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N O T I C E - Law Society of the Northwest Territories
N O T I C E - Law Society of the Northwest Territories
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N O T I C E<br />
TO:<br />
All Inactive and Active Members of the Law Society of the Northwest Territories<br />
MEMBERS ARE REMINDED that Section 48 of the Legal Profession Act requires that:<br />
“Every member shall deliver to the Secretary on or before September 1 in each year<br />
certificates of the member and of a chartered accountant or certified general<br />
accountant, which shall be in the form prescribed by order of the Commissioner and<br />
made up to the end of a 12 month fiscal period ending no earlier than June 1 of the<br />
previous year.”<br />
Members who have not had occasion to maintain a clients' trust account in the Northwest Territories<br />
may meet the requirements of this section by filing one of the enclosed Statutory Declarations.<br />
Declarations executed within the Northwest Territories can be sworn before a Commissioner for Oaths.<br />
Declarations executed out of the Territories must be sworn before a Notary Public under Seal.<br />
The prescribed Certificate of Accountant and Member (Form 2.4) is attached. Please ensure that the<br />
Certificate is signed as required by the appropriate member(s) AND by the accountant before the Form<br />
is submitted to the Law Society.<br />
If you are unable to provide a Certificate relating to a full 12 month fiscal period by reason of broken<br />
practice periods, practice within or outside of partnerships, or for any other valid reason, the Certificate<br />
shall relate to the period or periods that may be designated by the Executive of the Law Society. Your<br />
application for a designation, containing full particulars or the reasons for the designation, must be<br />
made in writing to the Secretary of the Society no later than June 1, 2011.<br />
AND FURTHER TAKE NOTICE that members failing to file either Form 2.4 or a properly sworn<br />
Declaration by the 1st day of September, 2010 shall, without further notice, be automatically<br />
suspended from membership.<br />
DATED this 17th day of January, 2011.<br />
Linda Whitford<br />
Executive Director<br />
[Deputy Secretary‐Treasurer]<br />
P.O. Box 1298, Station Main ∙ Yellowknife, NT ∙ X1A 2N9 ∙ Tel: (867) 873‐3828 ∙ Fax: (867) 873‐6344 ∙ info@lawsociety.nt.ca ∙ www.lawsociety.nt.ca
STATUTORY<br />
DECLARATION<br />
[Section 48]<br />
CANADA ) IN THE MATTER OF SECTION 48<br />
) OF THE LEGAL PROFESSION ACT<br />
NORTHWEST TERRITORIES ) OF THE NORTHWEST TERRITORIES<br />
I, ,<br />
of , in ,<br />
SOLEMNLY DECLARE THAT:<br />
1. I do not at the present time nor have I during the past year maintained a trust account in the<br />
Northwest Territories.<br />
2. In the event that I do establish a trust account in the Northwest Territories, I will immediately<br />
notify the Law Society of the Northwest Territories.<br />
And I make this solemn declaration conscientiously believing it to be true, and knowing that it is of the same force<br />
and effect as if it made under oath.<br />
DECLARED BEFORE ME at:<br />
this day of , .<br />
A Notary Public in and for the Province/Territory of<br />
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** IF THIS DOCUMENT IS EXECUTED OUTSIDE OF THE NORTHWEST TERRITORIES,<br />
IT MUST BE SWORN BEFORE A NOTARY PUBLIC, UNDER SEAL**<br />
P.O. Box 1298, Station Main · Yellowknife, NT · X1A 2N9 · Tel: (867) 873-3828 · Fax: (867) 873-6344 · info@lawsociety.nt.ca · www.lawsociety.nt.ca
FORM 2.4<br />
CERTIFICATE OF<br />
ACCOUNTANT AND<br />
MEMBER<br />
[Rule 39(1)(d), 48(d), 53(2)(c), 71(1)(a), 72(1)(c), 83(1)(b), 83(2)(b)]<br />
INSTRUCTIONS<br />
1. In this form, all references are to the Rules of the Law Society of the Northwest Territories.<br />
2. This form must be completed for the 12‐month fiscal period ending no earlier than June 1 of the previous<br />
year, except where subsection 48(2) of the Legal Profession Act applies.<br />
3. This form must be used ‐ copies will not be accepted. If space is insufficient, attach schedules giving the<br />
information requested. Any schedule in Part B is to be submitted on the accountant’s letterhead, and signed<br />
