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All change (again!) for the SRA Accounts Rules
Posted: 7th March, 2019
Where the SRA Accounts Rules are concerned, law firms are no strangers to change. The past few years have brought several phased changes including to the format of accountants’ reports, role of the reporting accountant and exemptions for firms requiring an accountant.
In a continued concerted effort to simplify and modernise the legal system, the SRA is once again making changes to the rules with the current draft being just 7 pages long and containing only 13 rules. This is a significant departure from the existing 52 rules, several appendices and 80 pages.
With 25th November as the implementation date, there’s no time to lose in getting prepared for the new rules. That’s why here we’re going to cover the why, when, what and how…
Why the need for change?
As already intimated, it’s all about simplification but retaining an essential emphasis on protecting client monies. The SRA’s intention is to allow legal practices greater flexibility over how they operate, the ability to judge independently and make legal services more accessible to the public.
To quote Paul Philip, SRA Chief Executive: “Our reforms focus on what matters: the high professional standards that offer real public protection rather than unnecessary bureaucracy that generates costs, constrains firms and hinders access to legal services. We believe that the changes will make it easier for firms and solicitors to do business and to meet the needs of those who need their services.”
Can’t say fairer than that. So, while the short term may cause you some pain as you begin to adopt the new rules, unless your existing set up already meets the new requirements, in the long term you’ll be able to manage your accounts and run your business in a less prescriptive way.
When do the new rules come into force?
Guidance notes are likely to be circulated before the rules become mandatory. These notes will act as a toolkit. No official date has been set for the former - guidance notes - but 25th November has been confirmed for the latter - accounts rules.
What are the main changes?
At a glance, the 10 primary points of difference from the old to new rules are:-
- Its much-abridged format means each of the remaining 13 rules are considerably condensed.
- With no time deadlines, you’ve got the freedom to decide your own timeframes.
- Following on from #1 and #2, the new rules are principle based rather than prescriptive and contain less definitions. Interpret how you wish and do what’s reasonable.
- A notable addition is the ability to use a third-party managed account as an alternative to the traditional client account.
- Guidance notes, if made available, will be separate, not attached to the rules, and released any time.
- There’s no definition of office money. This means it’s either client monies or not client monies.
- There’s no distinction between professional and non-professional disbursements. Plus, fees and disbursements can only be paid when a bill is raised.
- Monies incoming from the Legal Aid Agency are no longer covered in the rules. This money can be held in the office account in future.
- Bank accounts must still be reconciled every 5 weeks. This requirement has been extended to client’s own accounts or “passbooks”.
- Although the exemption limits for accountants’ reports are unchanged, definitions of statements or passbook balances has changed and includes joint or client’s own accounts. As a result, firms currently exempt may not be exempt.
How can you prepare for change?
Ahead of implementation, the SRA has provided much-needed further clarification on these important changes to empower legal practices to prepare accordingly.
In simple terms, if you’re compliant with the current rules, complying with the new rules will be relatively easy. It could be a straightforward case of stating the new rules in your policies. An internal audit is advisable too. A few minor tweaks to procedures here and there may be all that’s needed. At this review stage, define “promptly”, document your systems and controls, and ensure everyone is aware of your processes – your cashiers, COFA, new starters and reporting accountants.
If you’ve been considering outsourcing your cashiering, these new rules are the ideal time to do so. By outsourcing your accounts function to specialists in the field, such as Quill, your supplier keeps abreast of ever-changing solicitors’ accounts rules so you don’t have to. Become a Quill client and we’ll manage your accounts in a compliant and timely manner, while you focus on other pressing business matters.