Staying on top of SRA audits can feel demanding for many solicitors and law firms. The Solicitors Regulation Authority (SRA) requires consistent checks on how client money is handled, and these checks apply whether you’re a sole practitioner or a multi-partner practice.

We understand the day-to-day pressures of running a legal practice, especially when regulatory requirements overlap with day-to-day accounting. Below, we share a clear plan for meeting SRA audit obligations, including considerations for the latest tax year.

Introduction

The SRA oversees around 10,400 law firms across England and Wales. Many of these firms hold client money, which means they must follow the SRA Accounts Rules. These rules outline how client money should be received, recorded, and paid out. To protect client funds, SRA audits confirm that legal practices are meeting these responsibilities. If you’re juggling a busy caseload with ever-evolving regulations, it’s easy to feel a bit uneasy when SRA audits come around. However, with the right approach, you can keep your practice running smoothly and your clients’ funds safe.

The risk of uncertainty

Keeping track of day-to-day transactions is essential, but unexpected or irregular transactions can cause confusion. For instance, a late filing or a misallocated payment can affect compliance. We see these problems arise when legal practices believe their internal processes are sound, only to learn at audit time that certain steps were missed. In addition, the 2024/25 tax year brings its own set of accounting deadlines and rates. These affect a firm’s finances, but they can also overlap with the timing of any regulatory checks or reporting obligations.

It’s not just about potential disciplinary action from the SRA; that risk is real. When the SRA finds account rule breaches, it may investigate further. In some cases, this leads to additional scrutiny, fines, or reputational harm. By that point, a practice can face more disruptions and stress. No one wants to explain to a client why their funds weren’t protected as promised. That is the problem at hand: uncertain or overlooked processes can bring real problems for law firms and their clients alike.

How slip-ups can grow

We have worked with practices that, for example, allowed a small shortfall to go unnoticed for several weeks. The shortfall triggered a deeper audit, led to additional questioning, and resulted in an official warning. In another instance, a firm mistakenly used the same bank account for both client funds and operational expenses. The oversight came to light during the audit process, causing multiple hours of re-checking and reallocating transactions.

In some cases, mistakes can also hurt firm morale. Team members feel pressured, uncertain if they can trust the system in place. Everyone shoulders the worry of potential regulatory action. Meanwhile, day-to-day work stalls as people comb through accounting records to find and fix the problem. It’s a draining process and can cost more in terms of time and resources than setting things up correctly at the outset.

What we do to help

We help law firms prepare for and pass SRA audits. Our goal is to bring clarity to the way you handle client money. We do this by:

1. Evaluating your accounts system
   We begin by checking how client money is recorded. This might include reviewing spreadsheets, practice management software, or manual logs. We look for gaps, errors, and potential improvements. We also keep in mind the evolving tax rules, so you can be confident your financial records align with current standards.
2. Identifying frequent stumbling points
   Certain transactions or processes can cause repeated errors. For some, it might be allocating interest on client accounts when interest rates shift. For others, it might be handling small balances that remain after a case is concluded. We pay special attention to these areas, guiding you through adjustments before they appear on an SRA auditor’s radar.
3. Suggesting improvements
   Once we spot the issues, we offer practical tips to fix them. Sometimes, this is as simple as automating a process or creating a standard checklist for daily client-account reconciliations. We ensure that these suggestions fit with your existing tools and team structure so you can confidently adopt them.
4. Preparing for ongoing compliance
   Regulations can change, and the same is true for taxation. For the 2024/25 tax year, businesses paying corporation tax face different obligations, with a 25% rate applied to profits exceeding £250,000. We help you integrate these updates into the wider context of your practice, giving you a clear plan to move forward.
5. Providing a stress-free audit experience
   Our aim is to ensure your audit runs smoothly. If the SRA requests a formal accountant’s report, we help you prepare the relevant documents. We know how important it is to present a well-organised, accurate overview. Our team reduces that workload and gives you peace of mind.

The SRA Accounts Rules and your client’s trust

At the heart of SRA audits is the protection of client money. Many potential clients choose a legal practice based on trust, and that trust is directly tied to your compliance record. Mishandling client funds can lead to wider reputational damage and lost business opportunities.

Investing in robust accounting processes doesn’t just benefit you; it reassures your clients that their funds are safe. Clear processes also mean better relationships with banks and other external bodies because your documentation is in good order, and you’re able to respond quickly to any queries.

Why keep your records up-to-date?

We advise firms to keep accurate, real-time records. This isn’t just helpful for your own business planning – though it certainly makes forecasting easier – it can also show the SRA that you are serious about compliance. With the SRA paying close attention to how firms protect client funds, up-to-date records reduce the chance of accidental breaches.

We also recommend monthly or weekly reconciliations, depending on the volume of your transactions. These reviews are a safety net even if your accounts department is small. Spotting small discrepancies early is often simpler and less costly than unpicking them right before an audit deadline.

Steps for a successful SRA audit

1. Review your accounts regularly.
   Weekly or monthly reconciliations build good habits. This means if an error occurs, you’ll catch it early.
2. Label transactions clearly.
   Whether you use cloud-based software or offline spreadsheets, make it easy to see which transactions relate to client funds, office funds, or disbursements.
3. Track changes in interest rates.
   Interest rates can rise or fall, impacting how you calculate interest for clients. A small discrepancy in your calculations can catch the SRA’s attention.
4. Hold training sessions.
   Keep your team updated on changes to SRA rules. This includes new recruits as well as experienced members who might benefit from a refresher.
5. Keep personal and business tax deadlines in sight.
   During 2024/25, the personal allowance remains at £12,570, and National Insurance thresholds can differ from previous years. While these figures might not directly affect your SRA audit, they do feed into your wider financial planning. The more streamlined your finances, the easier it is to complete an SRA audit.
6. Stay informed about any SRA updates.
   Check the SRA website occasionally for any announcements or changes to the rules. They do update their guidance, which can influence how you manage client accounts.

Our promise

At Cottons, we understand that legal practices need a trusted partner who can explain what needs to be done, in clear terms, so your team feels well-prepared. That’s exactly how we approach SRA audits – we break them down and keep you informed, ensuring there are no surprises.

If you’re looking for a practice that understands the legal sector’s regulations and challenges, we’re here to help. We’ll support your firm so you can concentrate on serving clients, confident that your accounts comply with SRA requirements.

Key takeaways

SRA audits do not need to be a stressful event for your practice. By developing clear systems, staying aware of changes affecting the latest tax year, and keeping accurate records, you can maintain a strong compliance record and protect both your firm’s reputation and clients’ money.

We are always ready to help. With the right approach, your firm can handle SRA audits smoothly and build the trust you deserve.

Whether you have a small matter to check or want ongoing accounting support, we’re here to help you stay organised and confident with your SRA commitments. Contact us today.