You may remember some of our previous articles regarding the changes to the SRA Accounts Rules following the announcement in May 2014 that the regulatory body were reviewing the requirement for all firms of solicitors who hold client money to submit an annual accountant’s report.
Following that review, the SRA proposed that the significant changes to the SRA Accounts Rules would be implemented using a three-phrase approach of regulatory reform, which commenced in October 2014.
We discussed Phase Two, the relaxation of Reporting Accountants’ requirements, in detail when the initial plans were announced in July 2015. Those changes to SRA Accounts Rules were, however, subject to approval.
Rule 39 vs Rule 38
That approval has now been granted, meaning that these further changes to the SRA Accounts Rules (Phase Two) will take effect for accounting periods ending on or after 1 November 2015. In short, Rule 39 has been removed and replaced by an amended Rule 38.
The amended Rule 38 brings changes to the SRA Accounts Rules that will be welcome news for the majority of UK law firms, as accountants will now be encouraged to exercise their professional judgment, to provide a more risk-focused, audit style approach to reporting. Rule 38 will also see changes that may benefit smaller law firms, through additional exemption in regards to the requirement to have an external accountant’s report.
This means that in the future there are likely to be far fewer qualified reports.
What will the changes to SRA Accounts Rules mean?
This announcement is the latest step in the process of simplifying the SRA Accounts Rules, moving away from the obligatory ‘one size fits all’ process and towards proportionate and targeted regulation.
The SRA has acknowledged that Rule 39 was prescriptive and now, with an amended Rule 38, is encouraging the use of professional judgement rather than mandatory regulation. Both of the key changes arising from this approval – the relaxation of regulatory burden on smaller law firms who are relatively low risk and the requirement for accountants to exercise professional judgement in their reporting – will be welcome news for the sector.
Of particular benefit to law firms will be the greater emphasis on accountants exercising their professional judgement which will give greater scope when deciding what to report on. This change, along with the removal of the need to qualify reports for trivial breaches of the accounting rules, will give accountants the flexibility to assess the risks to client money, giving law firms greater value for money. You should now start talking to your accountant about what these latest changes may mean for your law firm moving forward. Overall the changes to SRA Account Rules, which are a fundamental reconsideration of the rules as a whole, bring welcome news. Further changes to SRA Accounts Rules are also planned and remain in the pipeline. We will keep you updated with ongoing developments.
SRA Accounts Rules training courses
The Hawsons specialist legal sector team provide in-house SRA Accounts Rules training courses – including a detailed overview of all 52 rules – for law firms of all sizes across the UK. Our SRA Accounts Rules training courses are suitable for all fee earning staff, compliance/risk officers, accounts and finance staff and practice managers working within a law firm.
Given the significance of recent developments and proposed changes to the current SRA Accounts Rules, it is important that you stay up-to-date with the rules, including common breaches and how to avoid them.
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