The SRA recently released its long-awaited guidance to accompany the new SRA Accounts Rules, which become effective from 25 November.
The guidance is divided into several different sections:
1. Accountant’s report and the exemption to obtain one.
This section doesn’t appear to tell us anything that we were not aware of before. You must obtain an accountant’s report within six months of your year end, unless you are exempt. The exemption criteria are no different to those in place at the moment, aside from the fact that firms will need to consider amounts held in any client’s own accounts when checking whether amounts held fall below the SRA’s exemption thresholds in future.
2. Do I need to operate a client account?
This section gives some examples of client money, and mentions rule 2.2, which states that you no longer need to operate a client account if you only receive funds on account of your fees and unpaid disbursements, provided that you ensure your client is properly advised. If you are not operating a client account then you will not need an audit, although there are parts of the Accounts Rules that you will still need to follow, for example giving your client a bill or other written notification of costs (Rule 4.3(a)).
3. Helping you keep accurate client accounting records
Here, the SRA has provided guidance on what it considers ‘good accounting practices’, although most of it is included in the current guidelines on accounting procedures and systems. Given that the new rules remove a lot of the existing timescales and deadlines, such as the 14 day rule, ensuring your firm has really accurately recorded its own processes and controls is essential.
We maintain system notes for all of the firms we act for, covering all of the areas set out in the guidelines. If you are looking for a starting point for your own office manual, we would suggest you start by asking your reporting accountant.
4. Joint accounts and record keeping
These guidelines define what a joint account is, and then includes the requirements of rule 9 of the new Accounts Rules. None of this is changing from the current version of the rules.
5. Planning for and completing an accountant’s report
This guidance is for the reporting accountants, but also covers the COFA’s responsibility to assist the accountant. Although this guidance has been released before, it does make an interesting read, as it covers the type of issues that might lead to a qualified accountant’s report, as well as what the SRA think constitutes below adequate, adequate and above adequate systems and controls.
6. Third Party Managed Accounts (TPMAs)
Last but not least, the new rules formally recognise the use of TPMAs, although they can be used now if really want to. Money held in TPMAs does not fall under the definition of client money, but the guidance explains the other considerations you need to make before you engage a TPMA provider.
There are some large some gaps in what we were hoping to see within the guidance; there is no mention of donating balances to charity (which is also not covered by the new rules), there is no expansion on rule 7, which states you must account to clients for a ‘fair sum’ of interest, and there is nothing on how firms are supposed to reconcile client’s own accounts.
This is the first in a series of articles covering the implementation of the new rules, and we will release further updates via our website as soon as they become available.