An SRA audit is something every law firm handling client money needs to think about. The regulator requires firms that hold or receive client funds to have their accounts examined by a qualified accountant each year. It’s not optional. If your practice holds client money, you need an SRA audit – and getting it wrong can lead to serious regulatory consequences.

At Audit Group, we’re ICAEW-regulated with specific experience in SRA audit work for firms across Manchester and the wider UK. This guide explains what’s involved, how to prepare, and what the SRA actually looks for.

What is a SRA audit?

It’s an independent examination of a law firm’s client account records. Your accountant checks that the firm has complied with the SRA Accounts Rules throughout the reporting period. That means verifying client money has been kept separate from office money, that reconciliations are up to date, and that the firm’s accounting systems are fit for purpose.

The report goes directly to the SRA. If problems are found – a breach of the rules, unexplained shortfalls, or poor record-keeping – those get flagged. The regulator takes client money protection extremely seriously, so even minor issues can trigger follow-up action.

This isn’t just a box-ticking exercise. A properly conducted engagement gives firms confidence that their client account handling is sound, and gives the regulator evidence that funds are protected.

What does the SRA stand for?

SRA stands for Solicitors Regulation Authority. It’s the body responsible for regulating solicitors in England and Wales. The SRA sets the rules that govern how firms operate, including the SRA Accounts Rules that dictate how client money is handled, recorded and protected.

Who needs an SRA audit?

Any law firm that holds or receives client money during its accounting period must have an accountant’s report prepared. This applies to sole practitioners, partnerships, LLPs and incorporated practices alike. There are limited exceptions – if a practice hasn’t held any client money at all during the period, it may not need a report. But the threshold is low. Even holding funds briefly triggers the requirement.

The SRA Accounts Rules 2019 set out exactly when a report is needed. Rule 12 covers the reporting accountant requirements, and the person signing off needs to be qualified under Schedule 1 – typically an ICAEW, ACCA or ICAS member with practising certificates.

The SRA Accounts Rules: what they cover

The SRA Accounts Rules are the foundation of every engagement. Compliance is tested against these rules throughout the process. The key areas include:

• Client money separation – Client money must be kept in a separate designated account at all times. Mixing office and client money is one of the most common issues the SRA investigates.
• Prompt banking – Funds received must be paid into a client account promptly, normally by the next working day.
• Ledger accuracy – Every transaction involving client money needs a corresponding entry on the individual ledger. These are checked line by line against bank records.
• Regular reconciliation – Firms must reconcile bank statements with ledger balances at least every five weeks. Many firms do it monthly. Unresolved differences are red flags.
• Interest and billing – Rules on when you must account to clients for interest, and ensuring bills are raised before transferring costs from client to office account.

Preparing for an SRA audit

Getting ready for the engagement doesn’t need to be stressful, but it does need planning. Firms that stay on top of their records throughout the year find the process much smoother than those scrambling at year-end.

Here’s what your firm should focus on before the engagement starts:

1. Complete your reconciliations – Make sure every five-weekly (or monthly) reconciliation is done, documented and signed off. Gaps in the schedule are among the first things checked.
2. Clear old balances – Review your ledger for dormant balances. Funds sitting in accounts with no activity need explaining. The SRA Accounts Rules require firms to return money promptly when there’s no reason to hold it.
3. Check your bank statements – Ensure all bank accounts holding client money are properly designated and visible in your records.
4. Review transfers between accounts – Every transfer from client account to office account should tie back to a valid bill or agreed cost. Unexplained transfers are a common problem area.
5. Organise your files – The engagement team will need access to matter files, billing records, bank statements and your practice management system. Having these ready saves time and reduces your fee.

The audit process

A typical engagement follows a structured process. Understanding what happens at each stage helps firms prepare properly and avoid surprises.

Planning – The team meets with the firm’s compliance officer or COFA (Compliance Officer for Finance and Administration) to understand the firm’s structure, client account arrangements and any changes since the last review. They’ll identify risk areas and plan their testing approach.

Testing – This is the core of the work. Sample testing covers ledger entries against bank statements, reconciliation accuracy and timeliness, whether client money has been used for office purposes, and compliance with the SRA Accounts Rules across all areas. They’ll look at how your firm handles funds from receipt through to return or transfer.

Reporting – The auditor prepares their report for submission to the SRA. If everything checks out, that’s a clean report. If there are problems, the report must detail each issue. Qualified reports don’t automatically mean disciplinary action, but the SRA will want to understand what happened and what the firm is doing about it.

Common compliance issues we find

After years of conducting these engagements for law firms across different practice areas, certain problems come up repeatedly:

• Late or incomplete reconciliation – the five-week rule catches many firms out, especially smaller practices without dedicated accounts staff
• Residual balances on completed matters – funds left sitting on the ledger after a matter has closed
• Transfers made before bills are raised – moving money from client to office account without a valid invoice, even if the client owes the amount
• Poor record-keeping around third-party managed accounts – where firms use payment platforms, the trail often breaks down
• Missing or inadequate interest policies – firms need a written policy on paying interest to clients, and must actually follow it

None of these are career-ending on their own. But a pattern of non-compliance, or a failure to fix known issues, is what gets firms into real trouble with the regulator.

Choosing the right SRA auditor

Not every firm can conduct this work. The reporting accountant must hold a practising certificate from a qualifying body (ICAEW, ACCA or ICAS) and must be independent of the practice being examined.

Beyond the technical requirements, look for someone who understands how law firms actually work. A professional who knows legal practice management systems, understands conveyancing pipelines and litigation cost structures, and has seen enough client ledger records to spot problems early will add genuine value – not just produce a report.

At Audit Group, we’re part of Jack Ross Chartered Accountants, established in 1948. We’ve been working with law firms for decades and understand the practical side of compliance as well as the technical rules.

What happens after the audit?

Once complete, the report must be delivered to the SRA within six months of the end of the accounting period (unless the SRA grants an extension). The firm also receives a copy, along with any management letter highlighting areas for improvement.

If the report is qualified – meaning a problem was found or certain checks couldn’t be completed – the SRA will review it. They may ask the firm to explain and demonstrate what corrective action has been taken. In serious cases, they can intervene directly. But for most firms, the process is constructive – it confirms good practice and highlights small issues before they become big ones.

If you need help with your SRA audit or want to discuss how to ensure compliance with the SRA Accounts Rules, call us on 0161 832 4451 or visit our contact page.