The Solicitors Regulation Authority’s (SRA) plans to relax the rules around accountants’ reports have been formally approved by the Legal Services Board (LSB), meaning that around 1,000 more law firms will not have to submit one in future.
Firms that hold an average client account balance of no more than £10,000 and a maximum balance of no more than £250,000 within the accounting year will be exempt from having to obtain reports. The SRA estimates that this will exempt around 13% of firms from the requirement.
Further, the Solicitors Accounts Rules (SAR) will be amended to remove the detailed requirements on the amount of prescribed testing that is required to assess compliance with the rules and allow accountants to exercise professional judgement on the matters they report.
The LSB said: “No significant issues were raised in the assessment. The LSB noted in the SRA’s report on consultation responses that it addressed key concerns with regard to risks associated with the changes.
“In particular, the reliance on the professional judgement of the accountant in completing the reports rather than adopting a prescribed approach. The SRA has said that firms will still need to follow the SAR, and while regulatory responsibility to comply remains with the firm, the reporting accountants will need to be members of one of the accountancy professional bodies and have professional obligations.
“The LSB is pleased that the SRA will provide additional guidance to assist accountants and firms in the planning and completion of reports, this includes in respect of the criteria for accountants’ qualifying reports.
“A further key issue that arose in the SRA consultation was the potential impact of fees charged by accountants on firms, which might offset any gains from reducing the compliance burdens. However, as there are no alterations to the SAR in how firms should treat client money, firms will not need to design new accounting procedures.”