Standards may slip if external client account scrutiny is removed from law firms, concluded a forum of Midlands law firms.
A gathering of Compliance Officers for Finance and Administration, a legal network established by the Midlands office of national audit, tax and advisory firm Crowe Clark Whitehill, expressed the view that a form of independent review was beneficial as a deterrent to ‘inappropriate behaviour’.
However, there was unanimous agreement that changes to the SRA Accounts Rules were necessary.
The discussion group, held at Crowe Clark Whitehill’s Midlands offices, also felt that the current form and timing of the highly prescriptive Accountant’s Report didn’t add sufficient value.
Partner Ross Prince, who heads the Professional Practices team in the Midlands and has a particular specialism in advising law firms, was instrumental in setting up the support group.
He insisted an independent review created good discipline and noted that many COFAs have stated they will voluntarily obtain assurance in future.
The SRA has proposed two major inter-linked changes to the existing Account Rules.
In a recently issued consultation paper it argues for the removal of the mandatory requirement that law firms must submit an annual accountant’s report to the SRA, replaced by a new requirement for COFAs to sign a declaration they are satisfied that the firm is managing the client account appropriately.
Mr Prince said: “The feedback from COFAs is perhaps not what the SRA might have expected.
“There seems to be widespread concern that elimination of the requirement for external scrutiny might lead to a greater risk of misuse of clients’ funds amongst those firms that don’t properly engage with appropriate risk management and their compliance obligations. The SRA will use its risk model to try to identify such firms, and the proposals give flexibility for the SRA to demand an external review by a reporting accountant. However, this was felt to very different to having a mandatory ‘level playing field’ for all firms.
Everyone, said Mr Prince, was particularly interested what form the new declaration of compliance would take – it hasn’t yet been determined. “I am sure that many COFAs will still wish to have some external assurance before making an annual declaration,” he suggested. “The members were less concerned whether independent scrutiny is required and much more focused on how to get the most value from the accountant’s work – both for themselves as COFAs and the SRA as the regulator.”
He added: “There is widespread support for the forthcoming root and branch review of the Accounts Rules and this will no doubt affect how COFAs design their systems and review processes.
“I haven’t found any disagreement with the SRA’s assertion that the Accountant’s Report in its current state does not really provide the information needed, but the nature of the proposed changes and the speed of the proposed implementation has certainly provoked a reaction.”
The consultation closes on June 18.