and dated on each page by that accountant.<br />
4. Part A, any schedule to Part A and Part C are to be signed and dated,<br />
a) in the case of a sole practitioner, by the member;<br />
b) in the case of a law firm with two or more lawyers and only one partner, where that partner<br />
is a resident member, by the partner; and<br />
c) in any other case, by two lawyers authorized to sign on clients’ trust accounts, including at<br />
least one lawyer who is a resident member. [amended R‐109‐99]<br />
P.O. Box 1298, Station Main · Yellowknife, NT · X1A 2N9 · Tel: (867) 873-3828 · Fax: (867) 873-6344 · info@lawsociety.nt.ca · www.lawsociety.nt.ca
THE LAW SOCIETY OF THE NORTHWEST TERRITORIES<br />
Form 2.4: Certificate of Accountant and Member Page 2 of 5<br />
PART A<br />
TO BE COMPLETED BY THE MEMBER, AS SPECIFIED IN ITEM 4 OF THE INSTRUCTIONS, BEFORE IT IS FORWARDED TO THE<br />
CHARTERED ACCOUNTANT OR CERTIFIED GENERAL ACCOUNTANT AND BEFORE THE FIELDWORK IS STARTED.<br />
Reporting period: month(s), ending , 20 .<br />
1. Name under which practice is conducted:<br />
2. Indicate practice arrangement:<br />
Apparent partnership<br />
Partnership<br />
Sole practitioner<br />
Other [please specify]<br />
3. Mailing Address:<br />
City/Town: Province/Territory: Postal Code:<br />
Telephone: ( ) ‐ Fax: ( ) ‐<br />
4. In addition to its main office in the Northwest Territories,<br />
is this law practice carried on at more than one location? YES NO <br />
IF YES,<br />
are these other locations within the Northwest<br />
Territories? YES NO <br />
In other Provinces/Territories? YES NO <br />
Outside Canada? YES NO <br />
5. Does the practice maintain a system for logging and<br />
opening a file for each separate client matter whether or<br />
not trust funds are held? YES NO <br />
IF NO, in what circumstances is a file not opened?<br />
P.O. Box 1298, Station Main · Yellowknife, NT · X1A 2N9 · Tel: (867) 873-3828 · Fax: (867) 873-6344 · info@lawsociety.nt.ca · www.lawsociety.nt.ca
THE LAW SOCIETY OF THE NORTHWEST TERRITORIES<br />
Form 2.4: Certificate of Accountant and Member Page 3 of 5<br />
FOR SECTIONS 6 THROUGH 8: IF SPACE IS INSUFFICIENT ATTACH A SCHEDULE, SIGNED AND DATED ON EACH PAGE.<br />
6. Details of the individual members of the firm at any time during the reporting period:<br />
[If less than the full reporting period, give dates.]<br />
Name of member Position Dates<br />
7. Details of all individual members of the firm who, in addition to acting in the capacity of barrister or solicitor,<br />
acted alone as a personal representative of a person, or as a trustee (including as executor), where the<br />
appointment derived from a solicitor‐client relationship:<br />
Name of Member<br />
8. List all clients’ trust accounts, including term investments, operated during the reporting period. Include<br />
accounts and investments in respect of the appointments described in 7 above. (If less than full reporting<br />
period, give dates)<br />
Savings Institution Name and Branch<br />
Account No.<br />
I/We<br />
will disclose all books, ledgers, journals, records and accounts of this law practice to my/our accountant.<br />
Signature<br />
Date<br />
Signature<br />
Date<br />
Signature<br />
Date<br />
P.O. Box 1298, Station Main · Yellowknife, NT · X1A 2N9 · Tel: (867) 873-3828 · Fax: (867) 873-6344 · info@lawsociety.nt.ca · www.lawsociety.nt.ca
THE LAW SOCIETY OF THE NORTHWEST TERRITORIES<br />
Form 2.4: Certificate of Accountant and Member Page 4 of 5<br />
PART B<br />
TO BE COMPLETED BY A CHARTERED ACCOUNTANT OR CERTIFIED GENERAL ACCOUNTANT ON THE ACCOUNTANT'S<br />
LETTERHEAD AFTER PART A HAS BEEN FULLY COMPLETED.<br />
To:<br />
The Law Society of the Northwest Territories<br />
Box 1298<br />
Yellowknife, NT X1A 2N9<br />
Pursuant to section 48 of the Legal Profession Act, and in accordance with the Instructions to Accountants<br />
provided by the Law Society of the Northwest Territories, I/We have performed the following procedures in<br />
connection with the financial records and accounts of [name of member] maintained during the year ended [yearend<br />
date]:<br />
[List Procedures]<br />
As a result of applying the above procedures, I/we can confirm that [name of member] appears to be in<br />
