If your firm holds money on behalf of clients, you already know the weight of regulatory responsibility that comes with it. The Solicitors Regulation Authority requires an annual report confirming that your practice complies with the SRA Accounts Rules. Failing to deliver that report on time, or worse, failing to follow the rules themselves, puts your practising certificate, your firm’s authorisation, and your professional reputation at risk.
We’ve been carrying out SRA audit work for law firms across England and Wales for over 20 years. Our team understands the regulatory framework inside out. We know where firms slip up, we know what the regulator looks for, and we deliver a thorough report without disrupting your day-to-day practice.
What is a solicitors audit?
A solicitors audit (properly called an “accountant’s report”) is a specialist examination of how a law firm handles funds held on behalf of clients. It’s not a financial statement audit under ISA standards. Instead, it’s a review governed by Rule 12 of the SRA Accounts Rules 2019, which replaced the older Solicitors Accounts Rules 2011.
The auditor examines whether the firm has kept money belonging to clients separate from office money, whether bank reconciliations are accurate, and whether systems and controls meet the required standard. The finished report is submitted directly to the SRA. It must be produced by a qualified accountant who holds the appropriate registration.
There are specific things the auditor must test:
- Bank reconciliations completed at least every five weeks under the rules
- Proper separation of funds held for clients from office money at all times
- Correct handling of mixed payments containing both elements
- Adequate records of all movements on designated accounts
- Prompt return of residual balances once matters complete
- Evidence that the COFA (Compliance Officer for Finance and Administration) is actively monitoring the position
The COFA carries personal responsibility for ensuring the firm meets its obligations. That’s a point many COFAs underestimate until an issue surfaces during fieldwork.
Do solicitors get audited?
Yes. Any firm that holds or receives client money during its accounting period must obtain a report. There are no exemptions based on size. A sole practitioner handling a single conveyancing matter with funds held for three days has the same reporting obligation as a 200-partner City firm.
The obligation covers sole practitioners, partnerships, LLPs, and incorporated practices structured as limited companies.
Firms that don’t hold any money on behalf of clients at any point during the period are not required to file. But if there’s any doubt, the safe approach is to file anyway. The regulator takes a dim view of firms that should have filed but didn’t.
The report must reach the SRA within six months of the firm’s accounting period end. Late filing is itself a breach. And it’s one that gets tracked and recorded against your firm.
SRA Accounts Rules 2019 – what the auditor checks
The 2019 rules are shorter and more principles-based than the old 2011 rules they replaced. That sounds simpler, but in practice it gives the regulator more flexibility in how they interpret things. There are fewer prescriptive requirements and more emphasis on the firm demonstrating that its systems genuinely work.
During an SRA audit, we check the following areas:
Handling of funds. Rule 2 defines what constitutes client money. We verify that every payment received on behalf of a client goes into the right designated account, not the office account. We test a sample of transactions to confirm proper allocation.
Designated account operation. Rule 3 requires that money belonging to clients is kept at a bank or building society in England and Wales. We check that the account is properly designated and that only the correct funds pass through it.
Obtaining and delivering bills. We look at whether transfers to the office account are supported by delivered bills or other valid authority. Transferring money before the bill is sent is one of the most common issues we encounter.
Accounting records. The firm must maintain accurate records that show the position on each matter at any time. We test the ledger system and reconciliation process to confirm this.
How long does a solicitors audit take?
For a well-organised firm with up-to-date records, we typically complete fieldwork in two to three days. Smaller practices with a handful of matters can be done in a single day. Larger firms with branch offices or high transaction volumes usually need four to five days.
The biggest factor is preparation. Firms that keep their reconciliations current and their ledger records tidy make the process significantly faster. We send a detailed preparation checklist before we start, covering exactly what we need to see. Most of our clients find it gets smoother each year.
A few things that slow the work down:
- Reconciliations that haven’t been completed for several months
- Residual balances sitting on old, completed matters that nobody has dealt with
- Missing or incomplete records for transfers between designated and office accounts
- Staff changes during the year meaning nobody can explain certain transactions
We’ll always give you a realistic timeline before we start. And if we find something during fieldwork that needs your input, we raise it immediately rather than letting it delay the final report.
