In the wake of the Enron and WorldCom failures, as well as local corporate collapses, not only has the profession been under attack from the business community at large, but it has faced and continues to face attack from the organised legal profession for failing in its duties and responsibilities

Whether such an attack is justified is not the subject of this article. 

Locally, the attack was initiated by the Attorneys’ Fidelity Fund in the review of its future risk profile and it has prompted a revisit of the traditional procedure followed when performing the audit of the attorneys’ trust accounts. 

The review identified an increasing trend in the level of claims being paid by the Fund to members of the public for the misappropriation of funds by members of the legal profession and their staff. It raised the question of the value of the audit of the trust accounts being paid for by the Fund. 

The legal profession and other stakeholders established that claims against the Fund had arisen due to theft not only by practitioners but also by staff of practitioners. In many instances the failure to apply proper practice, and particularly financial management, principles and procedures had played a significant role. The incidence of theft also appeared to be more prevalent in smaller firms. 

A revision of the existing audit procedures was necessary, with a more positive and aggressive approach to the detection of fraud without in any way compromising the compliance procedures. 

The legal profession undertook to be more proactive in reporting allegations of misconduct on the part of auditors to the IRBA, while the auditing profession undertook to: 

  • Request the practice review division of the IRBA focus on the files of law firms;
  • Review and if necessary revise, add to and amend any of the existing procedures in order to give more attention to the detection of fraud. 

The importance of the engagement letter and the underlying risks faced when accepting an engagement for the trust account are important. Access to the business accounting records is necessary to be able to issue an unqualified report on the trust account. 

In dealing with the requirement to understand and have knowledge of the business of a law practice, it is vital to know and understand that it has a wide variety of underlying transactions applicable to each mandate. This understanding is necessary to properly plan the audit, assess the risk and materiality before making the professional judgement as to the scope and extend of the substantive testing to be performed and the sample sizes thereof. The traditional holistic approach would accordingly need to be reassessed so that recognition is given to the difference service activities that may be applicable to a particular law firm. 

The importance of the evaluation of the internal control environment is highlighted. 

Auditors accepting the audit of attorneys’ trust accounts should be aware of and realise the degree of risk involved. 


Vincent Faris – Accountancy SA