The Solicitors Regulation Authority (SRA) has now finished its consultation process for phase one of their three phase plan to review the Account Rules followed by all legal service providers. The results of which will take effect from 31 October 2014.
So, what did phase one entail?
Phase One saw SRA propose two alterations in the hope of making regulation more proportionate and targeted for legal firms. These were:
- The removal of the mandatory requirement for firms to deliver an annual accountant’s report to the SRA
- A new obligation for COFAs to sign an annual declaration that they are satisfied that the firm is managing its client accounts in accordance with the SRA Account Rules 2011
It was hoped that these proposals, if implemented, would reduce costs for legal service providers and their clients. They were therefore put forward for consultation in May 2014.
The consultation period ran until June 2014 and received 147 responses. In summary, there was support for more proportionate and targeted regulation; however, the respondents disagreed that this should be achieved through removing the mandatory annual accountant’s report. They also stressed that making COFAs sign annual declarations would add additional burdens. In response to the opinions expressed, SRA no longer proposes for COFAs to sign annual declarations. However, they do remain of the opinion that firms should not have to deliver annual accountant’s reports as this is not proportionate or targeted. Therefore, this proposal was retained, but the following amendments were made:
- A modified version of the requirement for firms to obtain an accountant’s report will be introduced. This version will exclude a small group of firms where the requirement can no longer be justified, due to the limited risks posed to their client’s money
- All firms will still need to obtain an accountant’s report, but only qualified reports will need to be delivered to the SRA
- The fields of the accountant’s report will be reviewed to remove any duplication of information, such as partner names
But, what do these changes mean for you?
If your firm has an accounting period ending before 31 October 2014, there will be no change, you will still need to prepare and deliver an accountants’ report within 6 months of the end of the period to which the report relates (or apply for a waiver). However, if your firm has an accounting period ending on or after 31 October 2014, you will only be required to deliver qualified reports within 6 months of the end of the period to which the report relates. However, all reports must still be commissioned.
If your firm carries out 100% legal aid work and has an accounting period that ends on or post 31 October 2014, there is no requirement for you to produce an accountant’s report.
Now phase one is complete, all changes outlined above will be implemented from 31 October 2014. SRA will then begin phase 2, which will focus on the circumstances in which accountant’s reports need to be qualified. These proposals will once again undergo consultation and the results of which will be implemented in the Accounts Rules in April 2015. Within this phase, they will also consider whether other firms can be excluded from obtaining an accountant’s report. The third and final phase will then involve a major review of the Accounts Rules as a whole, with the aim of implementing any changes in April 2016. If you have any concerns over these new rules, or would like further information please do not hesitate to contact me.
*Solicitors Regulation Authority, Summary of Consultation Responses, www.sra.org.uk