The Solicitors Regulation Authority requires law firms that hold client money to obtain an independent accountant’s report. In practice, that means preparing for an SRA audit every year and keeping the Solicitors Accounts Rules at the front of mind throughout the year. Preparation is not just about passing the audit. It protects client money, reduces stress for partners and the COFA, and saves time for the finance team. In this guide, we set out a practical, step-by-step compliance checklist you can follow to be well prepared well before your reporting deadline, ensuring compliance with the latest regulatory changes.
Why preparation matters
An SRA audit is a point-in-time review, but it tests year-round behaviours and financial management. If reconciliations are late, residual client balances are ignored, or the firm’s policies are not applied consistently, the accountant will find gaps quickly. Good preparation gives you clean financial records, predictable timelines, and fewer queries. It also gives the COFA clear evidence of oversight and adherence to SRA standards. Our goal is to help you embed a simple routine so your next SRA audit is calm, efficient, and compliant.
Step 1: lock a month-end timetable
Start with a written close timetable and stick to it every month. Assign owners and due dates for ledgers closed, bank statements downloaded, reconciliations prepared, reviews completed, and variance notes drafted. Aim to complete the month within ten working days. Keep a one-page checklist in a shared folder so the process works even when key staff members are away. Consistency is what turns compliance from a scramble into best practice.
Step 2: keep client account reconciliations up to date
The Accounts Rules require reconciliation at least every five weeks. Treat that as a minimum. Reconcile client accounts monthly, and more often if transaction volumes are high. Your reconciliation pack should include the bank statement, cash book, client ledger totals, and a list of outstanding items. Make sure someone independent reviews and signs off on the reconciliation and follows up on differences. Age the reconciling items so you can see anything that is persisting. If matching is manual and slow, look at light automation or system rules to reduce errors. Persistent differences should be investigated and cleared, not carried forward.
Step 3: run a residual client balances review
Residual balances are a common finding in SRA audits because small amounts get left on ledgers after matters close. Build a monthly report that lists balances older than a set threshold, for example, three or six months. Document attempts to return funds to clients. If you cannot trace a client, follow the correct process for paying balances to charity and keep evidence of approval. Add this report to the COFA’s monthly pack and record actions taken. A tidy residuals process signals control and protects client money.
Step 4: maintain a clear interest policy
Interest on client money must be handled in line with your policy and the Accounts Rules. Write the policy in plain English. Set thresholds, calculation methods, exceptions, and responsibilities. Train fee earners and the finance team on when interest applies and how to record it. Test a small sample of files each quarter and keep the results with your compliance records. If you find errors, correct them, notify the COFA, and record the remedial steps. Consistent application of policy is what auditors look for.
Step 5: strengthen record keeping and audit trails
Good records make audits faster and safer. For every client and matter, ensure the ledger is complete and reconciles to the control account. Use clear narratives that explain the reason for each receipt or payment. Document all transfers between client and office accounts and between matters, with the approval recorded. Keep a tidy digital file for reconciliations, interest tests, residual balance reviews, and breach logs. When records are complete, your accountant can verify compliance without repeated queries.
Step 6: map roles and permissions
Breaches often come from unclear roles or system permissions that allow actions without review. Write a simple RACI-style list for client money processes so people know who prepares, who reviews, and who approves. Lock down banking permissions so no single person can move money without a second check. In your case management and accounting systems, set sensible defaults for which bank account is used for client and office transactions. Small guardrails prevent big errors.
Step 7: train fee earners and new starters
Rules are only effective when people understand them. Schedule short refreshers on the Accounts Rules for fee earners and the finance team. Include client money handling in induction. Keep attendance logs and share a brief summary of training content with the COFA. Training reduces accidental misuse of the client account, reduces posting errors, and speeds up the month-end.
Step 8: run a mini internal review each quarter
A light internal review catches issues before the annual report. Choose a small sample of files across fee earners and matter types. Check that client money postings are correct, transfers are documented, and interest has been considered in line with policy. Confirm reconciliations are timely and differences resolved. Update your actions log and follow through to closure. If you would like independent assurance ahead of year-end, our Internal Control Review mirrors key SRA Accounts Rules tests and provides a practical action plan.
Step 9: maintain a breach register and actions log
No firm is perfect. What matters is that you identify issues, assess them, and fix them. Keep a simple breach register with the date, description, cause, materiality assessment, and corrective action. Review the register monthly with the COFA. Maintain a separate actions log that records who will do what by when, and check progress at each meeting. This demonstrates active oversight and avoids repeated issues.
Step 10: prepare a COFA monthly pack
Give the COFA a concise pack every month so oversight is informed and fast. Include client bank statements, reconciliations with sign-offs, a list of aged reconciling items, the residual balances report, the latest interest test, and the breach and actions logs. Add a one-page summary of key points and decisions required. A short monthly meeting to agree on owners and dates keeps momentum and gives you evidence for the audit.
Step 11: tidy your year-end evidence early
Weeks before your reporting deadline, confirm that mandates and signatories are current, your client and office accounts are clearly labelled, and your postings map cleanly between the case system and the ledgers. Make sure reconciliations are complete to the reporting date and that differences are explained. If you have had breaches, prepare a short note setting out the nature, cause, impact, and corrective action. Organise digital files so evidence is easy to share. This level of readiness helps your accountant complete the report quickly and reduces follow-up queries.
Practical red flags to fix now
Mixed receipts that include client funds and costs but are posted entirely to one account. Client to office transfers without a clear basis or approval trail. Interest policy is missing or not applied in practice. Residual balances older than six months without actions recorded. Reconciliations prepared but not reviewed, or aged differences rolling month to month. Any of these will slow your audit and may need to be reported. Fixing them early will save time and demonstrate control.
A simple year-round cadence
Make compliance part of the firm’s rhythm. Monthly, reconcile client accounts, review residual balances, update the breach and actions logs, and complete the COFA pack. Quarterly, run the mini internal review, re-test interest on a small sample, and refresh training where needed. Annually, refresh the interest policy, review permissions and mandates, and brief partners on trends and improvements. This cadence turns audit season into a routine checkpoint rather than a rush.
How this links to wider assurance
An SRA audit focuses on client money, but the same discipline improves financial control across the firm. Clean ledgers, timely reconciliations, and clear roles reduce risk, support accurate management information, and make external financial reporting smoother. If you want broader assurance, our Audit and Assurance team can help you standardise procedures and reporting across the practice while keeping the solicitor-specific rules in view.
Bringing it together before the audit
Two to four weeks before the accountant starts, hold a short readiness meeting with the COFA, the finance lead, and a partner. Review the reconciliation status, residual balances, interest testing, breach log, and actions. Confirm the evidence is tidy and easy to share. Agree on who will respond to auditor requests and who will sign the report. Clear ownership and tidy files reduce disruption to fee earners and help you finish on time.
How we support solicitors
We work with law firms across the UK to prepare for SRA audits and complete the annual accountant’s report. Our dedicated solicitors’ compliance team understands how rules apply in practice and how to keep compliance efficient for busy legal services teams. If you want reassurance before year-end or help implementing this checklist, contact us. We will review your reconciliations, residual balance process, interest policy, and record keeping, then agree on a short, realistic plan to bring everything up to standard.