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SRA to end Account Rules Audits

The SRA is currently undertaking a consultation exercise in relation to proposals to reduce unnecessary burdens on solicitors and provide flexibility of approach to deliver good finanical management.

The SRA is currently undertaking a consultation exercise in relation to proposals to reduce unnecessary burdens on solicitors and provide flexibility of approach to deliver good finanical management.

The consultation is a first phase of a more general review of the SRA Accounts Rules in the coming months.

The new proposals to end the requirement for annual independent audits should be good news for practitioners who feel that SRA compliance has become unduly restrictive in times of economic diffiulty. Will this specialist accountants who deal in this difficult work to pull out of the market?

The consultation contains two proposals:

  • Removal of mandatory requirements for firms to submit an annual accountant's report to the SRA.
  • Requiring COFA's (Compliance Officer for Finance and Administration) to sign a declaration that they are satisfied that the firm is managing client accounts in accordance with the SRA rules. 

The reasoning given by the SRA for the new proposals are that universal audits by all firms are simply not justified as they are not proportionate or targetted. The point is made that a large number of firms present a low risk  It is anticipated that 9,000 firms will be affected by this relaxation in the rules.

The SRA remind the COFAs that they must ensure that systems and controls are in place to enable the firm, its managers and employees, to comply with the requirments on them.

Many commentators feel that the relaxation may cause difficulties downstream. A great number of cases that come before the SDT involve client account allegations, where solicitors 'borrow' money from their clients if they have cash flow difficulties, but find it impossible to repay.

The deterrent of the annual external inspection will clearly be lost. Further, 'best practice' will be lost as small firms will no longer be able to rely upon expert accountancy practices who are famiilar with the complex rules. Standard systems, processes and approaches will be lost as firms deal with the issues without the annual independent recommendation that highlights ways to improve.  

Although this may prove to be a loss of a lucrative line of business for many smaller and medium sized accountancy practices, no doubt it will herald an increase in referrals to the SDT and more work for those who specialise in this type of work.

Jeremy Barnett is a barrister who specialises in representing solicitors before the SDT. He has conducted a number of cases involving client account breaches and failure to make payments under the ARP [Assigned Risk Pool] and has advised a number of firms in relation to the new referral fee ban in PI cases.

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