Your accounting period has closed, so the six-month clock under rule 12.1 is already running. Here is who needs a report, who is exempt, who is legally permitted to sign one, and what we do all year so that the report is clean before anybody writes it.
Where you are
If your firm held or received client money at any point in the accounting period that has just ended, Rule 12.1 of the SRA Accounts Rules gives you six months from the period end to obtain an Accountant's Report. You only have to deliver it to the SRA if it is qualified — qualified, in the words of rule 12.1(b), to show a failure to comply with the rules such that money belonging to clients or third parties is, has been, or is likely to be placed at risk.
Two features of that trigger catch firms out. It is not confined to holding client money: operating a joint account, or operating a client's own account as signatory, brings you inside rule 12.1 on its own. And it applies if you held client money at any time during the period. A firm that returned its last balance in month two and closed the client account still needs a report for that period.
Then there is the half of rule 12 that most firms only think about when the deadline is close: who is permitted to sign. Rule 12.5 requires the report to be prepared and signed by an accountant who is a member of one of the chartered accountancy bodies — the SRA Glossary names ICAEW, ICAS, ACCA and ICAI — and who is, or works for, a registered auditor. Both conditions, cumulatively. Your bookkeeper cannot sign it. Neither can we, and we say so on every page of this site rather than in a footnote.
The SRA regulates law firms in England and Wales. Firms in Scotland are regulated by the Law Society of Scotland and firms in Northern Ireland by the Law Society of Northern Ireland, under different accounts rules and a different accountant's certificate regime. Nothing on this page applies to them.
Client account bookkeeping and the five-weekly three-way reconciliation. The firm's annual accounts, the partnership or corporation tax return, partner tax reserves and drawings, payroll, VAT and the management figures you run the firm on. All the preparation that decides whether the report is clean.
Buzz Accounting Ltd is licensed by the AAT and a member of the ICPA. It is not a chartered accountancy firm and not a registered auditor.
Colin Ellis, ICAEW and a Responsible Individual, prepares and signs the SRA Accountant's Report itself. Rule 12.5 of the SRA Accounts Rules requires a member of ICAEW, ICAS, ACCA or ICAI who is, or works for, a registered auditor — and only that person can sign it.
Anstey Bond LLP is a separate firm, registered for audit by the ICAEW. Companies House OC360626.
The person who writes up your client ledgers should not be the person who reports on whether they comply.Why we arrange the report rather than sign it
First question
Rule 12.2 removes the obligation in two situations. The first is where all of the client money held or received during the accounting period came from the Legal Aid Agency. The second is where the statement or passbook balance of client money did not exceed both an average of £10,000 and a maximum of £250,000. Firms routinely read that as an either/or. It is not. Both limbs have to be satisfied, and failing either one of them on its own removes the exemption for the whole accounting period.
Rule 12.3 tells you what to measure: the total across all client accounts held or operated, plus any joint accounts and clients' own accounts operated, as shown by the statements you obtain under Rule 8.2. The average is worked out by summing all of your reconciliation balances and dividing by the number of reconciliations. The thresholds apply to accounting periods ending on or after 1 November 2015.
Illustrative only, on a firm that reconciles monthly and therefore has twelve reconciliations in the year. Eleven of them show £6,000 of client money — £66,000 in total. The twelfth falls in the week a completion goes through, and shows £70,000. Add the twelve together and you get £136,000; divide by twelve and the average is £11,333. That is over the £10,000 limb, so the exemption is gone for the whole period, on a firm that held six thousand pounds of client money in eleven months out of twelve and never came close to the £250,000 ceiling.
The maximum limb works the other way round, and the same arithmetic explains why. Because the average is calculated across the same reconciliations, a single balance of £250,000 puts £20,833 into a twelve-reconciliation average on its own — more than twice the £10,000 threshold. On a firm reconciling monthly, a completion large enough to breach the maximum has therefore already broken the average as well, and no number of quiet months will pull it back. Either way the answer is decided by one month you can see coming, which is why the exemption is a question to work during the year rather than after it.
Two further points. Rule 12.4 lets the SRA require a report on reasonable notice where a firm ceases to operate or to hold client money, or where it considers a report to be in the public interest — a firm closing down generally needs a final report. And Rule 12.8 requires you to give the accountant details of all bank and building society accounts used in the practice during the period, office accounts included, along with everything else they need. A forgotten deposit account is a slow, expensive conversation in month five.
A reporting accountant tests a year of records once that year has closed. Almost everything that makes a report clean or ugly happened long before they arrived.
We engage Colin Ellis of Anstey Bond LLP on your behalf, agree the timetable against your period end, prepare the file and answer the queries. He prepares and signs the report, because rule 12.5 says only someone in his position may.
Client ledgers by client and matter, the cash book, the list of client ledger balances, and the three-way reconciliation at least every five weeks under rule 8.3, signed off by your COFA or a manager.
Client account bookkeepingYour average and maximum client money balances tracked through the year against the £10,000 and £250,000 limbs, so the answer to "do we need a report" is known in month three rather than month seven.
A complete schedule of every bank and building society account used in the practice during the period — client, office, deposit, joint accounts and clients' own accounts operated as signatory.
The six-month deadline diarised from your period end alongside your other dates, so the work starts when the year closes.
The law firm tax calendarSomeone to ring about a difference on the reconciliation, a transfer that should not have happened, or a balance nobody can return — before it becomes a finding.
