SQE1 Solicitors Accounts practice questions

Solicitors accounts is assessed in FLK2, in the context of property transactions and of wills and estates. It covers how firms must handle client money under the SRA Accounts Rules: telling client money apart from business money, payments into and out of client account, interest, reconciliations and breaches. The primary source is the SRA Accounts Rules themselves. Questions often turn on the exact wording of a rule, so read the rules rather than a summary. Every question below links to the source behind its answer.

Rules to remember

An accountant's report is required within six months of the period end unless client balances stay within both an average of £10,000 and a maximum of £250,000; only qualified reports are delivered to the SRA. Question L229

A mixed payment must be allocated promptly, with client money kept in client account and the firm's money (e.g. for a delivered bill) moved to business account. Question L228

Money held as stakeholder is client money under rule 2.1(b) and must be paid promptly into client account. Question L227

For money held jointly with a client or third party, Part 2 is disapplied except statements every five weeks (8.2) and the bills record (8.4); joint accounts still bring the firm within the accountant's report rule. Question L226

A residual client balance of £500 or less may be paid to a charity of the firm's choice without SRA authorisation if reasonable tracing steps are taken and recorded, with no deduction for tracing costs. Question L225

Client money may be withdrawn only if enough is held for that client; any shortfall caused by a withdrawal must be replaced immediately from the firm's own money. Question L224

A firm must account for a fair sum of interest on client money it holds, unless it agrees a different arrangement in writing with the client's informed consent. Question L223

Client money may be transferred to pay the firm's costs only after a bill or other written notification has been given, and only for the specific sum identified. Question 10

A client account must not be used to provide banking facilities, and every payment into or out of it must be in respect of the firm's delivery of regulated services (SRA Accounts Rules, rule 3.3). Question 24

At least every five weeks, every client account must be reconciled three ways (bank statement, cash book and client ledger total), with the record signed off by the COFA or a manager. Question 38