We often get asked questions about accountants’ reports, here we hope to answer some of those questions for you:
Do you need to obtain an accountant’s report?
In short – yes you do if you hold client money. There are however two exemptions, the first is if all of client money held is money received from the Legal Aid Agency. The second is if client money received does not exceed:
- an average of £10,000 (looking at an average at least five weekly balance); and
- a maximum of £250,000
Both thresholds need to be satisfied for the exemption to apply. It is possible that you could be exempt some years, but not others!
Even if you are exempt the SRA can of course require to deliver an accountant report if has reason to believe it is in the public interest to do so.
When do you need to obtain an accountant’s report?
You must obtain an accountant’s report with six months of the end of the accounting period. The accounting period covers 12 months and it should begin at the end of your previous accounting period or 12 months from when you first held client money.
Who prepares the report?
The report must be prepared and signed by an accountant who is a member of a recognised body (e.g ICAEW or ACCA) and a registered auditor. You cannot use an accountant who is a partner or employee of the firm. You can use an outside accountant that you usually retain, however both you and the accountant need to be satisfied that they can provide an independent report.
Are there requirements in instructing an Accountant?
Yes! Rule 35 of the SAR sets out what your letter of engagement should incorporate, it includes if they:
- discover fraud – firm wide or individual; or
- obtain information which is significant in determining whether a solicitor is a fit and proper person
- discover a failure by the firm to submit an accountant report as required
they must immediately report the matter to the SRA.
You and the accountant have to sign the letter of engagement and you must keep a copy for six years to produce to the SRA on request.
What is a qualified report?
If the accountant decides that the SAR have not been complied with such that the safety of client money is at risk, then the accountant is required to ‘qualify’ the report and set out in the report details of the areas where risks have been identified.
What do you need to do with the accountant’s report?
If the report has been qualified, you have to deliver it to the SRA within six months of the end of the accounting period. If it is not qualified, you do not need to send it to the SRA, you will however need to retain it for six years to produce to the SRA on request.