Accounts: Dual reporting approach recommended
Responsibility for submitting law firms’ accountant’s reports should not be switched to the accountants, a leading representative body has told the Solicitors Regulation Authority (SRA).
ACCA said it supported the proposal to reintroduce the requirement that all accountant’s reports – qualified and unqualified – be submitted to the SRA.
It also backed the introduction of mandatory annual declarations from firms holding client money confirming whether they consider themselves exempt or, if not exempt, that they have instructed an accountant to prepare a report.
But ACCA argued that the requirement to submit the report should not, as proposed, lay with the reporting accountant.
Glenn Collins, head of technical and strategic engagement at ACCA UK, said: “The requirement to submit must rest with the client money-holding firm. This however would not preclude the client money-holding firm from retaining an accountant to submit the report, on their behalf, on an agency basis.”
Responding to the SRA consultation, ACCA said the idea was “incongruous” with the fixed financial penalties the SRA has proposed for law firms that did not submit declarations or reports.
“This proposed change would seem out of step with other regulatory obligations,” it went on.
“For example, companies are required to prepare and file financial statements under company law. While in many cases a third-party accountant may prepare the financial statements, on an agency basis, the legal responsibility to prepare, submit and pay late filing fees rests with the company and its directors.”
Further, given that the SRA had no regulatory responsibility for accountants, “we would question the enforceability of this approach”.
“We also foresee that this separation has the potential to lead to disputes where a reporting accountant submits the accountant’s report late and a fixed financial penalty is incurred by the client money-holding firm.
“A pragmatic approach might be to require the client money-holding firm to submit the accountant’s report within the required timeline with a later deadline for the accountant to respond and agree or disagree with the submission or note they have not yet formed an opinion.”
ACCA suggested as an alternative the regime operated by the Charity Commission, where accountants were required to report “matters of material significance”.
It said: “Importantly, such a process circumvents the non-submission of a report by a charity where the auditor has communicated an adverse finding.”
Such dual reporting “would neither be disproportionately burdensome for accountants nor for the SRA, while offering certainty that qualified accountants’ reports are being submitted to the SRA”.
ACCA was also concerned about the proposal to set an expectation in guidance for reporting accountants that they routinely seek bank confirmations to verify the list of client accounts.
“We agree that, where practicable, reporting accountants should obtain bank confirmations as independent evidence supporting completeness of the client account listing and balances reported upon.
“However, given persistent practical difficulties in obtaining confirmations, the guidance should be explicitly caveated with ‘where possible’.
“Our members continue to highlight that obtaining bank confirmations, particularly for these types of accounts, is increasingly difficult. Alternative approaches the reporting accountant may take should also be included in the guidance.”
The guidance should also clarify whether, and in what circumstances, failure to obtain a bank confirmation, despite reasonable attempts, or to conduct appropriate alternative procedures, was expected to drive a qualification.
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