What is an SRA Accounts Rules Audit?
Under Rule 12.1 of the SRA Accounts Rules, firms who hold or receive client money must obtain an annual SRA accountants report (AR1) within 6 months of the end of the accounting period to which it relates. The report itself is generated based on findings from a thorough audit of the firm’s accounts. The accountants must ensure that the accounts are compliant with the current SRA Accounts Rules.
The report should only be delivered to the SRA if it is “qualified”. A qualification is where the accountants are highlighting a material departure from the SRA Accounts Rules and they are obliged to inform the SRA. This usually triggers an SRA Audit or investigation to determine the root cause of the departure(s).
The other reasons to deliver a report are as follows:
- you are required to under conditions on your practising certificate/firm authorisation, or
- your firm has ceased to operate as an authorised body and to hold or operate a client account and has been asked to obtain and deliver a final report under rule 12.4.
There are also exemptions from the requirement to obtain an accountant’s report. They are as follows:
- Any firm which holds or receives client money during an accounting period and all that money is from the Legal Aid Agency will not be required to obtain a report.
- Rule 12.2(b) of the SRA Accounts Rules confirms that the exemption will also apply where during the accounting period the average balance on client account does not exceed £10,000 and the maximum balance does not exceed £250,000.
SRA Accounts Rules audits are usually very thorough, looking at lots of different aspects. These are some main areas that the reporting accountant will look at:
- Bank reconciliations:
– Have they been done in a timely manner?
– Have they been reviewed and signed by the COFA at least every five weeks?
– Do the reconciliations balance?
– Is there anything missing from the reconciliations?
– Are there un-reconciled items or mis-postings? - Matter balances:
– Do the client balances match the cashbook for the client bank?
– Are there any overdrawn client ledgers?
– Are there any credit balances on office account showing client money in office?
– Are there any residual balances which have not moved for a significant length of time?
– Are there any files where costs should have been transferred from client to office? - Client ledgers:
– Are the transactions being recorded accurately?
– Do the client ledgers match the activity on the client file itself?
– Are there any entries that raise suspicion or look strange?
– Are there transactions not relating to the matter, i.e. using client account as a bank? - Systems and Controls:
– What controls are in place to safeguard client monies?
– What banking authorisation procedures are in place?
– Who signs off the transactions on client account?
– Are the systems and controls adequate to safeguard client money? - Bank Mandates and Insurances
– Need to see copies of bank mandates.
– Need to see copies of Professional Indemnity Insurance certificates.
– Need confirmation of COLP and COFA.
There are more areas that are looked at during the SRA Accounts Rules audits, but these are the main ones.
Several people will need to be involved with the audit and subsequent SRA Accountants Report preparation:
- Accountants: Usually this will be a team where a junior will collate all information required for the audit and then will report to a senior accountant or partner within the practice to check, finalise and sign off.
- Legal Cashier: Most of the information that the auditor will require should be provided with context to the reporting accountant. The legal cashier should also be available to respond to any questions or queries that the accountant may have during the process.
- COFA: The COFA needs to be aware of all correspondence and be prepared to answer questions that the legal cashier cannot.
- Partner/Director: There are certain documents, like the PI certificate and bank mandates that the legal cashier is unlikely to have access to. Partner level needs to provide these to the auditor.
- Fee earners/secretaries: There may be queries on the files that can only be answered by the solicitor running the case or their secretary, so it is important that they are on hand to assist as required.
SRA Accountants Reports are usually delivered to the COFA/directors/partners/legal cashiers when they are complete. The draft is sent over to these parties to review and comment on. There is usually a list of accountants’ recommendations corroborated by an appendix. The firm can then comment on each and explain how they will implement the recommendations the following year. If the report is qualified, the AR1 will include full details of the qualification and will be sent to the SRA. The reports should then be stored securely for future reference and distributed accordingly if action is required.
Reports do vary, depending on each firm. This is usually down to a combination of the areas of law the firm specialises in and how well managed the practice is. Larger samples are usually taken by the auditor if the firm is larger or undertakes more client transactions and of larger value. Extra scrutiny is taken where there is clear mismanagement and lack of control or where the firm has had a recent qualified report/SRA intervention.
At The Law Factory we are experts in preparing for an SRA Accounts Rules Audit. We can do a full health check of the accounts, systems and processes and determine what needs to change to keep the firm compliant with the rules. We can also explain where processes can be altered for “best-practice” and provide lists of files which may be non-compliant. We will review matter balance listings, bank reconciliations, COFA reports, breaches registers, residual balances, and profitability. We can then deliver a detailed report of areas which need attention. Firms can choose to use us to help remedy these issues and liaise with auditors or we can leave it at the report level for the firm to follow up on. The Law Factory can of course also step in and become your legal cashiers, starting with the review, and then put compliance at the forefront of our accounts work on an ongoing basis.
The Law Factory has extensive experience dealing with compliance, the firm having started in 1990. There are numerous firms that we have assisted with their ongoing compliance with the SRA Accounts Rules and we regularly speak to auditors and investigators who undertake SRA audits.
If you need assistance with your accounts compliance or are concerned about your systems and processes, please do not hesitate to contact us.
