How often must a client account be reconciled under the SRA Accounts Rules?

At least every five weeks. Rule 8.3 requires client accounts to be reconciled against statements obtained from the bank, with the reconciliation signed off by the COFA or a manager of the firm. Most firms run it monthly, which sits comfortably inside the five-week limit and lines up with the rest of month-end.

What is a three-way client account reconciliation?

A three-way reconciliation agrees three figures at the same date: the client bank statement balance, the client cash book balance, and the total of all individual client ledger balances. Agreeing the bank to the cash book alone is not enough, because it says nothing about whether the money is allocated to the right matters.

What do we do with residual client balances?

Return them to the client promptly. Rule 2.5 requires client money to be returned as soon as there is no longer a proper reason to hold it, and an untraced client is only an answer after documented attempts to trace. Where the client genuinely cannot be found, the rules set a route for dealing with the balance and SRA authorisation is needed above a defined amount, so check the current limit before paying anything away.

Can legal cashiering be outsourced?

The bookkeeping and the reconciliation can be outsourced; the regulatory responsibility cannot. The firm's COFA remains accountable for compliance with the Accounts Rules, and the annual accountant's report has to come from a qualified reporting accountant independent of the firm's record-keeping. An outsourced team prepares records and schedules and signs nothing to the SRA.

How far back does the rebuild have to go?

To the last date on which all three figures genuinely agreed, which is usually further back than anyone expects. Working forward from a point that balanced is the only way to avoid inheriting an error. Where no such date can be found, the rebuild starts from the oldest period for which bank statements and matter files both still exist.

What happens if the rebuild finds a shortfall?

It is replaced promptly from the firm's own money and recorded. The rules do not allow a shortfall on one client's matter to sit while it is investigated, and covering it with another client's balance is a separate and more serious breach than whatever caused the original difference.

Legal · 🇬🇧 United KingdomScenario

How a law firm client account reconciliation is rebuilt

A drifted client account reconciliation is rebuilt matter by matter from the last date on which the three-way reconciliation genuinely agreed, because an unexplained difference cannot be carried forward or netted off against another matter. This is an illustrative example set in a small firm regulated by the SRA in England and Wales.

Ask how we'd handle this

Scenario — an illustrative example of how Salt approaches this problem. Not a description of a specific client engagement.

The business shape it describes: UK law firm, client account holding third-party money.

Scenario covers: Client account reconciliation, bookkeeping and month-end controls
Software it assumes: Xero
Jurisdiction: United Kingdom
Sector: Legal

The setup

The firm holds client money, so the SRA Accounts Rules govern how that money is held, recorded and returned.
The cashier who ran the client account has left. Since then the reconciliation has been produced and signed without the differences on it being resolved.
Nobody currently in the firm can say whether the total of the client ledgers agrees to the client bank balance.

What usually turns out to be wrong

Rule 8.3 requires client accounts to be reconciled at least every five weeks, against statements obtained from the bank, with the reconciliation signed off by the COFA or a manager. A reconciliation that is signed but not resolved does not meet it.
It is a three-way check: client bank statement, client cash book, and the total of the individual client ledger balances. Two of the three agreeing is the usual state and proves nothing.
Residual balances sit on completed matters, left over after completion and never returned. Rule 2.5 requires client money to be returned promptly once there is no longer a proper reason to hold it.
Office money and client money are mixed on a handful of transactions, typically where a disbursement was paid from the wrong account and never corrected.
A shortfall on one matter covered by the balance on another will not appear in a total-level reconciliation, and it is a more serious problem than the error that caused it.

How this would be worked

The last date on which all three figures agreed would be identified. Everything after it is in scope, and nothing before it is assumed correct without sample testing.
The client ledger would then be rebuilt matter by matter forward from that date, with every difference given a written cause rather than a balancing entry.
Residual balances would be listed by matter with the completion date and the date of last client contact. Each one is returned, accounted for, or dealt with under the route the rules set out, which requires SRA authorisation above a defined limit — so the current limit is checked rather than remembered.
Any shortfall would be replaced promptly from the firm's own money, as the rules require, and recorded as such.
The position would be written up in full, including where the rules were not met and for how long, so the firm's COFA has something usable for its own reporting obligations.
The reconciliation would then run monthly on a fixed date, prepared by one person and reviewed by another, with differences listed and cleared before it is signed.

Why we'd be the right fit

Rebuilding a client account matter by matter is slow work in which an unexplained difference cannot be carried forward or netted off. The point is that the differences get resolved rather than signed around.
It also means writing the position up plainly, including the parts that look bad, so the firm has a usable record for its own compliance reporting.
The regulatory judgements stay with the firm. Salt is not a reporting accountant, does not sign the annual accountant's report the rules require, and does not decide what a firm reports to the SRA. It produces the records and the schedules those decisions are made from.

What the business would be able to do

The firm would be able to produce a three-way client account reconciliation on a fixed date each month with every difference explained.
Residual balances would each have an age, an owner and a route to clearance rather than sitting indefinitely.
The COFA would hold a written record of what was wrong, when it arose and when it was corrected, which is what the firm needs when its reporting accountant asks.

What we'd flag

Rebuilding the reconciliation properly surfaces breaches, and some of them have to be reported by the firm. Documenting them is the correct action and not the comfortable one. A firm that wants the reconciliation to agree without wanting to know why it did not should not start this work.

Answers

How a law firm client account reconciliation is rebuilt

Where this applies

BookkeepingService ControllerService All services in United KingdomFRS 102 / UK GAAP More scenarios42 illustrative, labelled examples

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