Do all law firms need an accountant for SRA compliance?

Running a law firm means balancing legal work with strict regulatory responsibilities. One area that often causes uncertainty is whether a law firm actually needs an accountant to stay compliant with the Solicitors Regulation Authority (SRA). I have spoken with many solicitors who assume an accountant is only needed for annual accounts or tax returns, yet SRA compliance is a very different world. In my opinion most law firms benefit enormously from professional accounting support because the SRA’s focus is not just on financial reporting but on how client money is handled, safeguarded and recorded.

This article explains whether all law firms need an accountant for SRA compliance, what the rules actually require, how accountants help firms avoid breaches, and why even small firms and sole practitioners usually rely on specialist support. The aim is to give you a clear understanding of the expectations and the practical steps needed to stay on the right side of the SRA.

Understanding what SRA compliance really involves

SRA compliance is primarily about protecting client money. It is not the same as preparing company accounts or doing tax work. The SRA Accounts Rules make it clear that the way a firm handles client funds must be transparent, accurate and supported by detailed records. These rules apply to firms of all sizes whether you are a sole practitioner with a single client account or a multi-partner firm managing thousands of transactions.

The SRA requires firms to keep client money separate from office money, maintain up to date ledgers, perform reconciliations, deal with residual balances correctly, keep proper audit trails and demonstrate that controls are in place to prevent misuse or errors. This financial tracking is far more specialised than normal bookkeeping and in my opinion is closer to audit-level work than everyday accounting.

Do all firms legally need an accountant?

The SRA does not automatically force every law firm to hire an accountant. What it requires is compliance with the SRA Accounts Rules and a qualified reporting accountant where a firm must submit an annual Accountant’s Report. Whether you need that report depends on whether your firm holds client money.

If your practice never holds client money such as a litigation-only practice that uses counsel’s fees paid directly by clients you may not need to file an Accountant’s Report. However even these firms must still follow the SRA’s rules on safeguarding information, transparency about costs and maintaining firm-wide financial management systems.

The moment your firm holds or manages client money you enter a much stricter area of regulation. A reporting accountant may be required to review your systems each year and report serious breaches to the SRA. This is where most firms find that professional accounting support stops being optional.

In my opinion even firms that are technically exempt from a report often choose to involve an accountant to avoid regulatory risk and to create a buffer between the firm and the SRA in the event of an enquiry.

Why most law firms rely on accountants for SRA compliance

Even though the rules do not say “you must appoint an accountant”, they do require very specific safeguards that are difficult to maintain without professional help. For example, the SRA expects client account reconciliations at least every five weeks, accurate client ledgers, clear separation of office and client funds, controls for transfers, proper handling of mixed payments and immediate correction of errors. These are not casual bookkeeping tasks. They require a detailed knowledge of SRA expectations and the experience to spot issues before they become breaches.

A specialist legal accountant also understands how to navigate common problem areas such as residual balances, professional disbursements, interest calculations, client to office transfers, payment on account, SAR breaches and reconciliation anomalies. Even one missed step can lead to a reportable breach and that can trigger an SRA review.

In my experience solicitors often underestimate the risk of small and repeated breaches. Where a business accountant might see a mistake as easily fixable, the SRA may see a pattern that suggests weak controls. This is exactly why legal practices often feel safer with an accountant who specialises in SRA compliance rather than a general accountant.

What accountants actually do for SRA compliance

A good accountant supports a law firm in several ways. They ensure the firm’s internal processes match the SRA Accounts Rules before problems arise. They review client money handling, carry out independent reconciliations, document the firm’s systems and controls, advise on correcting breaches, help implement compliant software systems and guide partners through best practice.

Where a reporting accountant is legally required they complete the annual SRA Accountant’s Report which assesses whether the firm has managed client money correctly. If no material breaches are found the report may not need to be filed with the SRA, which is always the preferable outcome. If there are reportable issues the accountant helps the firm correct the system failures promptly so the SRA sees the firm as transparent and cooperative.

Beyond the formal reporting requirement an accountant assists with the practical day to day realities such as identifying weaknesses in client money controls, training staff on bookkeeping processes, helping with VAT and professional disbursements, reviewing fee arrangements and ensuring that partner drawings and office account activity do not interfere with client accounts. In my opinion this proactive support is what keeps most firms out of trouble.

What happens when a firm tries to manage SRA compliance without an accountant

Some small practices attempt to maintain full SRA compliance without specialist accounting help, particularly during start up. While it is possible, it is difficult. Firms often struggle with timely reconciliations, misclassification of funds, incorrect handling of disbursements, failure to identify breaches, or inconsistent record keeping. These issues can escalate quickly if the SRA asks for supporting evidence.

I have seen cases where firms believed they were compliant only for an SRA review to reveal multiple breaches such as late bank reconciliations, wrongly allocated receipts, unreturned residual balances or office money being held in the client account. In every case the firm ended up needing specialist accounting support to correct the issues anyway, usually at a higher cost.

In my opinion the biggest risk of going without an accountant is not the breach itself but the possibility of showing the SRA that your systems are not robust. Confidence in your controls is just as important as the technical accuracy of your books.

Do sole practitioners need an accountant?

Many sole practitioners believe that because their practice is small they do not need the same level of accounting oversight. The reality is that the SRA applies the same rules to sole practitioners as to multi partner firms. If you hold client money you face the same compliance obligations and the same risk of breaches.

A sole practitioner may find it even harder to maintain perfect records because they are balancing client work with administrative duties. Without an accountant reviewing the records regularly errors can go unnoticed for months. Client account issues that go unchecked for long periods tend to attract the SRA’s attention quickly.

In my opinion most sole practitioners benefit from having an accountant more than larger firms do because the risk sits on one individual’s shoulders.

Do large law firms need an accountant for SRA compliance?

Large firms almost always employ specialist accountants or finance teams because their volume of transactions and number of fee earners create too much risk to manage without a financial professional. The SRA expects strong systems, checks and oversight, and it becomes impossible to maintain compliance at scale without accounting expertise.

Even where a firm has an internal finance team, external accountants often complete the reporting accountant function or provide independent checks. Independence is a key part of the SRA’s expectations.

The bottom line: does every law firm need an accountant?

Strictly speaking the rules do not require every law firm to appoint an accountant. However in practice nearly every firm benefits from doing so. If your firm holds client money the need becomes overwhelmingly clear because of the complexity of the SRA Accounts Rules. Even if you do not hold client money you still face financial regulations that are easier to comply with when you have an accountant providing guidance.

In my opinion the better question is not “Do we need an accountant for SRA compliance?” but “Can we confidently maintain SRA compliance without one?” For most firms the answer is no. A good legal accountant keeps you compliant, protects your reputation, prevents costly breaches and gives you peace of mind that your financial systems meet the SRA’s standards.

Final thoughts

SRA compliance is fundamentally about trust, transparency and protection of client money. While an accountant is not legally required in every case, the practical reality is that law firms rely heavily on specialist accounting support to keep their systems compliant and avoid regulatory problems. Whether you run a small practice or a large firm, the right accountant strengthens your financial controls, reduces risk and ensures that your SRA obligations are met consistently and professionally.

In my opinion any law firm serious about long term compliance should view an accountant as a core part of its regulatory infrastructure, not an optional extra.