Legal update: Changes to the Accounts Rules are on ice (for now)

Most readers will know that, following an SRA consultation in March 2023, we have been waiting with bated breath for several changes to the SRA Accounts Rules.

Some of the minor changes had already been approved by the LSB, while other more controversial changes around the accounting for, and reconciliation of, clients’ own accounts had seemingly become stuck in limbo.

It appears now that the SRA has decided to put all Accounts Rules changes on ice. In light of recent events, most notably the closure of Axiom Ince, the SRA has stated that now is not the time to make changes to anything concerned with the protection of client money.

The SRA has left the door open to make changes in the future, but for now it seems that it is business as usual.

Make sure you are prepared for your year-end

It is highly likely that, once the SRA has concluded their review into the current ‘tricky’ issues and have dealt with the fall out, their eyes will turn with even sharper focus onto the systems and controls that firms have in place to combat potential breaches of the Accounts Rules.

So, although there has been a pause on compliance amendments, it does not mean that firms can take their eye off the ball. Everyone needs to give careful thought to whether their own processes are fit for purpose.

Making sure that you have taken positive action to address recurring issues from previous SRA audits is a great place to start, and we advise all firms to consider the following points well in advance of their year-end:

  • Has the COFA reviewed their Reporting Accountant’s summary of findings from last year’s audit and addressed their recommendations?
  • Has the firm reviewed their retentions and dormant balances for instances of residual balances that need to be returned to clients or money otherwise held incorrectly on the client account?
  • Have suspense ledgers been cleared down regularly?
  • Is there a complete set of monthly client and office account reconciliations that are free from errors or reconciling adjustments, and have they all been reviewed, signed and dated by the COFA?
  • Is there evidence in all cases that bills have been sent to clients before costs have been taken and have all costs been paid and/or properly incurred?
  • Does the client matter listing include any overdrawn client ledgers or office ledger credit balances and, if so, what is the firm doing to review and deal with them?
  • Is the breaches register up to date and has a proper assessment been made around whether any breaches are reportable?
  • Have all clients’ own accounts been reconciled during the year or, where that has not been possible, has the firm maintained a record of transactions that have originated from within the firm?

This list is not exhaustive, but these tend to be the common issues we see cropping up across firms.

Of course, good financial hygiene does not begin and end with compliance, and the importance of making sure your year-end accounts processes are running smoothly before you reach that point should not be underestimated. The following points should put you on a positive footing:

  • Make sure your opening balance adjustments have been entered to align your opening accounts system balances with the previous year-end accounts
  • Review your control accounts – including billed debtors, unbilled disbursements, PAYE/NIC, VAT and trade creditors – and make sure they reconcile to the appropriate reports
  • Review narratives on postings for consistency, accuracy and a suitable level of detail to help with year-end analysis, including reviews of allowable vs. disallowable expenditure
  • Try to be consistent with postings and make sure that the same types of transaction are posted in one place rather than spread across different nominals.
  • As far as possible, update your accounting system for prepayments, accruals, depreciation etc. or make sure you have prepared schedules that can be updated in the year-end accounts
  • Make sure you have a file of all loans, finance agreements and operating lease agreements, as there is usually some degree of accounting or disclosure required for these
  • Ask your accountant for a list of all of the reports that they will need you to run at the year-end, as sometimes they cannot be produced retrospectively and can be difficult to try to recreate after the event.

Again, this list is not exhaustive and so, as a final overarching point, make sure you are in close communication with your accountant prior to the year-end because proactive planning can really make a big difference when the annual accounts and audit process rolls around again.

Our People

Find the Hazlewoods person you need – and get to know our team.

Got a Question?

Find out more about us, and we can find out more about you.