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SRA audit
Expert SRA audit services
An SRA audit is an independent review of a law firm’s compliance with the Solicitors Regulation Authority (SRA) Accounts Rules. These rules set out how client money must be handled and safeguarded by firms regulated by the SRA. An SRA audit results in the completion of an Accountant’s Report (AR1).
SRA audits apply to firms that hold or manage client money and are not exempt under the SRA Accounts Rules. If a firm falls within these requirements, it must have the audit carried out by an external accountant within six months of the end of its accounting period. The outcome of the audit may need to be reported directly to the SRA, especially if material breaches or significant weaknesses in systems are found.
AR1 report: why it matters
The AR1 report is a formal declaration from your reporting accountant to the SRA confirming whether any significant breaches of the Accounts Rules have occurred or where significant weaknesses in a firm’s systems have been identified which puts client money at risk. Firms with no reportable breaches still need to keep a completed report for record-keeping purposes.
Are there any exemptions?
Certain firms may be exempt from requiring an accountant’s report. You may not need to obtain one, if, during a 12 month period, the average client account balance does not exceed £10,000 and the total client money held at any point does not exceed £250,000. Firms that only hold Legal Aid Agency funds are exempt.
Where firms are claiming exemption from obtaining an Accountants Report, firms must monitor their status carefully throughout the year. If the threshold is exceeded at any point, the requirement to obtain a report is triggered.
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Our SRA audit process
We take a practical, risk-focused approach to SRA audits. Each engagement involves:
- A review of your client money systems, controls, client ledger records and reconciliations.
- Testing of your controls and transactions for compliance with the SRA Accounts Rules taking into account guidance issued by the SRA.
- Identification of breaches, if any, and providing guidance on how to address them.
- Completion of the AR1 Accountants Report.
- Liaison with your team to ensure minimal disruption to daily operations.
What makes SRA audits different from statutory audits?
SRA audits focus on how a firm manages client money rather than the accuracy of a firm’s financial records. However, maintaining accurate accounting records is essential to ensure client money is properly identified, recorded, and protected. Firms new to the SRA regime, particularly those with in-house finance teams, often assume the process mirrors statutory audits. However, it is more focused on compliance and client protection.
What FAQs do our experts receive?
What are the key SRA audit requirements?
You must have an SRA audit and obtain an AR1 Accountants Report if you hold client money and do not qualify for an exemption. The audit must be carried out by a suitably qualified external accountant and completed within six months of your accounting period end.
How long does an SRA audit take?
If everything is ready for our review, the core audit work takes between 3 days and 2 weeks for the majority of our clients. This process can be longer for larger or more complex clients, or where there are issues with the accuracy and accessibility of the information required. Once the work has been completed and any queries from the audit team have been answered, the file is subject to Manager and Partner review.
Can I prepare for an SRA audit in advance?
Firms can prepare by reviewing reconciliations, internal controls, and previous breaches and implementing any recommendations for improvement highlighted from the previous year’s audit.
What happens if my firm is non-compliant?
If material breaches are found, they must be reported to the SRA. It is for the auditor to exercise professional judgement in determining whether breaches are material/significant and reportable to the SRA.
However, many breaches tend to be as a result of clerical or administrative errors and one off in nature resulting in no loss to a client. These still need to be considered and addressed to avoid such breaches becoming material.
Where we identify weaknesses in your systems or areas of improvement after our review and testing, these will be addressed in a management information letter at the end of the assignment.
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Contact us today to find out more about how we can help you
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