What Is the Process for Submitting an Accountants’ Report to the SRA?

Law firms that handle client money must submit an annual accountants’ report to the SRA. Learn how the process works, when submission is required, and how to stay compliant.

Introduction

Every law firm that handles client money must comply with the Solicitors Regulation Authority (SRA) Accounts Rules, which are designed to protect client funds and maintain transparency. One key compliance requirement is the submission of an accountants’ report.

This report confirms that the firm has managed client money correctly and followed the SRA’s rules throughout the financial year. It is an essential safeguard that demonstrates financial integrity and good governance.

This article explains the process for preparing and submitting an accountants’ report to the SRA, when it is required, and what law firms can do to avoid common compliance issues.

What Is an Accountants’ Report?

An accountants’ report is an independent review prepared by a qualified external accountant to assess a law firm’s compliance with the SRA Accounts Rules.

The accountant checks that:

  • Client money is kept separate from the firm’s own funds.

  • All transactions are accurately recorded in the firm’s accounting records.

  • Bank reconciliations are carried out regularly.

  • Client money is used only for its intended purpose.

If the accountant identifies breaches, they will determine whether these are material (significant enough to affect client money security) or non-material. Only material breaches need to be reported to the SRA.

When an Accountants’ Report Is Required

Law firms must obtain an accountants’ report if, during the accounting period, they:

  • Hold or receive client money, or

  • Operate a client account.

Firms that do not handle client money (for example, those paid directly by clients for services) are usually exempt from this requirement.

The reporting period typically covers 12 months, though firms can choose a shorter period when setting up or winding down.

Step 1: Appoint a Suitable Accountant

The first step is to engage an accountant qualified under Rule 12 of the SRA Accounts Rules. The accountant must:

  • Be a member of a recognised professional body, such as the ICAEW or ACCA.

  • Be independent of the firm and its partners.

  • Have experience working with solicitors and understanding SRA compliance requirements.

Most firms choose an accountant who specialises in legal sector audits to ensure familiarity with SRA regulations.

Step 2: Provide the Accountant with the Required Records

The law firm must give the accountant access to all financial documents and client account records for the review period. This typically includes:

  • Client ledgers and cash books.

  • Bank statements for all client and office accounts.

  • Bank reconciliations performed during the year.

  • Transaction records and payment authorisations.

  • Fee notes, invoices, and supporting documentation.

The accountant uses these records to verify that client money has been handled in line with the SRA Accounts Rules.

Step 3: Conducting the Review

The accountant will carry out detailed tests on a sample of transactions to check for compliance. This includes verifying that:

  • Client money was deposited promptly into the client account.

  • Withdrawals were properly authorised and supported by documentation.

  • Client-to-office transfers were made only when fees were billed or agreed.

  • Balances are accurate and match bank reconciliations.

The accountant also assesses internal controls and the role of the firm’s Compliance Officer for Finance and Administration (COFA) in monitoring financial compliance.

Step 4: Identify and Classify Breaches

If the accountant finds any breaches of the Accounts Rules, they must decide whether the issues are:

  • Non-material minor errors that do not risk client money and can be corrected internally.

  • Material serious breaches that could compromise client funds or reflect systemic weaknesses.

Only material breaches need to be reported to the SRA. However, even minor issues should be discussed with the firm to prevent future recurrence.

Step 5: Preparing the Accountants’ Report

At the end of the review, the accountant prepares the official Accountants’ Report using the prescribed SRA format. The report includes:

  • Details of the firm’s client accounts and transactions reviewed.

  • Confirmation that the rules were followed or identification of breaches.

  • A conclusion on whether the report is qualified or unqualified.

A qualified report means that the accountant found material breaches that must be brought to the SRA’s attention.
An unqualified report means that the firm complied fully with the Accounts Rules and no material issues were found.

Step 6: Submitting the Report to the SRA

If the accountant’s report is qualified, it must be submitted to the SRA within six months of the end of the accounting period.

The submission process is completed electronically via the SRA’s MySRA portal:

  1. The accountant completes the report using the SRA’s template.

  2. The firm uploads the report and any supporting documentation.

  3. Both the firm and accountant confirm the accuracy of the submission.

If the report is unqualified, the firm does not need to submit it to the SRA but must retain a copy for at least six years in case it is requested for inspection.

Step 7: Responding to Breaches

If the accountant reports material breaches, the firm must take corrective action immediately. This may involve:

  • Transferring funds to the correct account.

  • Correcting accounting errors.

  • Improving internal procedures and staff training.

The firm should document all remedial actions taken, as the SRA may request evidence of how issues have been resolved.

Step 8: Keeping Ongoing Records and Compliance

To make future reporting smoother, firms should maintain accurate records and reconciliations throughout the year. Best practices include:

  • Reconciling client accounts at least every five weeks.

  • Monitoring balances to identify unallocated funds.

  • Ensuring staff understand SRA rules.

  • Conducting internal compliance checks before the annual accountant’s review.

Regular communication between the COFA and the firm’s accountant helps identify potential breaches early and maintain a clean record.

Common Reasons for a Qualified Report

Accountants often issue qualified reports for:

  • Client account funds being used for office expenses.

  • Failure to carry out timely reconciliations.

  • Delays in returning residual client balances.

  • Incomplete or inaccurate ledgers.

  • Weak internal controls or lack of supervision.

Firms that take early corrective action and improve procedures can often avoid repeat qualifications in subsequent years.

The Role of the Accountant Beyond the Report

A good accountant does more than review compliance once a year. They act as an advisor, helping law firms:

  • Strengthen internal financial systems.

  • Train staff on SRA Accounts Rules.

  • Prepare for SRA inspections.

  • Avoid common accounting pitfalls.

Their expertise can prevent small administrative errors from escalating into reportable breaches.

Conclusion

Submitting an accountants’ report to the SRA is a vital part of maintaining compliance and protecting client funds. The process involves appointing a qualified accountant, providing complete records, undergoing a detailed review, and submitting the report if material breaches are found.

Law firms that maintain accurate financial records, perform regular reconciliations, and work closely with their accountant throughout the year will find the reporting process straightforward and stress-free. Regular collaboration with accountants not only ensures compliance but also strengthens the firm’s financial integrity and client confidence.