Common issues we find
After two decades of this work, certain patterns repeat across firms of all sizes. Here are the problems we see most often:
Residual balances. Money left sitting on ledgers after matters have completed. Sometimes it’s a few pounds, sometimes it’s thousands. Either way, the regulator expects firms to return funds promptly. Balances lingering for months or years is a clear breach.
Premature transfers. Moving money to the office account before the bill has been delivered. This is technically using client funds without authority, and it’s treated seriously.
Mixed payment errors. When a payment contains both elements (for example, a completion payment that includes your fees), the rules require specific handling. The whole amount goes into the designated account first, then the office element is transferred out. Getting this wrong creates a breach.
Reconciliation gaps. The five-week reconciliation rule is clear, but firms sometimes let it slip during busy periods or staff absences. Missing even one is reportable.
Inadequate COFA oversight. The COFA role isn’t ceremonial. Evidence of active monitoring is expected. If the COFA can’t demonstrate what they’ve been doing between audit visits, that’s a concern we’ll flag.
What happens if there’s a breach?
Every breach of the rules must be reported in the accountant’s report. The auditor can’t overlook one, no matter how minor it appears. That’s a legal requirement, not a professional judgment call.
But not all breaches carry the same consequences. The SRA operates on a risk-based approach. A single late reconciliation at a firm that is otherwise well-run will attract far less scrutiny than systematic failures to segregate funds properly.
Typical responses to reported breaches include a letter requesting an explanation, a desk-based review of your records, a forensic investigation visit for more serious concerns, or conditions placed on the firm’s authorisation. In the most serious cases, intervention into the firm’s practice.
The key factor is whether the firm has taken the breach seriously. If you’ve identified the cause, fixed the problem, and put controls in place to prevent recurrence, that goes a long way. Firms that dismiss findings or fail to act on them face a much harder conversation with the regulator.
We always discuss reportable issues with you before finalising the report. You won’t get any surprises. And we’ll advise on the practical steps to demonstrate that you’ve addressed each problem.
Staying compliant between audits
The report captures a snapshot at your reporting date. But maintaining compliance with the accounts rules is a year-round responsibility, and the regulator expects firms to treat it that way.
We work with law firms on an ongoing basis to help maintain best practice between visits:
- Quarterly reviews of procedures and reconciliations
- Training for fee earners and accounts staff on the 2019 rules
- Guidance on handling funds in unusual or complex transactions
- Support for COFAs in building their monitoring programme
- Preparation for desk-based reviews or forensic investigation visits
Prevention is always better than remediation. A firm that actively monitors its own position will have a cleaner audit, fewer reportable breaches, and a stronger relationship with the regulator. And honestly, it costs less in fees too, because our fieldwork goes faster when the records are in order.
Choosing your auditor
Not every accountant can sign an SRA report. The person signing must hold the appropriate qualification and registration. But beyond that minimum requirement, experience matters enormously.
A generalist accountant who handles one or two law firms a year won’t have the pattern recognition that comes from working with dozens of practices across different areas of law. Conveyancing firms have different risk profiles to litigation practices. High street solicitors face different challenges to commercial firms. Your auditor should understand those differences.
The relationship works best when your auditor genuinely understands your practice. They should feel like part of your team, not an annual inconvenience.
Why firms choose Audit Group
We’re the audit arm of Jack Ross Chartered Accountants, established in 1948 and ICAEW-regulated. We’re on the Register of Statutory Auditors and we’ve been carrying out this work for over two decades.
What sets us apart is straightforward. We know this area inside out. We’ve seen every type of breach, we understand how the SRA responds, and we give you practical advice alongside the report. Our fees are fixed and agreed before any work starts.
We work with firms across England and Wales from our Manchester office. Whether you’re a sole practitioner or a multi-partner practice, we’ll give you the same level of attention.
If your firm needs a new audit provider, or you want a second opinion on your position, call us on 0161 832 4451 or request a callback.
