Solicitors Accounts Rules – The New Approach
In July 2015, the Solicitors Regulation Authority announced changes to the format of accountants’ reports for solicitor firms. These changes were approved by the Legal Services Board and take effect for accounting periods ending on or after 1 November 2015.
The changes are intended to make accountants’ reports more relevant, to reduce regulatory burden and cost to solicitor firms.
The new rules have removed some low risk/low impact firms from the requirement to have an accountants’ report. The following firms are now exempt from the requirements for an accountants’ report:
- Firms that hold client money for legal aid only.
- Firms where the average client money balance was below £10,000 and the maximum balance did not exceed £250,000.
It should be noted that it is the solicitor firm’s responsibility to ensure that they have properly established whether an accountants report is required or not.
Although there is little change in the underlying rules regarding client money, the new rules, however, have removed the prescriptive list of tests that the reporting accountant previously had to complete. Instead the reporting accountant is required to exercise professional judgement in deciding what work is required. As a result, the most significant changes which impacts on the work of the reporting accountant can be summarised as follows:
- The need to assess the risk and establish how much testing is to be done.
- The need to consider and assess the control systems and procedures in place.
- Assess and judge as to the seriousness of breaches and decide whether a qualified report is required.
It is likely that work programmes previously used are still appropriate, however, the reporting accountant will need to understand and have assessed the control systems, to robustly plan the work and identify areas of increased risks before any onsite work is carried out and tailor the work programme and sample sizes accordingly.
The reporting accountant will also need to document the assessment and reasoning for issuing a qualified report or not.
For further guidance, the Institute has issued interim guidance (TECH 16/15AAF Solicitors Regulation Authority Accounts Rules: interim guidance for reporting accountants following changes to the accountant’s report requirements) which can be found at the following URL:Talk to Barnes Roffe today