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Accountants Reports Rule Changes

December 2014

UPDATE: READ ABOUT PHASE TWO CHANGES HERE

On 31 October 2014, the Solicitors Regulation Authority (SRA) issued version 12 of the SRA Accounts Rules 2011. The two main changes that have been made concern the treatment of residual client ledger balances and the circumstances when an accountant‘s report must be submitted to the SRA. This article deals exclusively with the changes that the SRA have made to the provisions within the SRA Accounts Rules 2011 governing the commissioning and submission of an accountant’s report under Rule 32. Read about the changes to the rules regarding residual client ledger balances.

The changes to the SRA Accounts Rules 2011 made on 31 October 2014 in respect of the obligation to commission and submit an accountant's report is the first stage of a three phase process aimed at reducing the regulatory burden on both traditional firms of solicitors and Alternative Business Structures (ABS). Phase Two and Three are expected to be implemented in April 2015 and April 2016 respectively.

As a result of the changes which have been made to Rule 32 of the SRA Accounts Rules 2011, most firms will still be required to obtain an accountant‘s report within six months of the end of the accounting period concerned. However, for the majority, it will only be necessary to deliver the accountant’s report to the SRA where it has been qualified by the reporting accountant. It should be noted that the SRA has retained the discretion to require an accountant‘s report to be submitted, even when it is not qualified, should a solicitor’s or firm‘s conduct give the SRA reason to believe that it would be appropriate to do so. Additionally, the SRA may require delivery of an accountant’s report more frequently, for example, every six months, if they consider it to be necessary.

There has been a very significant change made to the SRA Accounts Rules 2011 for those firms where the only clients‘ money which is dealt with either comes from the Legal Aid Agency, or it represents costs recovered from a third party in respect of a legally aided client where the Legal Aid Agency had previously made payments on account for either costs or disbursements. Where this is the case, Rule 32.1A of the SRA Accounts Rule 2011 provides that there is no requirement to obtain or deliver an accountant’s Report to the SRA.

In April 2015, Phase Two of this process will involve the following changes:

  • Amendments to the SRA Accounts Rules to reflect revised criteria for the circumstances in which accountant's reports need to be qualified
  • Issue a fully revised format for the accountant's report
  • Amend the overseas provisions of the SRA Accounts Rules, in light of consultation responses
  • Consider whether there are further categories of firms that can be excluded from the requirement to obtain an accountant's report.

Phase Three, expected to be implemented in April 2016, will involve a full review of the SRA Accounts Rules.

To find out more about the training and consultancy services we can provide to support your firm please contact Richard Lane on 0845 6500 112.

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