Following a consultation period, which ran between May and June last year, the Solicitors Regulation Authority (SRA) announced, in September 2014, that a three-stage process regarding the proposed new changes to the SRA Accounts Rules would be phased in. We covered the details, including why the changes are happening, in an article in March.
The details of Phase Two have recently been announced.
Phase Two – Reporting Accountants’ requirements relaxed
In March we looked at how Phase Two will redefine the circumstances in which an accountant’s report needs to be qualified and raised a pressing question; exactly what should the accountant be reporting on?
Following an announcement by the SRA, on 15 July 2015, the changes to the format of the accountants’ report for solicitors’ practices are set to relax from the existing rigid requirements. This should be a welcome announcement for law firms across the UK, both small and large.
The principle changes planned are as follows:
- Accountants will no longer need to qualify reports for trivial breaches of the rules but will instead be able to focus on risk to client money.
- A further tier of low risk firms will be exempt from the requirement to obtain an accountant’s report.
Accountants encouraged to use their professional judgement
The first of the planned changes announced by the SRA will see accountants given more scope to exercise greater professional judgement in the detailed testing that they undertake, as well as the removal of the need to qualify reports for trivial breaches of accounting rules.
Accounts burden set to be lifted from over 1000 small law firms
The second change, benefiting smaller law firms, will see the SRA expand the exemption (which currently only includes firms dealing exclusively with legal aid) to include all firms with an average account balance of less than £10,000 over a year and a maximum account balance of £250,000.
What does the mean for law firms in the UK?
Simon Bladen, Legal Partner at Hawsons, said: “The changes, if approved by the Legal Services Board, will indeed give accountants the scope to provide a more risk-focused, audit style approach to reporting; advising firms on potential risks and ensuring greater value for money for law firms.”
“The changes will move away from the obligatory ‘one size fits all’ approach which was, and is still, viewed as disproportionate and one that adds an additional regularity burden on law firms. Moving away from this disproportionate approach is the principle aim of the three-phase process.”
“These planned changes to the SRA Accounts Rules are certainly a step in the right direction, particularly the mitigation and relaxation of the mounting regulatory burden on smaller firms who are relatively low risk. The SRA are working towards an approach which is significantly more proportionate and fit for purpose, and these are welcome changes in meeting that goal.”
“The SRA also confirmed that Phase Three, which is likely to involve a fundamental reconsideration of the Accounts Rules as a whole, will begin in Autumn 2015. The next 12 to 24 months promise to be particularly important for both accountants and their solicitor clients and it is crucial that your principles, COFA and staff stay up-to-date with the rules in this period of significant regulatory reform.”
If the changes are approved by the Legal Services Board, the amendments would form part of Version 15 of the SRA Handbook, which is set to go live on 1 November 2015, and will apply to firms whose accounting periods end on or after that date.
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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