compliance, in all material respects, with the requirements of sections 43, 44 and 45 of the Legal Profession Act<br />
and also sections 79, 81 to 81.9 and 84 to 90, inclusive, of the Rules of the Law Society of the Northwest Territories.<br />
Or, in the event of non‐compliance:<br />
As a result of applying the above procedures, I/we can confirm that it appears that [name of member] is not fully<br />
in compliance with the requirements established by sections [list relevant sections] of the Legal Profession Act and<br />
sections [list relevant sections] of the Rules of the Law Society of the Northwest Territories as disclosed in the<br />
attached supplemental report [attach a report listing all exceptions and qualifications on your letterhead, signed<br />
and dated on each page].<br />
These procedures do not constitute an audit of the member's financial records and accounts and therefore I/we<br />
express no opinion on the financial records and accounts of [name of member] maintained during the year ended<br />
[year‐end date].<br />
This letter is for use solely in connection with the requirements of section 48 of the Legal Profession Act.<br />
City/Town:<br />
Date:<br />
Signed<br />
Chartered Accountant(s) /<br />
Certified General Accountant(s)<br />
P.O. Box 1298, Station Main · Yellowknife, NT · X1A 2N9 · Tel: (867) 873-3828 · Fax: (867) 873-6344 · info@lawsociety.nt.ca · www.lawsociety.nt.ca
THE LAW SOCIETY OF THE NORTHWEST TERRITORIES<br />
Form 2.4: Certificate of Accountant and Member Page 5 of 5<br />
PART C<br />
TO BE COMPLETED BY THE MEMBER OR MEMBERS WHO SIGNED PART A, AFTER THE ACCOUNTANT HAS COMPLETED PART B.<br />
I/We, the member(s), certify that I/we have disclosed, to the above‐named accountant, all books, ledgers, journals,<br />
records and accounts of this law practice, including all funds, securities and other investments received on behalf<br />
of clients.<br />
Signature<br />
Date<br />
Signature<br />
Date<br />
Signature<br />
Date<br />
P.O. Box 1298, Station Main · Yellowknife, NT · X1A 2N9 · Tel: (867) 873-3828 · Fax: (867) 873-6344 · info@lawsociety.nt.ca · www.lawsociety.nt.ca
MEMORANDUM<br />
INSTRUCTIONS TO ACCOUNTANTS<br />
FOR COMPLETION OF FORM 2.4<br />
INTRODUCTION<br />
Form 2.4 is the means by which the Law Society may determine whether or not in your professional opinion:<br />
1. the law practice has the books of account required to be maintained by Part V of the Rules of the Law<br />
Society ("the Rules");<br />
2. the law practice has recorded financial transactions in accordance with Part V of the Rules of the Law<br />
Society ("the Rules");<br />
3. the accounting system in place appears adequate and to be working properly; and<br />
4. there were any contraventions of Part V of the Rules which came to your attention.<br />
The review required to complete the Form 2.4 will not be entirely the same as you would carry out if you were to<br />
express an opinion on the law practice's financial statements, and accordingly the minimum standards of review<br />
are shown under Part III of these Instructions.<br />
You may be asked to perform duties in addition to completing the Form 2.4, such as bookkeeping services, audited<br />
financial statement preparation, systems evaluation, and assistance on income tax matters. These other services<br />
are not part of what is required for Form 2.4 purposes.<br />
FORM 2.4<br />
The original Form 2.4 supplied by the Law Society must be used. A copy is not acceptable. If the space is<br />
insufficient, reference on it should be made to accompanying remarks submitted on your letterhead and signed by<br />
you.<br />
Your attention is directed to Part V of the Rules, and to Part VI of the Legal Profession Act, which are reproduced<br />
following these instructions.<br />
ENGAGEMENT PLANNING<br />
Some required test procedures in the following instructions relate to a selected test month. You should scan<br />
monthly trust reconciliations and select a test month representative of the law firm's trust transactions. The only<br />
P.O. Box 1298, Station Main ∙ Yellowknife, NT ∙ X1A 2N9 ∙ Tel: (867) 873‐3828 ∙ Fax: (867) 873‐6344 ∙ info@lawsociety.nt.ca ∙ www.lawsociety.nt.ca
THE LAW SOCIETY OF THE NORTHWEST TERRITORIES<br />
MEMO: Page 2 of 7<br />
