A look at the new Trust Report

The new Trust Report, which must be filed annually, will be phased in gradually in 2004 to replace the Form 47 Accountant's Report and Form 48 Statutory Declaration. The Law Society will advise law firms individually as to when they will be expected to use the new Trust Report instead of the Form 47 or Form 48. All firms are expected to be using the Trust Report by the end of 2005.

Lawyers and their accountants who wish to review the new Trust Report can now access it in the Forms section of the Resource Library. The Trust Report is divided into four sections. Three sections will be completed by the law firm and one section by a public accountant retained by the firm. Here are the key improvements to be noted for each section:

Section A (completed and signed by law firm)1

  • Information will be collected on whether the law firm had trust activity during the year, or whether it only held trust funds. The firm must also disclose whether it used the trust account of another firm, or whether it allowed another lawyer to use its trust account. This provision will be especially relevant to the temporary inter-jurisdictional mobility of lawyers. A lawyer who practises temporarily in BC may only conduct trust transactions through a trust account in his or her home jurisdiction or through the account of another lawyer in BC.
  • The firm must report on whether any of its lawyers acted as trustee or sole executor of an estate, had authority to act under a power of attorney or a representation agreement. This will allow the Law Society to identify a lawyer with access to funds outside the practice of law, but in situations that may be related to the lawyer's professional capacity.
  • All authorized signatories to the firm's trust account will be named, to identify which lawyers have access to trust monies through signing authority.
  • All bank accounts maintained by the firm (including general accounts) must be listed on a schedule. This will prevent firms from depositing trust money to accounts that need not be disclosed on the present form of Accountant's Report.
  • All trust accounts maintained by the firm under a different business name must be disclosed. The present form of report does not specifically require such disclosure.
  • Any financial difficulties (bankruptcies or insolvencies) of any of the lawyers in the firm must be disclosed. This will ensure compliance by all lawyers in the firm with Rule 3-45 and will allow the Law Society to compare the information disclosed with that already in the Society's database.
  • The firm must report on its method of maintaining books and records (not part of the present form of Accountant's Report) in order to ensure compliance with Rule 3-59, as well as reporting whether the firm has taken steps to establish a back-up system.
  • The firm must disclose whether it has off-site storage and, if so, its location.
  • The firm must disclose whether it has received any funds as a loan from a client, to better ensure compliance with Part 7 of the Professional Conduct Handbook.
  • There must be confirmation of monies in trust accounts to ensure that all non-trust money has been properly removed and that the firm has taken steps to remit trust money to the client or, if the money is unclaimed, to the Law Society.
  • The firm must disclose any cheques (trust or general) returned for insufficient funds. NSF cheques in the trust account are a serious matter, being a breach of undertaking: see Chapter 11, Rule 8 of the Professional Conduct Handbook. NSF cheques in the general account can be an indication that the firm is having difficulties meeting its operation costs.
  • The firm needs to disclose whether it has been audited by any other regulatory body, such as the Canada Customs and Revenue Agency for GST or income tax purposes, or by provincial tax authorities for PST compliance.
  • The firm must confirm whether it has taken steps to ensure its proper winding up in the event of disability or death of the partners. Such steps are needed to reduce the costs of future custodianships.

Section B (completed and signed by the law firm if there is any trust activity during the reporting period)

  • The firm must disclose the type of trust transactions it has handled. Each type of trust transaction may have an associated risk factor.
  • The firm must also state its actual number of trust transactions, together with the largest transaction and the average number of transactions over the reporting period. The level of risk may increase as the number of transactions increases.
  • The firm must report on whether any trust shortages were handled appropriately and in accordance with Rule 3-66.
  • The firm must also report on whether client trust funds were properly insured by CDIC in accordance with Rule 3-70.
  • The firm must address whether it has complied with the requirements of other regulatory bodies (particularly with respect to GST and PST).

Section C (completed and signed by accountant)

  • The accountant must verify that he or she has read all the information provided in Sections A and B. The accountant, having access to the records and books of the firm, should identify any obvious errors contained in those sections.
  • The accountant must confirm that the specific tests required have been performed.
  • The accountant must report on the balance of trust assets and liabilities of the firm at the end of the reporting period. This allows the Law Society to confirm that there are sufficient funds on deposit in the trust accounts to meet the firm's obligations concerning funds held in trust for clients. Any discrepancies will be reviewed.

Section D (completed and signed by the law firm)

  • A statutory declaration of a lawyer or lawyers of the firm must confirm that all books and records of the firm have been provided to the accountant.

 


Law firms can expect to receive more details on the new Trust Report over the course of 2004. For more information, contact Neil Stajkowski, Chief Financial Officer, at nstajkowski@lsbc.org or 604 443-5712.