Professional judgement

The compulsory compliance officer
for finance and administration (COFA)
has been in play for almost
two years. On the whole, as reporting accountants, we
have witnessed varying
levels of application of the
role. These range from larger firms requiring additional
staff members to assist with compliance issues to smaller practices having to juggle the COFA requirements with their everyday client work.

As a result of these differing levels of time available to commit to the role, the records that are produced can range widely in both quantity and quality.

Prescriptive tests

The COFA role was the start of wider reform implemented by the SRA, which recently released a further consultation paper
in respect of the accounts
rules entitled 'proportionate regulation: reporting
accountant requirements'.

The apparent intention of this latest consultation paper is to give the reporting accountant the ability to conclude how effective the client accounting system is by way of professional judgement, rather than prescriptive tests as currently detailed in the rules.

This will lead to a welcome common sense approach and certainly help the SRA avoid having to sift through reports where there is no real threat to client money. However, professional judgement of a practice's client accounting system will be greatly influenced by the evidence of controls in place.

Since implementing systems and controls is largely what is expected of the COFA, could it
be the case that the reporting accountant will place more reliance on the COFA records
in forming their opinion on
the practice's client accounting affairs?

Of course, the reporting accountant will still formulate
an independent opinion by undertaking their own tests.
But the COFA would ideally be able to provide comfort to the accountant that any deficiencies uncovered by such tests are isolated and that there are systems in place to avoid recurrences.

It certainly appears there
will be an expectation for the accountant to liaise with the COFA. The revised proposals
to the accounts rules, which accompany the consultation paper, include a guidance note which states: 'the accountant may also want to consider the firm's existing systems and, for example, the numbers and types of breaches of these Rules that the firm's COFA has recorded under his/her reporting obligations pursuant to rule 8.5(e) of the SRA's Authorisation Rules.'

COFA duties

It appears, therefore, that now might be a pertinent time for a reminder of the COFA's duties.

The main responsibility, of course, is that the COFA should record all breaches of the accounts rules. Furthermore, all material breaches should be reported to the SRA immediately upon discovery.

It may be considered that this task in itself is time consuming, but that would be dependent upon the systems and controls that have been put into place already. It is important, however, to not simply file the register away but instead to step back and review the breaches to identify areas where there are training requirements or tightening of controls required.

In addition to the compilation of a breaches register, the following are suggestions for additional duties that should ideally be performed by the COFA:

• Regularly maintain a master list of all client bank accounts held by the practice.
• Ensure there are procedures in place for identifying client money, as well as for the prompt banking and separation of that money from the firm's own money.
• Ensure there are robust controls over who can authorise and action the withdrawal of client money.
• Regularly review the matter balance listings to identify client ledger accounts which are overdrawn or which hold client money that should be returned to the client.
• Ensure that a three-way reconciliation statement between the general client bank accounts, client cashbook and matter balance listing is prepared, reviewed and signed by a manager.
• Regularly assess the financial stability of the practice.
• Frequently address the training requirements of the fee earners who are responsible for reporting breaches.

This is not, of course, an exhaustive list and the frequency with which such tasks are performed will depend entirely on the size of the practice and the level of client money held.
As a result, it would not be surprising if many COFAs are uncertain over whether they are doing too much or too little.

However, with the proposal
to allow accountants to
apply increased professional judgement when deciding upon qualifications to their reports, it will surely mean a greater interest in the COFA's own findings, thereby placing even greater importance to the role. SJ

Jennifer Martin is a business supervisor at Reeves