SQE1 - Solicitors Qualifying Examination Part 1 Solicitors Accounts Rules Questions and Answers

Question 1

A solicitor receives a single electronic payment of £10,000 from a new client. The client's instructions state that £8,000 is to be held on account for the purchase price in a conveyancing transaction, and £2,000 is for the firm's agreed fixed fee. What is the correct procedure for handling this mixed receipt under the SRA Accounts Rules?

Accepted Answer

Pay the full £10,000 into the client account and then promptly transfer £2,000 to the business account.

Answer

SRA Accounts Rule 4.1 requires client money to be kept separate. When a mixed payment is received, Rule 4.2 allows for the entire sum to be paid into a client account, but the firm must then 'promptly' allocate the funds to the correct accounts. This means the firm's own money (£2,000) must be transferred to the business account without delay, leaving the client money protected in the client account.

Question 2

Under which of the following circumstances is a withdrawal from a firm's client account permitted according to the SRA Accounts Rules?

Accepted Answer

To pay an expert's fee on behalf of a client, for which the money is specifically being held.

Answer

SRA Accounts Rule 5.1 states that money can only be withdrawn from a client account 'for the purpose for which it is being held'. Paying an expert's fee is a proper disbursement related to the client's matter. The other options represent improper use of a client account, such as using one client's money for another's benefit or for the firm's own expenses, which is a serious breach of the rules.

Question 3

A law firm concludes a matter and has £25 remaining in the client ledger. For 18 months, the firm has made reasonable, documented attempts to trace the client to return the funds, without success. According to the SRA Accounts Rules, what is the most appropriate action for the firm to take?

Accepted Answer

Pay the £25 to a registered charity of the firm's choice.

Answer

Under Rule 5.1(c) and the SRA's prescribed circumstances, if a residual client balance is £500 or less, and the firm has taken reasonable steps to return the money to the rightful owner, the firm can pay the money to a charity. The firm must record the steps taken and cannot deduct its own costs from the amount. Keeping the money indefinitely or transferring it to the business account would be a breach of the rules.

Question 4

What is the overriding principle concerning the payment of interest on money held for a client in a general client account under the SRA Accounts Rules?

Accepted Answer

The firm must account to the client for a fair sum of interest.

Answer

SRA Accounts Rule 7.1 explicitly states that a firm must 'account to clients or third parties for a fair sum of interest on any client money held'. While a firm can have a written agreement with a client to the contrary, the default position is one of fairness. There is no specific monetary threshold or requirement to use the Bank of England base rate, but the policy must be fair and reasonable in the circumstances.

Question 5

To comply with the SRA Accounts Rules, what is the maximum permitted interval between completing client account reconciliations?

Accepted Answer

At least every five weeks.

Answer

SRA Accounts Rule 8.3 requires that a firm must complete a reconciliation of its client accounts at least every five weeks. This reconciliation must compare the bank statement balance with the cash book balance and the total of the client ledger balances, and must be signed off by the COFA or a manager of the firm.

SQE1 Practice Test

SQE1 Practice Test

SQE1 - Solicitors Qualifying Examination Part 1 Solicitors Accounts Rules Questions and Answers