Law firms handling client money will most likely be familiar with the term “SRA Accounts Rules Audit.” But what exactly does it entail, and why is it crucial for your practice?

These audits are not the same as statutory or non-statutory audits. An SRA Audit – colloquially referred to as a solicitors audit – is specific to the legal sector and involves a particular set of compliance criteria to meet.

In this comprehensive guide, we’ll break down the purpose, process, and best practices surrounding SRA Account Audits and how legal practices can maintain compliance.

Understanding the SRA Accounts Rules 

The Solicitors Regulation Authority (SRA) Accounts Rules Audit is a mandatory annual review for law firms in England and Wales that handle client money.

Its primary purpose is to ensure that firms are complying with the SRA Accounts Rules, which are designed to protect client funds and maintain the integrity of the legal profession.

These solicitors audits play a vital role in safeguarding clients’ interests and upholding the reputation of the legal sector. By verifying that solicitors firms are managing client funds appropriately, the SRA aims to prevent their misuse and maintain public trust in legal services.

Key Areas Examined in the Audit

During an SRA Audit, several critical areas are scrutinised to ensure compliance.

1. Client Account Reconciliations: The auditor will check that regular and accurate reconciliations of client accounts are being performed. This involves verifying that the balances in the firm’s records match the actual bank balances and that any discrepancies are promptly investigated and resolved.
2. Proper Use of Client Funds: A thorough examination is conducted to ensure that client money is used only for its intended purpose. This includes verifying that transfers between client and business accounts are appropriate and properly documented.
3. Compliance with SRA Regulations: The audit will assess the firm’s adherence to all relevant SRA rules and guidelines. This encompasses a wide range of requirements, from proper authorisation of transactions to timely return of client funds.
4. Record Keeping: The accuracy and completeness of financial records is crucial. The auditor will review ledgers, bank statements, and other financial documents to ensure they are up-to-date and accurate, and provide a clear audit trail.
5. Segregation of Funds: Proper separation of client and office money is a fundamental requirement. The audit will confirm that these funds are kept distinct and that there’s no improper mixing of client and firm monies.
6. Interest Policy: The auditor will review the firm’s policy on paying interest on client money and verify that it’s being correctly applied.
7. Reporting and Notification: The audit will check that the firm has proper procedures in place for reporting material breaches to the SRA and notifying clients about certain transactions or events as required by the rules.

The Role of the SRA Auditor

An independent accountant, registered with a recognised professional body such as the Institute of Chartered Accountants in England and Wales (ICAEW) or the Association of Chartered Certified Accountants (ACCA), conducts the audit. Their responsibilities are extensive and include:

• Reviewing financial records and systems to ensure they meet SRA standards
• Testing a sample of transactions for compliance with the Accounts Rules
• Identifying any breaches or areas of concern in the firm’s financial management
• Providing recommendations for improvement in processes and controls
• Preparing the Accountant’s Report (AR1 form) detailing their findings

The auditor acts as an independent arbiter, providing an objective assessment of the firm’s compliance with the SRA Accounts Rules. Their role is not just to identify issues, but also to offer constructive feedback that can help law firms enhance their financial management practices.

Common SRA Audit Issues 

Through our experience in conducting SRA audits, we’ve identified several common issues that law firms often face:

• Delayed bank reconciliations
• Improper transfers between client and office accounts
• Inadequate record-keeping
• Overdrawn client accounts
• Failure to return client money promptly
• Incorrect calculation or payment of interest on client funds

How to Avoid SRA Audit Problems

To ensure compliance and avoid these pitfalls, solicitors should adopt the following best practices:

• Implement robust accounting systems and controls that are specifically designed to meet SRA requirements
• Regularly train staff on SRA Accounts Rules and keep them updated on any changes
• Conduct internal reviews throughout the year to catch and address issues early
• Address any identified issues promptly and thoroughly
• Maintain clear and consistent policies for handling client money
• Regularly review and update your firm’s compliance procedures

Preparing for Your SRA Accounts Rules Audit

To ensure a smooth audit process, consider the following steps:

1. Maintain accurate and up-to-date records throughout the year, not just in preparation for the audit
2. Conduct regular internal reviews to identify and address any issues proactively
3. Address any identified issues promptly and document the actions taken
4. Prepare all necessary documentation in advance, including bank statements, reconciliations, and client ledgers
5. Ensure key personnel are available during the audit to answer questions and provide additional information if needed
6. Review the previous year’s audit report and ensure all recommendations have been implemented
7. Stay informed about any changes to the SRA Accounts Rules and adjust your procedures accordingly

Achieve SRA Compliance With Hamlyns

At Hamlyns, our experienced Registered Auditors specialise in conducting SRA Accounts Rules Audits. We work with numerous solicitors who rely on us to provide SRA checks each year alongside comprehensive business and year-end accounts so they can continue to practice with complete confidence and peace of mind.

We understand the unique challenges faced by law firms and can provide:

• Efficient and thorough audits with minimal disruption to your practice
• Clear explanations of any identified issues and their potential impact
• Practical advice for improving your compliance processes
• Ongoing support to help you stay ahead of regulatory changes
• Tailored training for your staff on SRA Accounts Rules compliance

Our approach goes beyond mere compliance checks. We aim to add value to your practice by helping you enhance your financial management systems and processes. By partnering with Hamlyns for your SRA Accounts Rules Audit, you can ensure your firm remains compliant while focusing on what you do best and pivoting your practice towards sustainable growth.

If you represent a solicitors firm and need help with your compliance processes, or require advice relating to your firm’s finances, projections, and performance, please contact Hamlyns today.