I was interviewed recently by Law Firm Ambition about my views on the most common questions I come across in respect to mergers/accounts rules. Below, I'll focus on the imapct the new rules may have on such things as accounting processes and the definition of client money. You can read my answers to the previous questions here:
Questions 1-5: FAQs - SRA Accounts Rules compliance for law firms
Questions 6-10: Breaches and Cyber Security
Questions 11-15: Internal Reviews
Questions 16-20: Accountant's reports
Questions 21- 24: Banking Facilities and Residual Balances
The reporting accountant must provide the COFA of the practice with a signed copy of the report, whether qualified or unqualified. The COFA should ensure that all managers of the practice have access to and have seen the report. The report must be signed and delivered to the COFA within six months of the end of the accounting period.
There is no longer a checklist for completion by the reporting accountant.
I would expect the reporting accountant to provide the practice with a management letter which details any breaches (reportable or non-reportable) found through their work, together with pro-active suggestions for improvement. In addition, any best practice points where systems and processes could be improved would also be detailed.
Although it may be agreed with the reporting accountant that they will submit any reports that are required to be submitted to the SRA, the ultimate responsibility for delivery is with the practice itself.
The new rules were published in draft by the SRA in June 2017, and it was recently announced that they would come into force on 25 November 2019.
Although there is a lot of change, ultimately the underlying principles remain the same, with the focus on keeping client money safe.
The SRA is intending to issue a range of further guidance in the coming months, but the main areas of change are to be as follows:
It is important that all partners, fee earners and accounts/cashier staff are fully up to date and aware of the new rules, and that your practice is prepared for compliance well in advance of November 2019.
The definition of client money is no longer changing as originally proposed. Rather than change the entire definition of client money, the revised Rule defines the client money which must be held in client account. Included in the definition is monies paid in advance for fees and disbursements before a bill has been raised.
An exemption is provided for firms where the only client monies held are for advance fees or disbursements. Those monies can now be held outside of client account, so a client account is no longer required.
The revised Rule allows firms to continue to deal with client money in the same way as they currently do.
To help protect clients where advance payments for fees and disbursements are held in office accounts, the client must be informed upfront. The COFA is required to monitor the processes and controls within a firm operating under the exemption. The SRA has confirmed that clients will still have access to the compensation fund for those monies should the worst happen.
Exactly what the impact of the new rules will be is still to be determined. Matters will become clearer once additional guidance in the form of toolkits is released by the SRA.
From what we currently know, there are no substantial changes to the rules that should require your accounting systems and processes to be changed. If they are currently working effectively, it is likely that they will not need to be changed at all.
As part of good financial management of a practice, systems and processes should be reviewed regularly for any potential improvements – whether as part of updated regulation, or for efficiency and effectiveness.
If you have any unanswered questions about SRA Accounts Rules, contact RosyGet in touch
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