restriction of the test month is that it cannot be the same month selected in the prior year or a month where no<br />
transactions occurred.<br />
The sample size required for testing has been determined to be 5 transactions per lawyer to a maximum of 15<br />
transactions per firm. Many other procedures apply to the entire period, such as review of trust reconciliations and<br />
trust bank statements.<br />
MINIMUM STANDARDS<br />
The scope of your review made with respect to the reporting period will depend upon your professional<br />
judgement, but must include at least the following:<br />
1. Read all of these Instructions, Part V of the Rules and Part VI of the Legal Profession Act reproduced<br />
following these instructions.<br />
2. Obtain the Member's Form 2.4 with Part A thereof duly completed and signed, and retain a copy in your<br />
files.<br />
3. Note at the start of your Form 2.4 engagement the dates to which the trust and non‐trust books and<br />
accounts were written up and posted.<br />
4. With reference to Rules 81 to 81.3, review the adequacy of the accounting system for trust and non‐trust<br />
transactions noting any exceptions to the checklist provided below. Enquire about and review any<br />
modifications pursuant to Rule 81 and examine the Member's copy of the Law Society's letter of<br />
authorization.<br />
A member's books of account must be maintained in<br />
a. legibly handwritten form, in ink or other duplicated or permanent form; YES NO <br />
b. printed form; or YES NO <br />
c. an electronic form that can readily be transferred to printed form on<br />
demand.<br />
YES NO <br />
The transactions recorded in a member's books of account must be in chronological<br />
order and in a form that is easily traceable.<br />
YES NO <br />
A member shall maintain at least the following trust books of account:<br />
a. a trust cash book or synoptic showing,<br />
i. for all trust money received for each client, the date of receipt, the<br />
source of the money and the identity of the client on whose behalf the<br />
trust money is received,<br />
ii. for all money disbursed out of trust for each client, the cheque or<br />
voucher number, the date of each disbursement, the name of each<br />
recipient and the identity of the client on whose behalf the trust<br />
money is disbursed;<br />
YES NO <br />
YES NO <br />
4th Floor, Diamond Plaza ∙ 5204 – 50 th Avenue ∙ P.O. Box 1298 ∙ Yellowknife, NT ∙ X1A 1E2 ∙ Tel: (867) 873‐3828 ∙ Fax: (867) 873‐6344 ∙ info@lawsociety.nt.ca ∙ www.lawsociety.nt.ca
THE LAW SOCIETY OF THE NORTHWEST TERRITORIES<br />
MEMO: Page 3 of 7<br />
b. a trust ledger showing separately for each client on whose behalf trust<br />
money has been received, all such money received and disbursed and the<br />
unexpended balance;<br />
YES NO <br />
c. a record<br />
i. showing each transfer of money between clients' trust ledgers, YES NO <br />
ii. containing an explanation of the purpose for which each transfer is<br />
made, and<br />
YES NO <br />
iii. containing the member's written approval of the transfer; YES NO <br />
d. monthly trust reconciliations required to be prepared under Rule 81.7, and<br />
any detailed listings, documents, banking documents and vouchers<br />
prepared in support of the reconciliations;<br />
YES NO <br />
e. file copies of all billings for fees charged or other billings made to clients,<br />
which copies<br />
i. show the dates such charges are made, YES NO <br />
ii. identify the clients charged, and YES NO <br />
iii. are filed in chronological, alphabetical or numerical order; YES NO <br />
f. copies of bank validated duplicate deposit slips for all deposits made; YES NO <br />
g. all supporting vouchers and documents, including monthly bank<br />
statements, pass books, cancelled cheques, bank vouchers and similar<br />
documents and invoices.<br />
YES NO <br />
A member shall maintain, at a minimum, the following non‐trust books of account:<br />
a. a non‐trust cash book or synoptic showing,<br />
i. for all non‐trust money received relating to the law practice, the date<br />
of receipt and the source of the money, and<br />
YES NO <br />
ii. for all non‐trust money disbursed, the cheque or voucher number, the<br />
date of each disbursement and the name of each recipient;<br />
YES NO <br />
