Accountants have a role in protecting solicitors’ client money
25 February 2020: the Solicitors Regulation Authority (SRA)’s Accounts Rules provide critical protections for clients of UK solicitors, setting principles on how their money should be safeguarded while held on their behalf.
ICAEW chartered accountants play an important role in reporting to the SRA, writes Michelle Cardwell, Technical Manager in ICAEW’s Audit and Assurance Faculty.
Solicitors are regularly entrusted to hold significant cash for their clients, for example, deposits for a first house purchase or funds for a business deal. If money is lost or misused, it can cause transactions to fail. Protecting client money is vital for the functioning of the economy as a whole.
The Solicitors Regulation Authority (SRA) tells solicitors how this money should be kept and requires them to obtain a report from a chartered accountant assessing if their firm has complied with the Accounts Rules.
ICAEW’s Audit and Assurance Faculty has published a new technical release providing guidance to reporting accountants on the 2019 changes to the SRA’s Accounts Rules. Effective from 25 November 2019, the SRA has significantly reduced the length and detail of the Accounts Rules that solicitors must follow to protect client money.
One example is the removal of the rule detailing how reporting accountants should approach their work. This rule has been replaced with guidance from the SRA. The SRA still wants reporting accountants to apply professional judgment in the work and provides examples in their guidance. However, reporting accountants will likely need to update their letters of engagement to reflect this change. The new technical release TECH 03/20 AAF provides example language that reporting accountants may wish to use.
Reporting accountants should be aware that in the first year of implementation, periods are likely to span the new and previous Accounts Rules. In these cases, reporting accountants will need to apply the previous Accounts Rules to the part of the period up until the effective date. TECH 16/15 AAF provides guidance on reporting under the previous Accounts Rules.
TECH 03/20 also discusses other practical implications to consider while planning for and preparing an accountant’s report under the new Accounts Rules. This includes for example, developing risk assessment procedures, terms of engagement and reporting to the law firm. The appendix includes updated examples of common scenarios faced by reporting accountants.
Members have access to the new guidance here.