COFA supportThe thing you are actually worried about
A qualification is not a tidiness score. The SRA's own guidance says it expects reports to be qualified only where there has been a serious breach of the Accounts Rules such that money belonging to clients or third parties is, has been or may be placed at risk. The factors it treats as serious are recognisable: shortfalls on the client account, systematic improper billing, evidence of fraud, missing records, and reconciliations that were not completed or did not work.
Read the other way round, that tells you what keeps a report clean, and none of it is mysterious. Reconcile three ways at least every five weeks. Bill before you transfer, for the specific sum billed. Never fund one client's matter from another's money. Correct breaches on discovery and replace anything improperly withdrawn immediately. Keep the records for six years. That is the whole job, done fifty-two weeks a year.
If a report does end up qualified, it goes to the SRA through mySRA on form AR1. Submission by email was withdrawn in October 2020. A qualified report is not the end of the world — it is a disclosure, and how the firm responds to the underlying issue tends to matter more than the qualification itself. What does damage is a firm discovering the problem from its reporting accountant rather than from its own records.
Worth being clear about one more thing: this is not a statutory audit. The SRA does not require law firms to have audited annual accounts, and most law firm LLPs sit below the audit thresholds. Rule 12.5 requires a registered auditor to sign the report; it does not turn the engagement into an audit. If you want the distinction in full, it is set out on our accounts and tax page.
Coming, not current. On 2 June 2026 the SRA announced that it has submitted proposed rule changes to the Legal Services Board. Subject to LSB approval, every firm holding client money would have to submit its accountant's report to the SRA — not only qualified ones — with exempt firms instead providing information on their exemption status. A mandatory annual declaration would sit alongside the report as the COFA's responsibility. Reporting accountants would submit reports directly to the SRA with a copy to the COFA. And fixed financial penalties would extend to late or non-submission. The SRA expects the rules in force by early 2027. Until the LSB approves them, none of this is law — but any firm whose current comfort rests on 'we only send it if it is qualified' should plan on losing that.
Background reading, in more depth than a service page allows: our complete guide to the Accountant's Report and the guide to the three-way reconciliation. If you would rather have an answer than a read, the client account health check takes about five minutes.
Rule 12.1 of the SRA Accounts Rules catches any firm that, at any time during an accounting period, held or received client money, operated a joint account, or operated a client's own account as signatory. Any one of those three is enough on its own, and it bites even if the money was held for a fortnight and returned. The obligation is to obtain a report within six months of the period end. Delivering it to the SRA is a separate question: under rule 12.1(b) you deliver it only if it is qualified to show a failure to comply with the rules such that money belonging to clients or third parties is, has been, or is likely to be placed at risk.
Rule 12.2 exempts a firm in two situations. The first is where all of the client money held or received during the accounting period came from the Legal Aid Agency. The second is where the statement or passbook balance of client money did not exceed both an average of £10,000 and a maximum of £250,000. Both limbs of that second test must be satisfied, so one large completion breaching the £250,000 ceiling removes the exemption however small the average was. Rule 12.3 measures the balance across all client accounts held or operated, plus joint accounts and clients' own accounts operated. The thresholds apply to accounting periods ending on or after 1 November 2015.
Only if it is qualified. Rule 12.1(b) requires delivery within six months of the period end where the report is qualified to show a failure to comply with the rules such that money belonging to clients or third parties is, has been, or is likely to be placed at risk. An unqualified report is obtained, retained and produced if asked for, not filed. Qualified reports are submitted through mySRA on form AR1; submission by email was withdrawn in October 2020. This is exactly the position the SRA proposed to change when it announced on 2 June 2026 that it has submitted proposed rule changes to the Legal Services Board, under which every firm holding client money would submit its report.
Rule 12.5 requires the report to be prepared and signed by an accountant who is a member of one of the chartered accountancy bodies and who is, or works for, a registered auditor. The SRA Glossary defines the chartered accountancy bodies as ICAEW, ICAS, ACCA and ICAI. The two conditions are cumulative: chartered-body membership on its own is not enough, and registered- auditor status on its own is not enough. That is why we do not sign reports. We are licensed by the AAT and a member of the ICPA, which satisfies neither limb. Colin Ellis of Anstey Bond LLP, ICAEW and a Responsible Individual, prepares and signs the report.
No. An Accountant's Report is an assurance engagement on your compliance with the SRA Accounts Rules. A statutory audit is an opinion on whether your annual accounts give a true and fair view, and it is required by company and LLP law rather than by the SRA. The SRA does not require law firms to have audited annual accounts, and most law firm LLPs sit below the statutory audit thresholds in any event. The point that confuses people is that rule 12.5 requires a registered auditor to sign the report even though no audit is being carried out. Auditor registration is the qualification test, not a description of the work.
On 2 June 2026 the SRA announced that it has submitted proposed rule changes to the Legal Services Board. Subject to that approval, every firm holding client money would have to submit its accountant's report to the SRA rather than only qualified ones, and exempt firms would have to provide information on their exemption status instead. A mandatory annual declaration would sit alongside the report as the COFA's responsibility, reporting accountants would submit reports directly to the SRA with a copy to the COFA, and fixed financial penalties would extend to late or missing submissions. The SRA expects the rules in force by early 2027. None of it is law yet.
A free review of where your client account and your records actually stand, against the rules a reporting accountant tests. If nothing needs fixing we will tell you that, and you will have lost half an hour.
One short email: what has changed in the Accounts Rules, the dates coming up, and one number worth checking in your firm. No spam, unsubscribe any time.