Accounting Reports prepared for accounting periods ending after 1 November 2015 will undergo a ‘significant’ change following a consultation exercise by the Solicitors Regulation Authority (SRA).
First announced in July 2015, the changes are described by SRA Executive Director Crispin Passmore as part of a drive to “reduce bureaucracy and be proportionate.”
What are the changes?
The SRA now requires Reporting Accountants to use their judgement when deciding what should be reported as a breach of the Account Rules. Rule 38 has replaced Rule 39. Previously, a Reporting Accountant had to follow a prescriptive set of tests when preparing the annual Accountant’s Report, but now it is for the Reporting Accountant to consider the testing to be undertaken based on their professional assessment of risk.
The reformed report process will no longer list masses of trivial breaches and will target the testing towards the identified areas of risk and of the compliance of the solicitor with certain rules. The only matters that now need to be reported to the SRA are “material breaches of Accounts Rules” and “significant weaknesses in the firm’s systems and controls.”
What if the solicitor has no breaches?
Under the reformed rules, if a solicitor doesn’t have any breaches then their report does not have to be submitted to the SRA. However, the solicitor and accountant does need to keep a copy of the report for six years.
Has anything remained the same?
Solicitors must still comply with the Accounts Rules and even though trivial breaches are not reportable, they are still breaches of the rules. The SRA is looking to simplify the accounts rules in the near future, so further changes are likely to be introduced.
Will solicitors notice a difference with the changes?
The Reporting Accountant will undergo their testing in a similar process as they will still focus on client bank accounts, client ledgers and areas of perceived risk. The only difference now, is the final judgement of the Reporting Accountant of which breaches (if a solicitor has any) will be reported to the SRA with the primary focus of being a risk to client money.