On 25 November 2019, significant changes to SRA Accounts Rules will come into force, meaning that legal firms need to adapt and begin preparations in order to ensure they are fully compliant. In this blog, Helen Clayton outlines some useful tips and guidance on how to get your firm ready for the new rules.
From 25 November 2019, firms need to alter their procedures to ensure they are compliant with the changes. Until 25 November 2019, the existing rules still apply and should be used.
A common question is how this will work in practice. One area to consider is how your Reporting Accountant will structure their work next time and what impact that might have on your cashiers and finance team.
The Reporting Accountant will need to perform some testing under the ‘old rules’ (those in force from the start of your accounting period until 24 November 2019). They will then need to perform testing under the ‘new rules’, which will be in force from 25 November 2019 to the end of your accounting period.
The testing under the old rules will likely form the same basis as it has in recent years, unless something significant has changed about your firm whether that be altering its risk profile, type of work delivered or financial stability perhaps.
The testing under the new rules might be quite different however and this will depend on what firms decide to do about their implementation.
The changes to current SRA Accounts Rules will provide firms with the opportunity to put best practice in place, ensuring updated procedures work for the firm and remain in compliance with the new rules.
Considering the work of your Reporting Accountant, they will need to update their understanding of your systems and controls, document their understanding, and ensure they are satisfied that the new rules are being implemented appropriately. They can then revise their testing procedures.
Even if you have decided to continue with existing policies and procedures, the Reporting Accountant will need time to ensure these remain compliant with the new rules.
Your Reporting Accountant will also need to update the documentation on their files to support the discussions held, as well as reconsidering a risk assessment of the firm. This may or may not change the focus of their testing compared to previous reporting periods.
Where firms have taken the opportunity to amend systems and controls, it will be appropriate to document these and ensure that training is rolled out to everyone relevant within the firm.
This is a great opportunity for firms to consider existing procedures, update these where appropriate and relevant and perhaps put in place some more stringent controls, which could aid the firm overall.
One area which may need analysis and reconsideration might be the firm’s cash flow.
Existing SRA Accounts Rules contain a 14-day timescale for transferring funds from client to office, once a bill has been delivered. This time limit is not included in the new rules. I suspect most firms will continue to use this benchmark, however, I see an opportunity for instilling new behaviours to transfer these funds over within a shorter timeframe, if not the same day.
This will not only aid your firm’s cash flow, but also minimise working capital requirements and reduce costs of borrowing.
Current systems should facilitate the immediate transfer of funds to settle bills, however, this gives every firm the excuse to roll out training, explaining why it is so important for the firm and that it’s not just a requirement of the SRA. It then provides a reason for exception reporting, recording instances of non-compliance which will hopefully drive behaviours to make the transfers immediately.
One of the changes in the new SRA Accounts Rules is that a bill must be raised to be able to transfer funds from client to office account in respect of disbursements that have been paid out of office account. Previously, these transfers could be made prior to a bill being raised.
Therefore, there is a potential negative impact on the firm’s cash flow if this is not dealt with from the outset. Whether this has an impact will depend on the nature of the legal transaction of course but fee earner education, firmwide policies and robust systems and controls will help alleviate the pressure on cash flow.
I would encourage you to revisit all processes and controls that have an impact on your firm’s cash flow and ensure that these maximise the potential of the office bank account balance but also minimise the risk of non-compliance with either the rules themselves, your firm’s procedures and perhaps, banking covenants.
SRA Accounts Rules do not just apply to partners or directors, they apply to every fee earner and every support member of the team. Anyone who liaises with a client, who deals with incoming post, who records, creates or authorises transactions, has a responsibility and should be held accountable for compliance with, not only the SRA’s rules, but also with the firm’s policies.
There will undoubtedly be people who perceive that it is not relevant to them.
Consider someone in your IT department. They may not be client facing nor impact on monetary transactions. However, they may have been responsible for the implementation of software, integration with other applications and will have access to passwords. They may have responsibility for cyber security. This employee is entirely relevant and should be made aware of their potential impact on non-compliance with the SRA’s rules and the firm’s policies.
Further, at what point do new recruits receive this training? Being handed a manual or a link to something online will get lost in the ether of information overload on their first day with you.
There will undoubtedly be people who perceive that it is not relevant to them; it’s important to find the reason as to why it is, issues that they could cause through ignorance and the wider resulting impact on the firm, its staff and its success and reputation. Communicating this message will be important to obtain their buy-in and focus.