28.06 Controlled trust accounts of an overseas practice
1. The Solicitors’ Overseas Practice Rules 1990 include a requirement for reporting accountants to make a test check of controlled trust accounts. This applies to trusts where a solicitor is controlled trustee (see rule 20(d) and (f)–(g), Annex 9A at p.190), or where a recognised body is controlled trustee (see rule 20(e)–(f)), or where, in respect of an overseas incorporated practice, a solicitor is treated as holding money subject to a controlled trust by virtue of rule 9(4) at p.184. Rule 9(4) provides that the solicitor shareowners and directors in an overseas corporate practice in which solicitors own a controlling majority of the shares will be treated as holding money subject to a controlled trust, where the corporate practice itself holds that money as sole trustee or co-trustee with an officer or employee. The test check provisions will thus apply to trust money held by individual solicitors themselves or by their incorporated practices.
2. Money held by a hived-off overseas trust company, i.e. a company not forming part of a solicitors’ practice and not regulated by the Society as a solicitors’ practice, falls outside the scope of the accountant’s report. However, the following notes will apply to an overseas trust company operated as an overseas corporate practice in accordance with rule 9(1) of the overseas practice rules (at p.183), as well as to trusts where a solicitor himself or herself is a controlled trustee:
(a) The accountant is required to make a test check of only a limited number of accounts and files relating to controlled trusts. The number and selection of controlled trust accounts included in the examination is left to the discretion of the reporting accountant. The fact that an accountant (not necessarily the reporting accountant) is already engaged in the management of a particular trust may well be relevant to the reporting accountant’s decision whether or not to do test checks in respect of that particular trust, especially if annual accounts are prepared by the trust’s accountant.
(b) There is no question of the reporting accountant having to check that the investments made in respect of the trust are appropriate. Accountants may find it useful to refer to the series of checks contained in rule 4(1)(B) of the Accountant’s Report Rules 1991 (see Annex 28D at p.628 of The Guide to the Professional Conduct of Solicitors 1996 (seventh edition)) and rule 42 of the Solicitors’Accounts Rules 1998 (see Annex 28B at p.725). The overseas practice rules require solicitors practising overseas either to keep a central register of controlled trusts or to keep the accounts relating to controlled trusts together centrally.
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