b. an accounts receivable ledger or other suitable system to record, for each<br />
client, the member/client position on all non‐trust transactions with<br />
respect to which a bill has been delivered or a disbursement made, and<br />
including:<br />
i. a record of all transfers from a trust account, YES NO <br />
ii. any other receipts from or on behalf of the client, and YES NO <br />
iii. the balance, if any, owed by the client; YES NO <br />
c. file copies of all billings for fees charged or other billings made to clients,<br />
which copies<br />
i. show the dates such charges are made, YES NO <br />
ii. identify the clients charged, and YES NO <br />
4th Floor, Diamond Plaza ∙ 5204 – 50 th Avenue ∙ P.O. Box 1298 ∙ Yellowknife, NT ∙ X1A 1E2 ∙ Tel: (867) 873‐3828 ∙ Fax: (867) 873‐6344 ∙ info@lawsociety.nt.ca ∙ www.lawsociety.nt.ca
THE LAW SOCIETY OF THE NORTHWEST TERRITORIES<br />
MEMO: Page 4 of 7<br />
iii. are filed in chronological, alphabetical or numerical order; YES NO <br />
d. copies of bank validated duplicate deposit slips for all deposits made; YES NO <br />
e. all supporting vouchers and documents, including monthly bank<br />
statements, pass books, cancelled cheques, bank vouchers and similar<br />
documents and invoices.<br />
The information required to be recorded on the accounts receivable ledger referred<br />
to in paragraph (1) (b) may be recorded on the trust ledger referred to in paragraph<br />
81.2(b) if the entries are clearly identified and are not combined with trust account<br />
information.<br />
YES NO <br />
YES NO <br />
5. With reference to Rule 81.4, test check that trust transactions have been recorded within 7 days after the<br />
transaction, noting any exceptions and the Member's explanation.<br />
6. In accordance with Rule 81.6, obtain Member's confirmation that the books of account of a member show<br />
current transactions and the transactions for six previous years as determined by the Member's fiscal year<br />
end.<br />
7. a. Review all trust reconciliations to ensure that the reconciliations are prepared monthly and that any<br />
differences between the totals are supported by the documentation outlined in Rule 81.7.<br />
b. Review all monthly bank account statements and pass book balances, noting any shortages in a<br />
clients' trust fund and ensuring that the shortage has been rectified within five days after coming to<br />
the Member's attention and where the shortage has not been rectified within five days, review the<br />
Member's written report of the facts and reasons as provided to the Law Society pursuant to Rule<br />
81.8 or 81.9.<br />
c. Review all monthly trust reconciliations, including those subsequent .to the reporting period, and<br />
compare gross trust liability with the total of the reconciled trust bank balances. Ensure that Section<br />
45 has been complied with. Refer to Part IV of these Instructions.<br />
d. With reference to Rule 81.5, test check that trust cash books have been added and balanced within<br />
the allotted time, noting any exceptions and the Member's explanation.<br />
8. Check in detail, one month's trust bank reconciliation(s).<br />
9. Check in detail, one monthly trust reconciliation.<br />
10. Obtain independent confirmation of the balance, as at the end of the reporting period, for each pooled<br />
and separate trust bank accounts or other depository in use at any time during the reporting period.<br />
Ensure that the confirmation agrees with the reconciliations prepared by the member at the end of the<br />
reporting period.<br />
4th Floor, Diamond Plaza ∙ 5204 – 50 th Avenue ∙ P.O. Box 1298 ∙ Yellowknife, NT ∙ X1A 1E2 ∙ Tel: (867) 873‐3828 ∙ Fax: (867) 873‐6344 ∙ info@lawsociety.nt.ca ∙ www.lawsociety.nt.ca
THE LAW SOCIETY OF THE NORTHWEST TERRITORIES<br />
MEMO: Page 5 of 7<br />
11. a. Test check receipts with deposit book and bank statements to ensure that trust money is deposited<br />
into a client's trust account within 7 days noting any exceptions and obtaining the Member's<br />
explanation.<br />
b. For the same sample in 11.(a), test check that the Member has paid into the client's trust account<br />
only that part representing trust money.<br />
c. Verify that trust money received by a resident member is deposited into a client's trust account in the<br />
