I was interviewed recently by Law Firm Ambition about my views on the most common questions I come across in respect to mergers/accounts rules. Below I'll focus on questions regarding reporting accountants and protecting yourself as the COFA. You can read my answers to the previous questions here:
As part of accepting and consenting to the role of COFA, you must consider your own personal liability. You should consider if you are satisfied that the practice has the appropriate safeguards in place.
You should also reach an agreement with the practice as to the best way to protect yourself against any personal liability. There are a number of options as to how you could do this, including an indemnity agreement, an endorsement on the practice’s PII policy, or a specific insurance product.
Ultimately, the responsibility for compliance rests with the managers of the practice but a COFA may find regulatory action is taken against them where they fail to meet their responsibilities. The SRA has stated that COFAs will not be ‘sacrificial lambs’ if a practice has a practice-wide culture of non-compliance. If this is the case, you should question if the role is being undertaken effectively, and whether a report should be made to the SRA, even if against the wishes of the managers of the practice.
17. Does the firm need a client account?
Under the current rules, if the practice is going to handle client money a client account is required.
The new rules due to be introduced in late 2018 provide some alternatives to the use of client accounts.
18. Does the firm need to have an accountant’s report prepared?
If a practice holds client money, it is usually required to obtain an accountant’s report within six months of the end of the accounting period.
There are some exceptions to the above, as follows:
If a practice only holds money for legal aid, then a report will not be required.
If during an accounting period the balance on the practice’s client account does not exceed £10,000 on average, and the maximum balance at any one time does not exceed £250,000, then a report will not be required.
The practice must still carry out reconciliations of the client accounts at least every five weeks. These reconciliations will be used to establish if the practice satisfies the exemption criteria above.
19. What should the firm do to prepare for the work by the reporting accountant?
Much of what the reporting accountant will require for their work should be readily available, as part of the month-end processes of the practice. The reporting accountant should make you aware of exactly what they require in advance of the work commencing. This will include a sample of files from your client matters listing which they will need to review.
The accountant will also need details of all the practice’s bank, building society etc accounts held or operated throughout the year.
You must provide all information that is requested by the accountant.
20. What will the reporting accountant look at in terms of the practice’s accounting systems during their annual review work?
The rules regarding what the reporting accountant should look are much less prescriptive now. What they look at and the work they perform will be based on their professional judgement of what they require in order to assess the risk to client monies.
Much of the focus of the reporting accountant is looking at the systems, processes and controls of the practice. The accountant is likely to want to document what systems and controls are in place in terms of the accounting and finance function, and to test them. The COFA and members of the finance function should be available throughout the on-site visit to help.
If the systems and controls of the practice are strong and through testing are determined to be working effectively, the accountant may assess that the risk to client money is lower. If so, the testing of the detailed individual transactions may be reduced in some areas.
The accountant is expected to submit their report to the SRA if the systems and controls of the practice are judged to be weak, or are not sufficient for the size and complexity of the practice.
If you have any unanswered questions about SRA Accounts Rules, contact Huw Nicholls.
