provides a reasonable basis for our conclusion. 4. Basis for qualified conclusion The following contravention/s of Sections of the Act and Rules of the Law Society of Namibia relating to the firm s trust accounts occurred which is/are regarded as material 3 : (If none, state NIL) (Any contravention of Sections 25(1), and subsection (1), (2) and (3) of section 26 of the Act, 1 Throughout the report - delete whichever: proprietor/partners/directors is not applicable 2 Appendix II - Internal Control Questionnaire in the SAICA Guidance for Auditors: The Audit of Attorneys Trust Accounts in terms of the Attorneys Act, No. 53 of 1979 and the Applicable Rules of the Provincial Law Societies as adopted by ICAN in Circular 2010 / 01 3 Specify Sections and Rules contravened and provide details of contravention/s Page 11 of 15

12 ANNEXURE 2 TO CIRCULAR 2010 / 01 and any contravention of the rules of the Law Society of Namibia relating to trust accounts in terms of the Rules are regarded as material and should be reported. If the report is qualified then the next heading is to be changed to Qualified conclusion and the wording is to change to In our opinion, except as noted in our Basis for qualified conclusion above, the ) 5. Conclusion In our opinion, the legal practitioner s trust accounts of (insert the name of the attorney s firm) for the <period from (insert date) to (insert date)> / <or year ended <insert date>> were maintained in compliance with Sections 25(1), and subsection (1), (2) and (3) of section 26 of the Legal Practitioners Act, No. 15 of 1995 and in terms of the Rules18(3), 18(4), 18(5), 18(6), 18(7), 18(8), 18(11), 19(3) and 20(5) of the Law Society of Namibia. Our report covers the accounting records relating to the legal practitioner s trust accounts and does not extend to the financial statements of the business of (insert the name of the legal practitioner s firm) taken as a whole. 6. Supplementary information Our assurance procedures indicated that: 6.1 the legal practitioner s trust accounts for the period reported on have been updated and balanced monthly, 6.2 the ratio as a percentage of total bank charges (excluding VAT) incurred during the current period to the total of interest earned during the period / year was 6.4 the firm s trust accounts for the period subsequent to the period of our assurance engagement, was last inspected by us on (insert date of last inspection), have been written up to (insert date) and the trial balance was last balanced at (insert date), and [the proprietor/partners/directors] provided us with the following changes in the composition of the firm which occurred during the period from (insert date) to (insert date) / <or year ended <insert date>>: the [proprietor/partners/directors] principal place of practice (insert full physical address) is at: 6.6 the firm s Namibian branch offices, are at (insert full physical addresses). 7. Information extracted from the trust accounting records The following information was extracted from the trust accounting records that were the subject of our assurance engagement, in respect of the reconciliation of interest earned on the firm s section 26(1) and section (2)(a) trust accounts from the beginning of the period (insert date) to the end of the period (insert date): Page 12 of 15

13 ANNEXURE 2 TO CIRCULAR 2010 / Amount brought forward from the previous financial year in respect of interest earned on monies deposited in terms of section 26(1) and monies invested in terms of section 26(2)(a) of the Legal Practitioners Act, No. 15 of 1995 is 7.2 Amount of interest earned during the current period on monies deposited in trust banking accounts in terms of section 26(1) and monies invested in trust investment accounts in terms of section 26(2)(a) of the Legal Practitioners Act, No 15 of 1995 is 7.3 Amount incurred during the current period in respect of refundable bank charges (excluding VAT firms not liable for Vat as registered vendors may include VAT) is 7.4 Amount already paid over to the Law Society as nominee of the Legal Practitioners ' Fidelity Fund during the period under review in terms of section 26(4) of the Legal Practitioners Act, No. 15 of 1995 is (a schedule of the payments made is to be attached) 7.5 Amount carried over to the next financial period in respect of interest earned on monies deposited in terms of section 26(1) and monies invested in terms of section 26(2)(a) of the Legal Practitioners Act, No. 15 of 1995 is 7.6 The amount referred to in paragraph 7.5 agrees/ does not agree with the balance as recorded in the books of account, which amount, less the amount of N$ paid over to the Society since period end, is/ is not held in the firm s trust account. If not held in the trust account, a written explanation detailing how the trust interest has been dealt with is to be annexed to the report. 7.7 The information extracted from the trust accounting records that were the subject of our assurance engagement in respect of trust creditors/liabilities and trust funds available at the period / year end (insert date) and on one other date (insert date), were as follows: Trust creditors/liabilities Trust creditors ito Section 26(1) & Section 26(2)(a) Trust creditors ito Section 26(3) Total trust creditors/liabilities Trust funds available in terms of: Section 26(1) trust banking accounts Section 26(2)(a) trust investment accounts At period / year end Other date selected 4 4 The date selected must be a date other than the financial year end which occurs during the financial year / period to which this assurance engagement relates. Page 13 of 15

14 ANNEXURE 2 TO CIRCULAR 2010 / 01 Section 26(3) trust investment accounts Trust cash on hand Debit balances in trust ledger (details as set out in paragraph 4) Total funds Trust surplus/ (deficit) 8. Investment Practices 8.1 The firm has/ has not carried on the business of an investment practice during the year under review; 8.2 the firm has/ has not complied in all respects with the provisions of 18(3), 18(4), 18(5), 18(6), 18(7), 18(8), 18(11), 19(3) and 20(5) of the Society s Rules; 8.3 if the answer to paragraph 8.2 is: has not complied, list all instances in which the Rules may not have been complied with. (If space is insufficient, this may be continued on a separate sheet and attached to this assurance report). Restriction on use and distribution of the report The layout and wording of our report is in compliance with the relevant sections of the Legal Practitioner s Act and Rules of the Law Society of Namibia and may not be suitable for any other purpose, consequently, it is intended solely for the use of <proprietor/partners/directors> of the firm, the Law Society of Namibia and the Legal Practitioners' Fidelity Fund and should not be distributed to any other parties without our prior written consent. AABBCC Registered Accountants and Auditors Chartered Accountants (Namibia) Windhoek <Date> Page 14 of 15

15 ANNEXURE 2 TO CIRCULAR 2010 / 01 SUPPLEMENTARY INFORMATION REQUESTED BY THE LAW SOCIETY OF NAMIBIA (NOT SUBJECT TO OUR ASSURANCE ENGAGEMENT) FIRM (INSERT FIRM NAME) Schedule of Interest payments For the financial period to Trust Banking Account at <insert Name of Bank>, Branch Code No. and Account No. Date Financial Period Method of Payment (EFT / Cheque) Amount Total Notes: 1. The total indicated above should agree with Par 7.4 of the assurance report 2. Kindly note that a separate schedule should be submitted for each trust bank account operated by the firm Page 15 of 15