Territories.<br />
12. a. Test check that trust money has been withdrawn in accordance with Rules 85 to 90.<br />
b. With reference to Rule 90, confirm that payments made out of the clients' trust account are made<br />
only by cheque bearing the signature or countersignature of the member or of another member<br />
designated as a signing authority.<br />
c. For the sample in 12.(a), ensure that all transactions tested were recorded within 7 days noting any<br />
exceptions and obtaining the Member's explanation.<br />
13. As provided for in Rule 89, examine any deposits made in compliance with subsection 57(4) of the Act<br />
pursuant to an arrangement made between the Member and a client where trust money has been<br />
deposited in a separate interest bearing account to ensure that the interest earned has been paid in<br />
accordance with the arrangement.<br />
COMMON REPORTING DEFICIENCIES<br />
The following is a brief description of some areas of concern.<br />
1. TRUST RECONCILIATIONS:<br />
The Rules require the Member to prepare monthly trust reconciliations. A trust reconciliation is, in its<br />
simplest form, a comparison between the trust assets (trust bank reconciliations and client separate<br />
interest bearing accounts) and the trust liabilities (detailed listing of the trust ledger accounts/cards). This<br />
reconciliation must be signed and dated by the member within 30 days of the month‐end. The<br />
reconciliation is the most fundamental control required by a Member.<br />
Recurring Problems:<br />
a. Exclusion of trust funds from the reconciliation.<br />
Exclusion of separate interest‐bearing accounts from the reconciliation constitutes a Breach of the<br />
Rules. Separate interest‐bearing accounts are client funds under the Member's control and must be<br />
included.<br />
b. Exclusions of inactive trust bank accounts from the reconciliation.<br />
Reconciliations must be completed for all operating trust bank accounts regardless of the activity<br />
level and closing balance. This means that inactive trust bank accounts must be reconciled even if the<br />
financial institution does not issue bank statements on a regular basis.<br />
4th Floor, Diamond Plaza ∙ 5204 – 50 th Avenue ∙ P.O. Box 1298 ∙ Yellowknife, NT ∙ X1A 1E2 ∙ Tel: (867) 873‐3828 ∙ Fax: (867) 873‐6344 ∙ info@lawsociety.nt.ca ∙ www.lawsociety.nt.ca
THE LAW SOCIETY OF THE NORTHWEST TERRITORIES<br />
MEMO: Page 6 of 7<br />
c. Differences not identified or explained.<br />
All differences between the trust listing and the bank reconciliations must be identified and<br />
explained. The Form 2.4 must disclose any differences not explained by the Member regardless of the<br />
amount. The accountant must exercise judgement in evaluating the explanation provided for any<br />
differences.<br />
d. Debit balances.<br />
All debit balances appearing on any month end trust listing must be reported. Debit balances are<br />
amounts overdrawn to the credit of a client. The Law Society does not consider it appropriate to net a<br />
deficiency on one trust ledger card against funds held by the same client on other ledger card( s).<br />
there may be a restriction on the trust funds as to usage and cannot be applied against the debit<br />
balance. The objective of the reconciliation is to match trust assets with trust liabilities. The presence<br />
of a debit balance may signify that liabilities exceed available assets.<br />
e. Interest on separate interest‐bearing accounts.<br />
Interest on these investments must be posted to the trust ledger account in either the month the<br />
interest was received or at the latest, by the end of the following month. Interest is not posted on the<br />
accrual basis; it is posted when received (cash basis). For example, the trust ledger account on a daily<br />
interest savings account would be posted monthly, while a six month GIC would be posted once the<br />
investment matured.<br />
f. Reconciling items.<br />
Outstanding deposits and cheques frequently clear in the next month. However, there may be staledated<br />
cheques. The number and dollar amount of the stale‐dated cheques should be noted on the<br />
Form 2.4. Recurring reconciling items, especially those increasing the bank balance should be<br />
