In England & Wales, the Solicitors Regulation Authority regulates solicitors. One important compliance obligation that a law firm must comply with is the SRA Audit. The audit is formally known as the Accountant’s Report under the SRA Accounts Rules. The SRA Audit not only helps to protect the public, but also protects firms from potential sanctions. This article will examine what you need to know about SRA Audits, the tests associated with the SRA audit, the role of SRA Partners in the audit process and finally, the difference between SRA audits and statutory audits.
What Are SRA Audits?
Independent audits conducted by qualified accountants verify that an attorney’s firm complies with the SRA Accounts Rules. The main purpose of an SRA Audit is to confirm that clients’ funds are safeguarded and that there are appropriate financial controls in place regarding them. The majority of law firms that handle or receive client money are required to receive an Accountant’s Report following their financial year-end. This report assures clients about whether the firm has complied with the SRA Accounts Rules or identified any breaches of the SRA Accounts Rules.
Why Are SRA Audits Important?
The importance of maintaining confidence in the legal profession is largely dependent on SRA audits. Benefits of regularly auditing a law firm’s financial system for compliance include:
- Ensuring compliance with both the SRA Accounts Rules and Client Money Regulations.
- Limiting the misuse of or error in Client Money.
- Increasing the transparency of a law firm’s financial position and financial controls.
- Providing evidence of regulatory compliance to the Agency, lenders and the legal profession in general.
SRA Audit Tests
Reporting accountants conduct multiple SRA audit tests to evaluate if the firm has adhered to the appropriate procedures when managing client funds in the course of performing an SRA audit.
Common audit checks include:
- Client Money Segregation
Auditors verify that client funds are maintained in separate bank accounts created specifically for clients; they are not mixed with the firm’s operating funds.
- Three-Way Reconciliations
The firm must regularly reconcile its bank balances, cash book and client ledgers to verify uniqueness. Reconciling client ledgers against both the cash book and the bank balance should be done at least once every five weeks.
- Residual Client Balances
Auditors review the manner in which old client balances or unused client funds are dealt with and returned to clients within regulatory timeframes.
- Transfers and Withdrawals
Transactions from client accounts must always be accompanied by appropriate documentation.
- Interest on Client Money
A firm should have a written policy that covers how and when to calculate and pay interest on client funds.
- Breach Reporting
An examination of the audit also evaluates whether SRA Accounts Rules’ breaches have been found and reported.
The Role of SRA Partners and Firm Management
It is the duty of SRA partners and other management personnel in law firms to ensure that the firm complies with its SRA Accounts Rules. This includes overseeing the financial processes and ensuring that there are adequate controls in place to allow for compliance. They must also provide support to the Compliance Officer for financial administration (COFA) to ensure that there is a proper process for handling client money, all financial records are maintained accurately and updated regularly, all breaches of compliance have been reported promptly, and that all staff have received adequate training regarding compliance requirements.
How Is an SRA Audit Different from a Statutory Audit?
Although both involve independent financial review, an SRA audit and a statutory audit serve different purposes.
Purpose
An SRA audit evaluates if a law firm is compliant with the SRA Accounts Rules and manages client money according to those rules. As opposed to an SRA audit; a statutory audit assesses a company’s financial statements to provide a true and fair presentation in accordance with appropriate accounting standards and legal requirements.
Scope
An SRA audit will only review the Client Account of a law firm, a statutory audit will typically review all of a company’s financial statements.
Regulatory Focus
An SRA audit is geared specifically towards regulated law firms under the Solicitors Regulation Authority, while a statutory audit applies to all companies that are required by law to have their financial statements audited.
Reporting Requirements
In an SRA audit, the Accountant prepares a report that summarises the level of compliance or breach of compliance with the Accounts Rules. In a statutory audit, the Auditor will issue an opinion that may or may not present the financial statement of a true and fair view of the Company.
Why Choose Reflex Accounting for SRA Audits?
The team at Reflex Accounting is an experienced group of professionals who work closely with law firms to ensure compliance with SRA audits through our business connections. Our extensive knowledge helps us provide the utmost accuracy and transparency in your financial systems and client accounts. In addition to a commitment to meeting the requirements of solicitors’ accounts rules, our focus on delivering timely, proactive guidance will help minimise the likelihood of a solicitor’s account rule violation by your law firm.
Our Core Expertise
- Specialist Knowledge of SRA Accounts Rules
Our team understands the regulatory framework governing client money, helping your firm stay compliant with all SRA requirements. - Comprehensive SRA Audit Preparation
We review your client account procedures, records, and reconciliations to ensure everything is ready before the reporting accountant’s review. - Detailed SRA Audit Tests and Compliance Checks
Our specialists perform in-depth reviews of client ledgers, bank reconciliations, and transaction records to identify and resolve potential issues early. - Support for Partners and Compliance Officers
We assist SRA partners and COFAs in implementing effective financial controls and maintaining accurate documentation. - Breach Identification and Risk Reduction
Our proactive approach helps detect potential breaches of the SRA Accounts Rules and resolve them before they escalate. - Clear and Practical Compliance Advice
We provide straightforward guidance to help your firm strengthen internal processes and maintain long-term regulatory compliance.
Book a free consultation with Reflex Accounting and let us review your SRA audit position, identify potential risks, and highlight practical steps to strengthen compliance. You can also explore our dedicated Audits & Assurance services page to see how we support law firms with SRA audits and wider assurance needs.
FAQs
Which law firms need an SRA audit?
Law firms that hold or handle client money usually need an SRA accountant’s report to confirm compliance with the Solicitors Accounts Rules.
How often does my firm need an SRA audit?
It is typically required once a year, with the accountant’s report prepared within six months after the firm’s accounting period ends.
What are common breaches found in SRA audits?
Common issues include missed reconciliations, incorrect client ledger records, delayed transfers from client accounts, and holding leftover client balances too long.
Are any firms exempt from SRA accountants’ reports?
Yes, firms that do not hold client money during the accounting period may be exempt, though they must still maintain proper financial records.
