The Solicitors Regulation Authority (SRA) has published a six-week consultation entitled Reporting Accountant, proposing to abolish the requirement for law firms holding client funds to submit an annual accountant’s report
The consultation proposes the removal of the mandatory requirement that firms holding client funds must submit an annual accountant's report to the SRA, and, in place of that, introducing a requirement for a declaration, at the annual Practising Certificates (PC) renewal stage, by the Compliance Officers for Finance and Administration (COFAs) of each firm that they are satisfied that the firm is managing client accounts in accordance with the SRA Account Rules.
Currently, every firm holding client money has to have its client account audited annually, regardless of whether the firm poses a high or low risk to client money. The proposals are aimed at reducing the unnecessary regulatory burden of a compulsory report and giving firms the flexibility to decide the best methods to satisfy themselves that the SRA requirements of good financial management and protection of client money are met.
With the removal of the requirement to submit annual accountant reports, the SRA consider that it is appropriate for the firm’s COFA to declare that the firm’s accounts are compliant with the SRA Accounts Rules with effect from the date of implementation of these proposals. This will serve as an added reassurance to the SRA that appropriate processes are in place.
Current requirements already put a clear responsibility on COFAs to ensure client accounts are managed and protected in accordance with the SRA Account Rules. The SRA will, however, retain the power to require firms that pose a higher risk to client money to have their accounts audited as part of supervisory, investigative or enforcement activity.
Both proposals will be implemented in October 2014, subject to a positive outcome to the consultations.
The plan to remove the mandatory requirement to submit an annual accountant's report applies to all SRA regulated firms operating in England and Wales, as well as overseas practices.
Peter Noyce, head of professional services at Menzies LLP said: ‘This announcement comes as no surprise. The accountant’s report is undoubtedly a burden on smaller law firms, and with an estimated 9,000 firms holding client funds, the SRA’s move could save the profession £30m a year. It cannot fail to be popular in the present climate.
‘A move towards self-regulation is always controversial and only time will tell if it works or not. Law firms are under huge financial pressure and many operate on a weak financial basis. Hopefully, management teams will see the removal of this compliance burden as an opportunity to invest in better practice management advice. It is something the profession clearly needs’
The changes to the rules are expected to save the regulator £200,000 a year through reduced processing of accountant’s reports.
But there are financial issues with removing the requirement. ‘If the regulator has to resolve a greater number of client account problems it may ultimately incur additional costs.’
The consultation closes for comment on 18 June 2014.
Responses to the consultation can be made online at https://forms.sra.org.uk/s3/consult-cofa or email firstname.lastname@example.org
The consultation document is available at http://www.sra.org.uk/sra/consultations/reporting-accountant.page