carefully scrutinized as they may indicate errors within the accounting records. Examples may include<br />
bank service charges and cheques not allocated against a client trust ledger account.<br />
2. BANK STATEMENT REVIEW:<br />
All trust bank statements for the Form 2.4 reporting period must be reviewed for overdrafts and for the<br />
Member's trust cheques issued that went NSF. These cheques are often difficult to identify as many banks<br />
do not record them on the bank statements but rather include a debit memo with the cancelled cheques.<br />
The NSF cheques do not refer to client cheques deposited into trust by the Member that are subsequently<br />
reversed by the financial institution.<br />
Recurring Problem:<br />
a. Bank or clerical errors resulting in an overdraft.<br />
Only those overdrafts which have not been rectified within five (5) days in accordance with Rule 81.8,<br />
need be reported. If there are numerous minor exceptions of a similar nature, report only on the<br />
general situation. Please note that if the bank statement has a running balance after each<br />
transaction, only the balance at the end of the day needs to be reviewed.<br />
3. TRUST LEDGER ACCOUNTS:<br />
The level of testing trust ledger accounts is set out above under Engagement Planning. Testing from the<br />
4th Floor, Diamond Plaza ∙ 5204 – 50 th Avenue ∙ P.O. Box 1298 ∙ Yellowknife, NT ∙ X1A 1E2 ∙ Tel: (867) 873‐3828 ∙ Fax: (867) 873‐6344 ∙ info@lawsociety.nt.ca ∙ www.lawsociety.nt.ca
THE LAW SOCIETY OF THE NORTHWEST TERRITORIES<br />
MEMO: Page 7 of 7<br />
trust ledger account to the monthly trust listing consists of a minimum sample of 5 per Member and a<br />
maximum sample of 15 per Firm. Testing in the other direction for unrecorded transactions, that is the<br />
trust ledger card to the trust listing, also consists of a minimum sample of 5 per member and a maximum<br />
sample of 15 per Firm. The level of testing applies equally to manual and computerized systems.<br />
Recurring Problems:<br />
a. Insufficient testing when the trust listing is smaller than the sample size.<br />
A Member may have 5 or less clients on the trust listing. This reduces testing in one direction but<br />
does not eliminate testing using the trust ledger accounts as the source. If you are unable to meet the<br />
minimum testing requirements, an explanation must be provided.<br />
b. Insufficient testing of computerized accounting systems.<br />
If the trust listing report is generated from the same system as the trust ledger accounts, you are still<br />
required to complete all testing as entries can be backdated or revised after the trust listing report<br />
has been generated.<br />
4. FINANCIAL RECORDS:<br />
Rules 81.2 and 81.3 outline which financial records, both trust and non‐trust, that the Members is<br />
required to maintain.<br />
Recurring Problems:<br />
a. Trust transfer journal not maintained.<br />
It is not sufficient for the Member to merely record transfers on the appropriate trust ledger<br />
accounts. A separate trust transfer journal must also be maintained. The journal can take on many<br />
forms. Photocopies of trust ledger accounts involved or memos from the Member requesting the<br />
transfers are acceptable, provided the documentation is contained in one file folder.<br />
CONCLUSION<br />
The concept of materiality, fundamental to so many other engagements, needs to be put aside as no client money<br />
can be regarded as immaterial. In addition, you need to have a sound understanding and clear appreciation for the<br />
Rules regarding trust money.<br />
The Law Society welcomes active discussion between the Member and yourself and encourages you to include an<br />
educational component for the Member in the scope of your review.<br />
Since the Form 2.4 and your explanatory letter, if any, are delivered to the Law Society by the Member, their<br />
contents will be known to the Member. It is expected, of course, that any differences of opinion will have been<br />
discussed and, where possible, resolved prior to completing Part B of Form 2.4. Where differences of opinion exist,<br />
the Member has the option of writing a letter to the Law Society on the subject.<br />
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