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Blog - Published 10th November 2014

Accountants Report Reinstated. Is This The Correct Decision?

Menzies Peter Noyce legal blog

We live in miraculous times. In May, I wrote about the death of the accountant’s report. But since then, like Lazarus, it has been brought back to life. The ministrations from several concerned professional bodies appear to have achieved the impossible.

Then again, it was an influential group and each member had a vested interest in keeping the accountant’s report going.

Why reinstate the accountants report?

One group leading the protest was the accountancy profession. It said that the report is entirely necessary as it provides a deterrent to fraud and protects client money. Some might say that they were also protecting their own money – after all, we accountants do like a business model that is based on recurring fees. At the time I suggested that, rather than complain, the accountancy profession should acknowledge its complicity in bringing about the demise of the accountant’s report.

Next came the insurance companies, professional indemnity brokers, banks and other funders. This group had more than a passing interest in retaining an independent check on compliance with the Solicitors’ Accounts Rules (SAR). Their contention was that compliance with SAR indicates a well-run practice and hence lower risk. At least their argument was not obviously self-serving, but was hardly conclusive I would suggest.

Even the Law Society complained that scrapping the accountant’s report was a step too far in putting responsibility on the COFA. Then again, they were miffed at not being forewarned or consulted in the first place.

So the accountant’s report has been resurrected. We should be hearing celebrations from the various factions that mourned its passing so vociferously, but the silence has been deafening.

From the Solicitors Regulation Authority we might see a natural conclusion to the future of the accountant’s report and what best serves the legal sector. We all understand that client money has to be the main focus and that any unnecessary administrative burden is avoided but, I believe, this has been looked at the wrong way round.

The SRA seemed initially focused on saving money – £200,000 a year for them and £800 for each law firm. Whilst these were useful sound bites, the main issue should be whether the reporting process provides valuable feedback on the running of client accounts and whether this is then passed back to the SRA.

The feedback should not stop there. Law firms need sector-specific management advice to help them with practice compliance, return on investment, cash flow and profits.

Perhaps this is too much to ask. But when the consultation into the accountant’s report finally runs its course (whether this be April 2015 or April 2016, depending upon Clients’ Accounts Rule changes), it would be useful to know that appropriate external input has been received. I would also like to see both law firm and accountant forced to recognise that the engagement is not just a low-balling exercise. It can, and should, add value and provide genuine comment on practice management.

Ultimately, the financial stability that the SRA craves will not happen with the current, one-size-fits-all approach to the accountant’s report. Furthermore, it doesn’t even guarantee the safe-keeping of clients’ monies.
It may have come back to life like Lazarus, but what the accountant’s report really needs is reincarnation into a higher order of species.

Comments written by Peter Noyce – Partner and Menzies Business Services Sector team member.

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Peter Noyce - FCA

Partner

Peter Noyce is a Menzies Partner in the Woking office specialising in legal firms, corporate tax advisory services and financial solutions.