What should solicitors include in their accountants’ report to the SRA?

At Towerstone Accountants we provide specialist accountancy services for solicitors and law firms operating under SRA regulation. This article has been written to explain What should solicitors include in their accountants’ report to the SRA in clear practical terms so you understand how the rules apply in day to day practice. Our aim is to help you stay compliant protect client money and make informed financial decisions.

The accountants’ report to the Solicitors Regulation Authority is one of those obligations that many solicitors only think about when a deadline approaches. In my experience that is usually when problems arise. The report is not just a formality or a box ticking exercise. It is a key regulatory safeguard designed to give the SRA comfort that client money has been handled properly.

I have worked with many firms on accountants’ reports, from sole practitioners to multi partner practices, and the difference between a smooth submission and a stressful one almost always comes down to preparation and understanding what the report is actually meant to demonstrate.

In this article I will explain what solicitors should include in their accountants’ report to the SRA, how the report is structured, what the accountant is looking for, and how firms can reduce the risk of qualifications or follow up action. I will focus on practical realities rather than theory and explain how the regulator views these reports in practice.

What the accountants’ report is and why it exists

The accountants’ report is an independent assurance report prepared by a reporting accountant. Its purpose is to confirm whether a firm has complied with the SRA Accounts Rules in relation to client money.

The SRA relies on this report to assess:

• Whether client money has been kept safe

• Whether records are accurate and complete

• Whether breaches of the Accounts Rules have occurred

• Whether any breaches are serious enough to require investigation

The report is not designed to assess the quality of legal work or the commercial success of the firm. It is about safeguarding client funds and trust.

When an accountants’ report is required

Not every firm needs to submit an accountants’ report every year. Whether a report is required depends largely on whether the firm has held client money.

In broad terms a report is required if:

• The firm has held or received client money during the accounting period

• The firm operates a client account

• Client money has passed through the firm even briefly

There are exemptions in certain circumstances, but these must be considered carefully. Assuming an exemption applies when it does not is a common and risky mistake.

Who prepares the accountants’ report

The report must be prepared by an independent reporting accountant. This is usually a qualified accountant with experience of solicitors’ accounts and the SRA Accounts Rules.

Independence matters. The accountant must be able to provide an objective opinion. In most cases the firm’s external accountant prepares the report, but they must follow the specific SRA reporting framework.

The structure of the accountants’ report

The accountants’ report follows a prescribed format set by the SRA. It is not a free form narrative. Solicitors should understand what sections are included so they know what information and evidence the accountant will require.

Broadly the report includes:

• Basic firm details

• The accounting period covered

• A statement of responsibilities

• The accountant’s work performed

• Findings and conclusions

• Details of any breaches

Each section serves a specific purpose and must be completed accurately.

Firm and practice details

The report begins with basic information about the firm. This may sound straightforward but errors here can cause confusion.

Typically this includes:

• The firm’s name and SRA number

• The type of entity such as sole practice partnership LLP or company

• The trading address

• The accounting period covered

Consistency with SRA records is important. Discrepancies can trigger follow up questions.

Confirmation of client money held

One of the most important declarations in the report is confirmation of whether client money has been held during the period.

The accountant will need to establish:

• Whether a client account existed

• Whether any client money passed through the firm

• Whether the firm relied on an exemption

Solicitors should be prepared to evidence this clearly. Vague or inconsistent explanations often lead to further scrutiny.

Description of accounting systems and controls

The report includes an assessment of the systems and controls used to manage client money. This is not a full audit but the accountant must understand how the firm operates.

This typically covers:

• How client money is received

• How payments are authorised

• How client ledgers are maintained

• How reconciliations are performed

• Who has responsibility for oversight

Weak or informal systems increase the risk of issues being identified.

Client account records and reconciliations

One of the core areas of focus is the quality of client account records. The accountant will review whether records are complete accurate and up to date.

This includes reviewing:

• Client account bank statements

• Individual client ledgers

• Cash books or equivalent records

• Regular three way reconciliations

The report will reflect whether reconciliations were carried out regularly and whether differences were investigated promptly.

Timing and frequency of reconciliations

The SRA Accounts Rules require reconciliations to be performed at least every five weeks. The accountant will test whether this requirement has been met consistently.

The report may highlight issues such as:

• Reconciliations not performed on time

• Missing reconciliation periods

• Unexplained differences carried forward

Even small or historic failures can be reported, so consistency matters.

Handling of client money receipts and payments

The accountant will test how client money has been handled in practice. This often involves sampling transactions.

