SRA Accounts Rules – Do I still need an annual accountant’s report?
A recent consultation by the Solicitors Regulation Authority (SRA) proposed removing the requirement for law firms to file an annual accountant’s report, which audits how they manage client account.
The proposal, part of a wider review of reducing bureaucracy, was one of a number of possible measures outlined by the SRA to reduce the cost for firms to engage a reporting accountant, and to the SRA in processing and storing these reports which it said at the time “could no longer be justified”.
However, following resistance from both lawyers and accountants, including Moore and Smalley, the SRA has now amended its proposals.
Now, while firms will still have to commission an accountant’s report within six months of their financial reporting period, only those reports that are qualified will have to be filed with the SRA.
I am pleased the SRA has revised the original proposal which would have massively increased the risk of misuse of client monies and seen COFAs having to sign a declaration that they are satisfied the firm is managing client account in accordance with SRA rules, increasing personal risk to them.
Of course, anything that simplifies reporting requirements for legal firms is to be welcomed, but my fear was that issues that accountants would normally pick-up as part of annual report may be missed by COFAs, who are already under huge pressure to ensure there is financial stability.
While it is not unreasonable to expect the COFA to sign a declaration that all is in order with their client account, having the report of an independent accountant can also help COFAs change bad behaviours within their firm. We are quite often used as that stick!
It’s the reason I wrote to the SRA as part of the consultation. After all, the SRA is trying to tighten financial compliance and my view was that the proposals to do away with the accountant’s report may have actually made it harder for the SRA to identify firms that aren’t complying with the rules on client money, as well as wider financial reporting requirements.
Under the SRA’s revised proposals firms whose fees are entirely derived from Legal Aid work will be exempt from commissioning a report.
The body has also simplified Overseas Accounts Rules to make it significantly easier for firms with foreign practices to comply with its stipulations.
The changes will be phased in in two stages, beginning in October this year, while phase two, which includes issuing a fully revised format for the accountant’s report, will kick in from April 2015.
All the latest changes will still need to be approved by the Legal Services Board before inclusion in the SRA’s Handbook.
For more information on this matter contact Karen Hain on 01772 821021.