The Law Society has urged the Solicitors Regulation Authority to maintain some form of independent check over firms’ accounts.
The regulator has proposed to abolish the requirement for firms to have and submit an accountant’s report every year.
The proposal, one of several potential reforms aimed at easing the regulatory burden on firms, is that compliance officers for finance and administration (COFAs) instead make a declaration that client accounts are in order.
But the Law Society, in a consultation response submitted last week, is concerned that independent accounts are currently the only check on a firm’s 'honesty and the state of its accounts'.
Removing the compulsory reporting requirement would leave the regulatory regime ‘significantly weaker’ and could reduce assurance to clients.
The SRA notes that very few submitted accountants’ reports lead to a formal investigation into a firm, the Society said. ‘However, what cannot be quantified is the importance of them as a regulatory tool, both in terms of deterring dishonesty and in preventing poor accounting practices. The requirement to have an annual review of accounts acts as an incentive to ensure that records are kept up to date and in order.’
Instead of removing the reporting requirement altogether, the Society called for a form of independent review to be retained.
The response backs a change to the Accounts Rules to require accountants to report only ‘systemic’ breaches, with the SRA encouraged to develop a more efficient, online method for submitting reports.
The Society also voices concerns that the role of the COFA has changed ‘significantly’ from what was first envisaged, and now requires a member of the management team rather than an employee to take it on.
It said the added responsibility of checking accounts could ‘create an environment in which some may be put under pressure into making a declaration without being able to fully verify compliance’.
Meanwhile, the City of London Law Society has said it is ‘inappropriate’ to dispense with the mandatory requirement wholesale, particularly when the SRA has said it brings some benefits.
The City society said no changes should be made before a wider review of accounts rules, with any subsequent reforms ‘premature’.