Accountants scrutinising law firm figures should be given reporting guidance to avoid the ‘considerable’ confusion that has arisen for compliance officers on reporting material breaches, the Law Society has said.
The Society was responding to the Solicitors Regulation Authority’s consultation on reporting accountant requirements, which closed on 28 January.
In the consultation the regulator set out a list of accounting issues that would need to be ‘substantive deficiencies’ to require accounts to be sent to the SRA. Warning signs include the lack of segregation of client and office monies, controls and checks to protect against fraud and effective oversight by management.
The Society said in order for the proposal to be effective, accountants would need guidance on what might qualify as a ‘serious deficiency’.
In its response, the Society said: ‘Lack of guidance for COLPs (compliance officer for legal practice) and COFAs (compliance officer for finance and administration) on reporting material breaches has led to considerable confusion and a variation in reporting practices. We would not want to see this repeated for reporting accountants.’
The SRA also needs to carefully consider the potential costs to firms of changes, the Society said – both in terms of the cost of the report to firms and any wider costs for firms in gearing up to comply with changes. It was ’essential’ the SRA undertakes, and publishes, an impact assessment on the likely level of costs.
The Society described the current Accounts Rules as ‘complex’, with the lack of flexibility causing difficulties for firms, and said it would welcome the opportunity to work with the SRA on a forthcoming review of the rules as a whole.
The consultation is part of SRA reforms to ensure proportionate and targeted regulation, and remove unnecessary regulatory burdens.
Last October the regulator implemented new rules to ensure that only qualified reports – those flagging up a mistake or concerns – need to be sent in for further analysis. The rule applies to all firms except those 100% funded by legal aid.
Firms are still required to commission accountants’ reports within six months of their financial reporting period.
But experience to date has revealed that many qualified reports do not reveal any significant risk to client funds.