The changes coming into force are designed to simplify the current set of rules - reducing them from 52 to just 13, and will give firms much more freedom to interpret them as they see fit.
From what we’ve been seeing, this seems to be a trend in general with the SRA - enabling firms to adopt and benefit from new ways of doing business, particularly using technology.
Big changes coming to client accounts:
One of the most significant changes relates to how firms can use funds in their client accounts to reimburse themselves without first issuing a bill.
Now, under rule 4.3, clients must receive either a bill, or notification of costs incurred before these funds can be compliantly withdrawn. It’s important to note here that the SRA includes disbursements in its definition of costs.
In addition to this, all client money received must be held in the client account until a bill has been raised. The concept of “agreed fees”, and the ability to hold them in firms’ office accounts is no longer applicable.
Data will be key
Moving forwards, the SRA require firms to be much more robust around accounting and reconciliation. Under rule 8.3, firms will require the COFA or a senior manager to review and sign off all client account reconciliations.
Having a quick and easy way to access financial data, and to be able to point to the provenance of every payment will become increasingly valuable to firms and their accountants going forwards. We live in an age where single source of truth accounting is an achievable gold-standard, and there are a huge number of tools and resources out there to assist.
In the instance of any discrepancy firms are now only required to resolve discrepancies promptly (rather than within a set time frame). This naturally gives firms increased flexibility, but is also requiring firms to think carefully about what their specific good practices ought to be, and how to ensure they are shared across the business.
What should firms do?
- Check out the SRA’s Accounts Rules in full here
- Ensure that current and new processes account for the timely movement and reconciliation of funds in line with the SRA’s requirements that these events occur “promptly”
- Review technology and controls to ensure good accounting practices are followed and payment and billing data is easily available.
Legl’s online payments tool is specific to the legal industry. We help firms receive payments online, get paid faster, and improve cashflow. Our secure and compliant tool takes moments to set up, and gives your clients a modern, flexible experience, whist giving you all the data and reporting to make accounting and reconciliation a breeze.