Question: Do changes to financial accounting period ends impact on reporting periods under the SRA Accounts Rules?
The issue
As a result of the changes coming into effect for tax purposes – implementing the basis period reforms – many of the law firms who will be impacted by this are taking advice on whether or not they need to consider changing their financial accounting year end.
This issue has arisen at the current time as a result of changes in the taxation legislation but has opened up the question of year ends for the purpose of obtaining an Accountants Report regarding SRA Accounts Rules compliance.
The concern
We have had an increasing number of questions around the requirement, or not, for firms to have aligned accounting periods for financial reporting and for SRA Accounts Rules Reporting. While these have always tended to be the same, whether there is an absolute requirement for this to be the case is not perhaps entirely clear to everyone from the regulations?
A current concern for many Reporting Accountants has been that if a number of their law firm clients with differing year ends change to 31 March, if their SRA Accounts Rules reporting dates also had to be co-terminus, getting all those AR1 reports done within a six-month deadline could prove to be a significant challenge! Particularly given the specialist nature of the work and the limited number of experienced staff to carry out the work.
The answer from the SRA
For those concerned about this, we approached the SRA to obtain clarification. While the issue became more prominent as a result of non-SRA related matters (in this instance taxation), the position below applies regardless:
- A firm can have a different period end for SRA Accounts Rules purposes than it uses for its financial reporting
- If a firm changes their ‘financial accounting’ period end to say 31 March but leaves their current AR1 reporting deadline as it currently is, they do not have to provide any details to the SRA
- If a firm changes their AR1 reporting date, it will need to notify the SRA and the maximum length for the report in that period of change is 18 months. It can of course be less than 12 months.
Conclusion
Happily, therefore, firms are able to make decisions about their financial reporting period for business related purposes without impacting their compliance reporting period unless they so choose.
Janet will be speaking at the upcoming Solicitors Conference on 13 September, which you can book below:
*The views expressed are the author’s and not ICAEW’s.