Intro to PP – WS2 Solicitors Accounts TIFF LIAO
Chapter 19 – Compliance Page 211
INTRODUCTION
There is no point in the SRA having rules governing how client money is treated if it is unaware of breaches.
Some years ago therefore, the Rules were tightened to ensure that ONLY accountants with auditor status inspected
solicitors’ accounts and that they were under an obligation to report breaches to the SRA. The rules on compliance
were stringent.
In 2015 the SRA announced that it was making accountants’ reports more targeted and relevant for firms and
accountants alike. Solicitors’ practices that present little or no risk – such as those firms that do not hold much client
money – are now exempt from obtaining a report from their accountant.
The form that solicitors’ accountants complete each year was also changed to give accountants more opportunity
to exercise their professional judgement when preparing and finalising reports.
Only qualified reports are now required to be submitted to the SRA, instead of all reports, as was previously the case.
SUMMARY
The accounts of all firms regulated by the SRA have to be inspected by an accountant with auditor status once
a year.
Solicitors have to inform the SRA each time the reporting accountant is changed.
ACCOUNTANT’S REPORTS
Rule 12.1 provides that firms which have, at any time during an accounting period, held or received client money, or
operated a joint account or a client's own account as signatory, must obtain an accountant's report for that accounting
period within six months of the end of the period.
If the report is qualified to show a failure to comply with the rules
= it must be delivered to the SRA within six months of the end of the accounting period.
Only qualified reports need to be submitted to the SRA (Rule 12.1 (b)).
The obligation to deliver qualified reports rests with the firm and its managers – and NOT the reporting
accountants (although, in practice, accountants can and do send the reports to the SRA).
The SRA has issued guidance, ‘Planning for and completing an accountant’s report’ (updated 14 September 2020).
It says:
We do not consider it appropriate to strictly define when a report must be qualified. We will rely on
the accountant’s professional judgement to assess the firm’s compliance with the Accounts Rules
and whether money belonging to clients or third parties, is, has been or may be placed at risk. We
would expect an assessment to be based on an understanding of the seriousness of all the risks
posed in the context of the firm’s size and complexity, areas of work, systems and controls,
compliance history and the likely impact on the firm and its clients if money were to be misused or
not accounted for.
HOWEVER, it does give some examples of ‘Serious factors’
(a) the presence of one or more of which is likely to lead to a qualification – and
(b) ‘Moderate factors’ – the presence of one or more of which may lead to a qualification depending on context
(including factors such as the number of instances, whether the firm identified the breaches and what corrective
action, if any, has been taken as a consequence):
Serious factors include:
O A significant and/or unreplaced shortfall (including client debit balances or business credit
O balances) on client account, including client money held elsewhere, for example a client’s own account,
unless caused by bank error and rectified promptly.
O Systematic billing for fees and any disbursements that have NOT been incurred and payments in
respect of that bill being made into the business account.
O Evidence of any disregard for the safety of client money and assets.
O Actual or suspected fraud or dishonesty by the managers or employees of the firm (that may impact upon
the safety of money belonging to clients or third parties).
O Accounting records not available or significantly deficient or bank accounts/ledgers failing to include
reference to a client (rule 8.1, 8.2 and 8.3).
O A failure to provide documentation requested by the reporting accountant (rule 12.8).
O Client account bank reconciliations NOT carried out.
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TIFF LIAO
Chapter 19 – Compliance Page 211
INTRODUCTION
There is no point in the SRA having rules governing how client money is treated if it is unaware of breaches.
Some years ago therefore, the Rules were tightened to ensure that ONLY accountants with auditor status inspected
solicitors’ accounts and that they were under an obligation to report breaches to the SRA. The rules on compliance
were stringent.
In 2015 the SRA announced that it was making accountants’ reports more targeted and relevant for firms and
accountants alike. Solicitors’ practices that present little or no risk – such as those firms that do not hold much client
money – are now exempt from obtaining a report from their accountant.
The form that solicitors’ accountants complete each year was also changed to give accountants more opportunity
to exercise their professional judgement when preparing and finalising reports.
Only qualified reports are now required to be submitted to the SRA, instead of all reports, as was previously the case.
SUMMARY
The accounts of all firms regulated by the SRA have to be inspected by an accountant with auditor status once
a year.
Solicitors have to inform the SRA each time the reporting accountant is changed.
ACCOUNTANT’S REPORTS
Rule 12.1 provides that firms which have, at any time during an accounting period, held or received client money, or
operated a joint account or a client's own account as signatory, must obtain an accountant's report for that accounting
period within six months of the end of the period.
If the report is qualified to show a failure to comply with the rules
= it must be delivered to the SRA within six months of the end of the accounting period.
Only qualified reports need to be submitted to the SRA (Rule 12.1 (b)).
The obligation to deliver qualified reports rests with the firm and its managers – and NOT the reporting
accountants (although, in practice, accountants can and do send the reports to the SRA).
The SRA has issued guidance, ‘Planning for and completing an accountant’s report’ (updated 14 September 2020).
It says:
We do not consider it appropriate to strictly define when a report must be qualified. We will rely on
the accountant’s professional judgement to assess the firm’s compliance with the Accounts Rules
and whether money belonging to clients or third parties, is, has been or may be placed at risk. We
would expect an assessment to be based on an understanding of the seriousness of all the risks
posed in the context of the firm’s size and complexity, areas of work, systems and controls,
compliance history and the likely impact on the firm and its clients if money were to be misused or
not accounted for.
HOWEVER, it does give some examples of ‘Serious factors’
(a) the presence of one or more of which is likely to lead to a qualification – and
(b) ‘Moderate factors’ – the presence of one or more of which may lead to a qualification depending on context
(including factors such as the number of instances, whether the firm identified the breaches and what corrective
action, if any, has been taken as a consequence):
Serious factors include:
O A significant and/or unreplaced shortfall (including client debit balances or business credit
O balances) on client account, including client money held elsewhere, for example a client’s own account,
unless caused by bank error and rectified promptly.
O Systematic billing for fees and any disbursements that have NOT been incurred and payments in
respect of that bill being made into the business account.
O Evidence of any disregard for the safety of client money and assets.
O Actual or suspected fraud or dishonesty by the managers or employees of the firm (that may impact upon
the safety of money belonging to clients or third parties).
O Accounting records not available or significantly deficient or bank accounts/ledgers failing to include
reference to a client (rule 8.1, 8.2 and 8.3).
O A failure to provide documentation requested by the reporting accountant (rule 12.8).
O Client account bank reconciliations NOT carried out.
1
TIFF LIAO
