The Solicitors Regulation Authority wants accountants to use more professional judgement in testing law firms' finances before submitting accounts reports.
The regulator implemented new rules last month to ensure that only qualified reports - those flagging up a mistake or concerns - need to be sent in for further analysis. The rule applies to all firms except those that are 100% funded by legal aid.
Firms are still required to commission accountants' reports within six months of their financial reporting period.
But experience to date has revealed that many qualified reports do not reveal any significant risk to client funds.
There is also concern at the level of detail prescribed in the accounts rules and in test procedures, and a theory that there is not enough leeway for accountants to judge whether a report needs to be flagged up with the SRA.
In a consultation opened today, the regulator set out a list of accounting issues that would need to be 'substantive deficiencies' to require accounts to be sent to the SRA. These warning signs include the lack of segregation of client and office monies, controls and checks to protect against fraud and effective oversight by management.
Annette Lovell, SRA director of regulatory policy, said the underlying purpose of obtaining accountant's reports remains to ensure client monies are properly protected - but that more flexibility can be introduced.
'We are proposing that the rules are changed to give greater importance to the professional judgement of the reporting accountant in identifying significant risks to the proper handling of clients' funds,' she said.
The amendments to accounts rules could be introduced by April 2015, subject to approval from the Legal Services Board.
The SRA said it realised the risk of some firms not complying with accounts rules and neither obtaining nor delivering qualified reports.
The regulator will mitigate this risk by asking for accountants' reports to be provided whenever it engages with firms.
The consultation document adds: 'Redefining the criteria in which the accountant's reports need to be qualified, to focus more on issues that may adversely affect client money, will allow us to retain a crucial element of independent oversight over firms that hold client money - but in a more proportionate and targeted way.'
The consultation closes on 28 January.