Will every law firm have to submit its accountant’s report to the SRA?
Will every law firm have to submit its accountant’s report to the SRA?
Short answer: Under proposals following the SRA’s client money consultation, every firm holding client money would deliver an annual accountant’s report to the SRA whether qualified or not, alongside an annual declaration, with fixed penalties for late filing. These are proposals rather than made rules, and would take effect subject to Legal Services Board approval.
What do the rules require today?
Since 2014, the position has been narrower than most people outside a finance team realise. A firm holding client money must obtain an accountant’s report within six months of its accounting period end, but it only has to deliver that report to the SRA if the accountant qualifies it, which means flagging a failure to comply with the Accounts Rules that puts client money at risk. Firms whose client money activity is modest, such as those operating entirely through legal aid payments or holding low average balances, are exempt from obtaining a report at all.
The practical effect is that the regulator only ever sees the worst reports. A firm can go a decade with its reports sitting in a drawer, perfectly compliant, and the SRA has no routine sight of the health of its client account. That gap in visibility is exactly what the current proposals are aimed at.
What is the SRA proposing to change?
Following its client money consultation, which ran from December 2025 to February 2026, the SRA has set out proposals that would change three things at once.
- Every report delivered. All firms holding client money would submit their annual accountant’s report to the SRA, qualified or not, rather than only the qualified ones.
- An annual declaration from every firm. Each firm would confirm to the SRA either that it considers itself exempt from the reporting requirement or that it has fulfilled its obligation to instruct an accountant.
- Fixed penalties for late or missing filings. Rather than case by case enforcement, lateness would attract a fixed financial penalty, in the way a late confirmation statement does at Companies House.
The wider package also includes proposals to separate compliance officer roles from senior leadership, which would strengthen the independence of the COFA. None of this is in force yet. The proposals require Legal Services Board approval, and the detail can still move. But the direction of travel is not subtle.
Why is the SRA doing this?
One phrase: Axiom Ince. The collapse that left a roughly £60m hole in client money showed how far a problem can run before the regulator sees it, and the SRA’s consumer protection review has been working through the consequences ever since. The 2014 decision to collect only qualified reports saved firms and the regulator administrative effort, but it also meant the SRA’s routine visibility of client account health dropped to almost nothing. The proposals reverse that trade. The regulator’s logic is hard to argue with: it cannot supervise what it cannot see.
What actually changes for a well run firm?
On paper, very little, because firms already obtain the report. In practice, three things change quietly and they all reward preparation.
First, the report stops being private. A qualification that would once have sat between the firm and its accountant would now land on the regulator’s desk as a matter of course. Issues that were worth fixing before become issues that are visible before, and the time to deal with residual balances, long unpresented items, and ledger differences is while they are still housekeeping rather than qualification points.
Second, the reporting accountant’s visit becomes an annual certainty for every firm in scope, and the cost of that visit is driven almost entirely by how quickly the firm can produce its evidence. A reporting accountant who is handed a complete reconciliation trail leaves quickly and writes a short, clean report. One who has to ask for things stays longer, charges more, and starts wondering what else is hard to find.
Third, the declaration creates a fixed annual compliance event with a fixed penalty attached. Firms with a tidy month by month rhythm will barely notice it, while firms that assemble their evidence once a year, in a hurry, now do that against a deadline with a price on it.
How should a firm prepare?
- Confirm your exemption status. If you believe you are exempt, check the criteria now rather than when the declaration form is in front of you, because under the proposals you would be confirming that position to the regulator annually.
- Lift your reconciliation cadence. The rules require a client account reconciliation at least every five weeks. Five weeks is a long time for an error to compound. The closer you move towards daily, the smaller every problem is when you meet it.
- Make the evidence self serving. The test worth applying: could you hand your reporting accountant the full reconciliation trail for any month within an hour, without anyone rebuilding a spreadsheet? If yes, the new regime is a non event for you.
- Clear residual balances now. Old matter balances are the most common qualification trigger and the easiest to fix calmly, months ahead, rather than during the reporting visit.
- Brief your COFA. The proposals strengthen the COFA’s independence, and the person signing has every right to ask for evidence on tap rather than on request.
Where does CARE fit in?
This is the problem CARE was built for. CARE runs a daily three way reconciliation across the bank, the case management ledger, and the cashbook for SRA regulated firms, and every reconciliation produces a signed sign off pack with a tamper evident audit log behind it. When the reporting accountant arrives, the evidence is not assembled for the visit, it already exists, every day, signed. The visit gets shorter, the report gets cleaner, and the declaration becomes a formality.
CARE is deliberately reconciliation only at this stage, because that is the layer everything else stands on, and it runs fully offline so client data never leaves the firm. It was built by an accountant who has run finance inside an SRA regulated practice and has filed a material breach report, which is an experience that teaches you precisely what early visibility is worth.
Frequently asked questions
Is the new reporting requirement in force now?
No. These are proposals following the SRA’s client money consultation, which closed in February 2026, and they require Legal Services Board approval before becoming rules. Firms should treat the timetable as short, but nothing has changed in the rules yet.
Do law firms already need an accountant’s report?
Yes. Firms holding client money must obtain one within six months of the accounting period end unless exempt. Since 2014, only reports the accountant qualifies have had to be delivered to the SRA, which is the part the proposals would change.
What is a qualified accountant’s report?
A report is qualified when the reporting accountant identifies a failure to comply with the SRA Accounts Rules that means client money is, or has been, at risk. Common triggers include unreconciled differences, old residual balances, and improper transfers between client and office account.
What penalties are being proposed?
Fixed financial penalties for firms that file late or fail to comply, in the same spirit as fixed penalties for late statutory filings elsewhere. The exact amounts and mechanics would be confirmed when the rules are made.
We only hold small amounts of client money. Does this affect us?
Possibly less, but not zero. Exemptions from obtaining a report exist today and the proposals keep the concept, but the annual declaration would apply to firms claiming exemption too, so every firm holding any client money would have at least one new compliance event a year.
How does daily reconciliation help with an annual report?
The annual report is an examination of evidence, and the cost and cleanliness of it depend on how complete that evidence is when the accountant asks. A daily reconciliation with a signed audit trail means twelve months of answers already exist, so the examination is quick and the findings are boring, which is exactly what you want a regulator reading your report to feel.
AI Finance Partners builds CARE, the Client Account Reconciliation Engine, and works with SRA regulated firms on the finance function behind the compliance. If your firm holds client money and assembling the reconciliation evidence would take longer than a morning, we should talk.
