How do you know if your law firm needs a Solicitors Accounts Rules (SAR) audit?
If your firm handles client money, you may have heard of a Solicitors Accounts Rules (SAR) audit.
An SAR audit is an independent review carried out by an accountant to confirm that you are complying with the Solicitors Regulation Authority (SRA) rules when handling client money.
An SAR audit is made to ensure you have the right systems in place and that your client funds are properly safeguarded.
The scrutiny for non-compliance is high and firms must know when an SAR audit is required so they are not at risk.
What is an SAR audit?
An SAR audit results in an Accountant’s Report (AR1), which assesses whether your firm has complied with the SRA’s rules during your accounting period.
The audit will focus on how your client’s money is received, held, recorded, reconciled and returned.
If the reporting accountant spots any breaches of the rules, the report will be qualified and submitted to the SRA.
Do all law firms need an SAR audit?
Under Rule 12.1 of the SRA accounts rules, any firm that holds or receives client money at any point in the year will usually need an accountant’s report within six months of its year-end.
However, it may not apply to you if:
- All your clients’ money comes solely from the Legal Aid Agency
- Your firm’s average client account balance is below £10,000 and the maximum balance never exceeds £250,000 during your accounting period
Both of these conditions must be met if you were to qualify for the balance-based exemption.
You must be able to document how your exemption was calculated and hold on to evidence for inspection, as your status will be reassessed each year.
What does an SAR audit look like?
An SAR audit focuses on your day-to-day handling of client money and an account will usually check:
- Whether client money is clearly separate from office funds
- Regular three-way reconciliations between bank statements, cash books and client ledgers
- Accuracy of client accounting records
- How residual balances are identified and dealt with
- Whether withdrawals and transfers are properly authorised
- Compliance with the firm’s written interest policy
- The effectiveness of internal controls and oversight by the Compliance Officer for Finance and Administration (COFA)
An SAR audit does not try to look for breaches but assesses whether your systems and controls are robust enough to prevent issues from arising.
What is the SAR audit process?
The SAR audit process begins with the support of an accountant who will confirm whether a report is required and spot any risks in your firm’s activities.
They will review your records and a sample of transactions and discuss any issues that have arisen before the report is finalised.
If no problems have arisen, the report is unqualified and will be kept on file.
However, if there are breaches, the report will be submitted to the SRA within six months. It will also be supported with recommendations on how to improve for future compliance.
How can we help with your SAR audit?
An SAR audit offers more than regulatory compliance. It provides reassurance to partners, lenders, insurers and clients that your client money is being handled correctly.
A clean audit can help protect your firm’s reputation, strengthen governance and reduce the risk of disciplinary action.
We can offer specialist audit services and help assess whether your firm needs a report and review your systems in advance to reduce the risk of qualification.
Our expert team can support you before the audit itself and strengthen your internal controls and make sure you remain compliant year-round.
If you need further advice or support on drafting an SRA audit, contact our team today.