Areas reviewed include:

• Whether money was paid promptly into the client account

• Whether payments out were properly authorised

• Whether office and client money were kept separate

• Whether transfers between accounts were justified

Errors here are among the most common causes of report qualifications.

Treatment of residual client balances

Residual balances are another area of scrutiny. These are small amounts left on client accounts after matters conclude.

The report will consider:

• Whether residual balances exist

• How long they have been held

• What steps have been taken to return them

Unexplained or long standing residual balances can indicate poor controls and may need to be reported.

Interest on client money

Where interest is payable to clients the accountant will review whether the firm’s approach is compliant.

This includes:

• Whether the firm has a clear interest policy

• Whether interest has been calculated correctly

• Whether interest has been paid where required

Failure to deal with interest properly can still constitute a breach even where amounts are small.

Review of breaches of the Accounts Rules

One of the most important sections of the accountants’ report is the disclosure of breaches. The accountant is required to report breaches they identify even if they have been corrected.

Breaches might include:

• Late banking of client money

• Late reconciliations

• Incorrect transfers

• Mixing of client and office funds

The report will usually distinguish between trivial breaches and more serious ones, but all must be disclosed.

Materiality and seriousness of breaches

Not every breach leads to regulatory action. The report will often include commentary on whether breaches are material or systemic.

Factors considered include:

• Frequency of breaches

• Value of money involved

• Duration of the issue

• Whether corrective action was taken

Solicitors should not assume that small means irrelevant. Patterns matter.

Accountant’s declaration and conclusion

The report concludes with the accountant’s declaration and opinion. This confirms whether in the accountant’s view the firm has complied with the SRA Accounts Rules during the period.

Possible outcomes include:

• An unqualified report

• A qualified report with noted breaches

A qualified report does not automatically mean enforcement action, but it does increase the likelihood of further questions.

Supporting documentation solicitors should provide

To complete the report efficiently solicitors should be ready to provide clear documentation.

This typically includes:

• Client account bank statements

• Client ledgers

• Reconciliation schedules

• Office account records

• Written policies and procedures

Missing or disorganised records slow the process and increase risk.

Common issues that lead to report qualifications

Certain issues come up repeatedly in practice. Being aware of them allows firms to address problems before the report is prepared.

Common causes of qualification include:

• Infrequent or late reconciliations

• Poor documentation of transfers

• Long standing residual balances

• Unclear responsibility for oversight

• Reliance on memory rather than systems

Most of these are preventable with good processes.

Timing and submission of the report

The accountants’ report must be delivered to the SRA within the required timeframe, usually within six months of the end of the accounting period.

Late submission can itself be a regulatory issue even if the report is otherwise clean. Firms should diarise deadlines carefully.

What happens after submission

Once submitted the SRA will review the report. Many reports are accepted without further action. Others may prompt follow up questions.

Possible outcomes include:

• No further action

• Request for clarification

• Requirement to submit additional information

• Regulatory investigation in serious cases

Transparency and prompt responses usually help resolve matters more quickly.

The role of the accountant in supporting solicitors

A good reporting accountant does more than complete a form. They act as a second line of defence by identifying weaknesses early.

Accountants often support solicitors by:

• Reviewing systems before year end

• Identifying emerging risks

• Helping correct issues promptly

• Advising on best practice

This proactive approach reduces stress and improves outcomes.

Interaction with other regulatory obligations

The accountants’ report does not exist in isolation. It interacts with other obligations including those overseen by the Solicitors Regulation Authority and tax obligations administered by HM Revenue & Customs.

Strong financial controls support compliance across the board, not just for the report.

Practical tips for a smoother accountants’ report

From experience the firms that handle this best do a few simple things well.

Practical steps include:

• Keeping reconciliations up to date throughout the year

• Documenting decisions and transfers clearly

• Addressing issues as they arise not at year end

• Involving the accountant early

These habits turn the report into a confirmation exercise rather than a problem finding one.

Final thoughts

So what should solicitors include in their accountants’ report to the SRA. In essence the report should provide clear evidence that client money has been handled properly, records are complete, and breaches have been identified and addressed transparently.

The report is not something to fear, but it does demand respect. From my experience the firms that treat it as an integral part of good governance rather than an annual nuisance are the ones that avoid regulatory stress.

If you are unsure whether your current systems would stand up to scrutiny now is the time to review them. A clean accountants’ report is not achieved at the deadline. It is earned through consistent careful management of client money throughout the year.

You may also find our guidance on What is the process for submitting an accountants’ report to the SRA and What are the SRA accounting rules and how do they work useful when reviewing related SRA and accounting obligations. For a broader overview of solicitor accounting and compliance topics you can visit our solicitors accounts rules hub which brings all related guidance together.