The Solicitors Regulation Authority has backed down over plans to remove the requirement for firms to submit accountants’ reports every year.
Instead, the regulator has decided to require reports only if they have been qualified by the accountant for a mistake or area of concern.
Firms will still be required to commission accountants’ reports within six months of their financial reporting period. The SRA has also decided that the 115 firms funded entirely by legal aid will not have to submit any accountants’ report, on the basis that their figures are already audited by the Legal Aid Agency.
Earlier this year the SRA proposed scrapping the reporting requirement for all firms, replacing it with an obligation for each firm’s compliance officer to make an annual declaration.
However, that proposal was criticised for taking away independent scrutiny of accounts, removing a deterrent to non-compliance while putting too great a burden on compliance officers.
The SRA said it remained of the view that the current universal requirement to obtain and deliver an accountant’s report is ‘not sufficiently proportionate or targeted’.
But it will retain the requirement to deliver ‘qualified’ reports to the SRA – with qualification occurring for anything from minor breaches to more significant problems picked up by accountants.
The SRA will also seek to amend the Accounts Rules over the next six months to issue a fully revised format for the accountant’s report and change the circumstances in which reports become qualified.
Law Society president Andrew Caplen said the organisation is pleased that the SRA has listened to the concerns of many in the profession and their clients about their plans to abolish the requirement to submit an accountant’s report.
‘The accountant’s report is the only independent review of firm’s client accounts. Abolishing this safeguard could put client money at risk and with it the reputation of the profession,' he said.
Welcoming the accounts rule review, he said: 'We believe that a simplification of the accounts rules and updating the accountant’s report could reduce the regulatory burden on the profession while ensuring client money is kept safe.’