Planning for and completing an Accountant’s Report: Key recommendations for law firms

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The Solicitors Regulation Authoroity (SRA) has produced guidance to assist in the planning and completion of an Accountant’s Report. The SRA recommends that this is not just read by reporting accountants but by law firms too. From a law firm perspective, the guidance helps firms understand what procedures will ensure client money is properly safeguarded, and what factors might lead to a reporting accountant qualifying their report.

With the majority of law firms having a 31 March year end, it is worth revisiting the recommendations now, ahead of the audit cycle.

When should a report be qualified?

The SRA’s principles-based approach means that the decision of whether to qualify an Accountant’s Report is based on the auditor's judgment. The guidance provides examples of factors that may lead to qualification. It is important to note that these are illustrative only, and there may be other factors that lead to qualification.

Reports should be qualified where breaches pose a significant risk to client money.

Serious factors likely to lead to qualification include:

• Significant unreplaced shortfalls on client account
• Systematic billing for costs not incurred
• Evidence of disregard for client money safety
• Fraud or dishonesty by managers or staff
• Missing or deficient accounting records
• Failure to reconcile client accounts or improper use as a banking facility

Moderate factors may lead to qualification depending on context, such as:

• Significant, fully-replaced shortfalls
• Fraud by third parties that impacts the safety of client money
• Serious breaches that have not been reported to the SRA promptly
• Client account bank reconciliations not carried out at least every five weeks
• Inadequate performance or review of client account bank reconciliations
• Poor control environment
• Longstanding residual balances or improper use of suspense accounts

Key areas for review

The guidance also provides examples of the areas of work that reporting accountants might focus on in order to test compliance with the SRA Accounts Rules. It is important that law firms are aware of the work that Reporting Accountants will perform as this will enhance compliance.

The guidance helpfully indicates which factors are indicative of firms with above adequate processes and controls. To minimise the risk of non-compliance firms should consider implementing the below controls:

Risk area	Factors indicative of above adequate controls
Taking money for costs not incurred	Evidence retained on file of clients being informed of the risks of payment being received into the business account and evidence of client instructions Training and support for staff raising bills Documented, standard process
Client money in client account	No delays noted in the banking of client money in client accounts No transfers between client and office accounts that were not compliant with the Rules
Overdrawn client/credit office ledges (i.e. shortages)	Systems and controls prevent debit balances from arising Minimal debit balances on client, with debit balances reviewed at least weekly and necessary action taken to correct Listing of office credit balances reviewed at least weekly. Each credit balance is investigated, and client money is removed from the office where necessary
Withdrawals from client account	Ensure that a formal client account withdrawals policy is documented and adhered to Ensure that withdrawals can only be processed once the proper authorisation has been obtained, with specific considerations for electronic authorities (the guidance makes clear that email approval is not considered secure)
Control systems	A strong control environment that includes the following: The client accounting system is fully documented and includes notes coveringbilling, payments, transfers, new client take on, etc. Password access to the IT system/s and passwords are changed at least quarterly IT user access controls are in place Program changes to the IT system are always fully documented and approved before changes commence. Leavers’ IDs and passwords are immediately removed from the IT system once they have left the law firm. Firewalls are in place IT general controls are documented
General control environment	COFA review of systems and controls at least annually COFA ensures action is taken for all issues included in the Accountant's Report

Practical Steps for Law Firms

• Engage early with your reporting accountant to agree on scope and checks
• Document processes for billing, withdrawals, and reconciliations
• Train staff on SRA Accounts Rules and client money safeguards
• Monitor compliance through regular internal reviews and breach reporting

The SRA’s guidance emphasises proportionate, risk-based checks to ensure client money is protected without imposing unnecessary costs. Law firms should work collaboratively with their accountants and compliance officers for finance and administration (COFA) to maintain strong systems and controls, reducing the likelihood of qualified reports and regulatory issues.