The SRA Accounts Rules state that an accountant’s report is required if at any time during an accounting period, the firm has:
- Held or received client money
- Operated a joint account
- Client’s own account as signatory
The SRA can also require a firm to obtain an accountant’s report with reasonable notice if they consider that is in the public interest to do so, or if the firm ceases to be an authorised body.
An accountant’s report must be obtained within six months of the accounting period end date. If the accountants report is qualified and shows failures to comply with the account’s rules meaning that money belonging to clients or other third parties is or is likely to have been placed at risk, then the report must be filed with the SRA within six months of the period end date.
Are there any exemptions to the requirement?
There are two exemptions that may apply to firms that result in them not being required to obtain an accountant’s report.
- All client money held in the accounting period is money received from the Legal Aid Agency.
- In the accounting period the total or the client money held does not exceed £250,000 and the average balance is not more than £10,000.
The exemption applies to a single accounting period which could span over 12 months. During each accounting period a firm must carry out reconciliations of the statement or passbook balance of the general client account and associated accounts. These reconciliations must be carried out, as a minimum, at least once every five weeks (rule 8.3) to ensure you don’t unknowingly breach the exemption limits. So, what does this look like in practical terms? See the below worked examples:
Examples
Example 1: The following example is for a firm with a 31 March year end carry out reconciliations at each calendar month end.
Average balance held = 113,534 /12= 9,461.17 (total of all reconciliations divided by 12 months)
Maximum balance held = 12,264 (the highest balance of all the reconciliations)
Tests against exemption criteria:
- Is the average below £10,000? YES
- Is the maximum balance below £250,000? YES
As both criteria have been satisfied, this particular firm would be exempt.
Example 2: This example is for a firm with a December Year end that undertakes reconciliations every 4 weeks.
Average balance held = 199,344 /14 = 18,122.18 (total of all reconciliations divided by 14 reconciliations)
Maximum balance held = 87,635 (the highest balance of all the reconciliations)
Tests against exemption criteria:
- Is the average below £10,000? NO
- Is the maximum balance below £250,000? YES
As both criteria have not been satisfied, this particular firm would be not exempt = accountants report required.
The next step
For further information on how we can assist you regarding Solicitors Accounts Rules accountants reports or for help establishing if you require an SRA Accounts Rules audit, please contact Kimberly Burton on k.burton@uhy-manchester.com, or your usual UHY adviser.
