No single individual should have all that responsibility

COFAs may not be terribly happy with the Solicitors Regulation Authority’s latest proposals
to do away with the annual accountants’ report in favour of a declaration of compliance from COFAs. The consultation, which opened on 7 May and closes on 18 June is one of a number released by the SRA that propose significant changes to practice.

The SRA has been vocal about its plans to reduce red tape and cut the regulatory burden on firms. The rationale for the proposed abolition of the annual accountants’ report falls squarely within these parameters.

Those solicitors who have butted heads with the SRA over obtaining extensions for report filing may be surprised to learn that it believes said reports
have limited value.

Dubious value

In fairness, the reports themselves are cumbersome
and of dubious value given
that they can be prepared by
any accountant permitted to conduct audits; there is no specialist knowledge of
solicitors’ accounts rules needed.

The timing of the reports also tends to indicate that the information they contain is significantly out of date. The issue of minor non-compliances has also been a rather vexed question over the years.

It is high time that the reports were looked at from a clean slate perspective. They are not user-friendly. That does not mean the SRA needs to take
the drastic step of making independent oversight of compliance with accounts
rules wholly optional.

Obviously, it is more
cost-effective if firms do not need to instruct external accountants and rely on the view of the COFA, who should report material breaches to the SRA and ensure that the firm maintains proper records to enable adequate oversight of client accounts.

Diligent firms that have proper risk management procedures in place will want the comfort of an independent audit in any event. It’s good practice. At the very least,
COFAs will be demanding
expert advice before agreeing
to put their head on the block.

Abuse target

The problem with an argument based on cost to firms is that the SRA’s proposal is a huge responsibility for the COFA and that such a system, with only optional external oversight,
is a clear target for abuse.

Given the potential sanctions if a COFA signs a certificate of compliance and is later found
to have made a mistake, the self-preservation instincts
of diligent COFAs are likely
to negate the argument.

On the other hand, who
is likely to catch a dishonest COFA? Putting responsibility
for compliance in the hands
of one individual is inherently dangerous, particularly if non-COFA principals in firms
are content to rely on the
word of the COFA. The whole profession will be relying entirely on the capability and integrity of an individual in
each firm and we are all fallible.

There are many instances
in which solicitors have fallen
into error inadvertently either through ignorance, overwork
or other pressures. This is without those who are inherently dishonest or succumb to temptation as a result of stress
or poor judgment.

Given that the SRA minimum terms deems a shortage on client accounts a trigger to
an automatic indemnity insurance claim, it is also
likely that insurers will reward those firms that continue
to seek external oversight.

It comes as no surprise
that about half the annual accountants’ reports submitted to the SRA are qualified. The accounts rules are difficult
for firms to comply with all
of the time and accountants
are understandably concerned about the possibility of any comeback on them if
something is missed.

Happily, the SRA states in its consultation that it will be looking again at the accounts rules to see if they are fit for purpose and is inviting views.

The SRA estimates that it spends around £200,000
per year in assessing, storing and generally dealing with accountants’ reports. That is
a lot of our money. There are other ways to reduce that cost, which may involve less risk
for the profession and less pressure for COFAs.

The SRA is awaiting your suggestions. You have until 18 June. SJ

Susanna Heley is an associate at RadcliffesLeBrasseur