For many law firms, the annual accountant’s report has traditionally been a contained compliance exercise. Since a 2014 rule change, only qualified reports have needed to be submitted to the SRA — an unqualified report would generally remain on file rather than being sent to the regulator.
That position is now changing, and it has moved further than “proposed” since firms first started hearing about it.
The SRA consulted between December 2025 and February 2026 on requiring all firms holding client money to submit annual accountant’s reports, including unqualified reports, alongside a mandatory annual declaration about their client money arrangements. Following that consultation, the SRA has confirmed it is proceeding: the proposed rule changes have now been submitted to the Legal Services Board for final approval, with the regulator’s own announcement stating plainly that “under the new rules all law firms that hold client money will be required to submit annual accountants’ reports to the SRA and provide key further information through a declaration.” Firms that consider themselves exempt will still need to declare their exemption status, and fixed financial penalties are being introduced for late or non-submission.
In other words: for COFAs and Managing Partners, this is no longer a case of watching a consultation and waiting to see what happens. Barring a change at the LSB approval stage, firms should be planning on the basis that this is happening.
What triggered the change
The SRA’s own spot-check work is the backdrop worth understanding. In a review of 596 firms, the regulator identified 25 non-exempt firms that had not obtained an accountant’s report for their last reporting period at all, and a further 31 that had submitted late. That level of non-compliance — roughly 10% of the sample checked — is what the regulator has pointed to as the justification for moving away from the lighter-touch 2014 regime.
The reform sits within a wider SRA programme following high-profile firm failures, including the Axiom Ince case, which prompted directions from the Legal Services Board around client money protection more broadly. The accountant’s reports changes are the near-term, practical part of that programme; the SRA has said bigger structural questions — including how client account interest works — remain under separate, longer-term consideration.
What is changing with SRA accountant’s reports
Under the confirmed changes, firms within scope will be required to:
- Submit their annual accountant’s report to the SRA, regardless of whether it is qualified or unqualified
- Complete an annual declaration confirming either that they are exempt, or that they have instructed a reporting accountant
- Accept that reporting accountants may in future submit reports directly to the SRA, alongside the firm’s own declaration, rather than relying solely on the firm to forward it
That combination — direct accountant submission plus firm declaration — is intended by the SRA to provide a “back-stop” where reports are late, missing, or never commissioned in the first place, giving the regulator earlier visibility than the current system allows.
For COFAs, this reinforces something that was already true in principle but now carries a harder compliance consequence: the underlying quality of the firm’s client money processes throughout the year, not just the report itself, is what will be visible to the regulator going forward.
Why this matters for law firms
An accountant’s report should not be treated as an isolated annual task.
The quality of the final report depends heavily on the firm’s day-to-day financial processes. Weak controls can create additional work at year end and make it harder to demonstrate that client money has been managed properly.
Late or incomplete three-way reconciliations are one example. Unresolved residual balances can create similar problems, while delays in moving office money from client account may also indicate weaknesses in routine processes.
Poor breach recording and missing supporting documentation can make matters worse. Without clear records, it becomes much harder for a COFA to demonstrate how an issue was identified, investigated and resolved.
In practice: we’ve seen firms treat the accountant’s report as something to prepare for in the final six weeks before their reporting deadline — pulling together reconciliations, chasing down old residual balances, and reconstructing breach records that should have existed already. That approach becomes considerably riskier once every report, not just qualified ones, is visible to the SRA. A firm we worked with moved to a rolling monthly reconciliation review roughly a year before their reporting deadline; when the year-end report was prepared, the reporting accountant’s queries dropped from around a dozen open items to two, purely because nothing had been left to accumulate.
What should COFAs be doing now?
There is little value in waiting for the LSB’s final approval before reviewing client money processes — the direction of travel is clear enough to act on now.
COFAs should ensure that three-way reconciliations are completed on time and reviewed properly. Any differences should be investigated promptly rather than carried forward without explanation.
Breaches should also be recorded and resolved as soon as possible. A clear breach register can help the firm identify repeated issues and demonstrate how corrective action has been taken.
Historic residual balances deserve similar attention. Leaving old balances unresolved can create unnecessary complications during the accountant’s review — and, once every report is submitted to the SRA rather than only qualified ones, unresolved balances become visible to the regulator by default rather than only on inspection.
Early engagement with the reporting accountant can also make the year-end process more efficient, particularly once direct accountant-to-SRA submission becomes standard practice. Giving the accountant sufficient time to understand the firm’s systems and records reduces the risk of last-minute queries.
Most importantly, firms should maintain evidence of ongoing compliance rather than trying to reconstruct it at year end.
Treat SRA accountant’s reports as a year-round process
The confirmed changes to SRA accountant’s reports should encourage firms to think differently about compliance.
A strong finance function gives COFAs and Managing Partners greater visibility throughout the year. It can highlight errors earlier, reduce repeated problems and make year-end reporting more straightforward.
Regular reviews can also show whether procedures are working as intended. Where the same issue appears repeatedly, management can investigate the underlying cause rather than simply correcting individual errors.
Consequently, compliance becomes part of the firm’s wider financial management rather than a separate administrative exercise.
Stronger controls can benefit the wider firm
Regulatory compliance is important, but better financial controls can also improve the way a law firm operates.
Reliable reconciliations provide greater confidence in client account records. Clear breach monitoring makes it easier to understand where problems are occurring. Better documentation can reduce unnecessary partner queries and make information easier to retrieve.
As a result, firms may spend less time dealing with year-end problems and more time managing their finance function proactively.
We believe that this is where the greatest value lies. Good compliance processes should support the wider business rather than exist simply to satisfy an annual requirement.
How AM Strategic can help
We support UK law firms with legal cashiering, SRA Accounts Rules compliance, COFA support, finance process reviews, management reporting and outsourced finance services.
Our approach focuses on building practical processes that work throughout the year. We can help review existing controls, improve reconciliation procedures, strengthen breach monitoring and provide additional finance support where internal resources are stretched.
If your firm wants to prepare for the confirmed changes around client money and accountant’s reports, book a consultation with AM Strategic today. We can help you identify gaps and build a finance function that supports both compliance and better decision-making.
FAQs
1. Will every law firm need to submit an accountant’s report? Under the confirmed changes, non-exempt firms holding client money will need to submit their accountant’s report to the SRA, including reports that are not qualified. Firms should still check whether the exemption criteria under Rule 12.2 apply to their circumstances, and exempt firms will need to declare their exempt status.
2. Has this been finalised, or is it still just a proposal? The consultation closed on 20 February 2026. Following that, the SRA confirmed it is proceeding with the changes and has submitted the proposed rule amendments to the Legal Services Board for final approval. It is not yet fully in force, but it has moved well beyond the proposal stage.
3. Does this change the COFA’s responsibilities? The underlying responsibilities of the COFA remain focused on effective oversight and compliance. However, greater regulatory visibility — with every report submitted, not just qualified ones — makes accurate records and consistent monitoring even more important.
4. How can a COFA prepare for the changes? The most effective preparation is to treat compliance as an ongoing process. Regular reconciliations, clear breach records, prompt investigation of issues and good supporting documentation all help strengthen the firm’s position.
5. Why are three-way reconciliations so important? Three-way reconciliations help firms confirm that client account records agree with the relevant accounting records and bank balances. Completing them consistently also makes it easier to identify discrepancies before they become larger problems.
6. What prompted the SRA to make this change? SRA spot-checks of 596 firms found that 25 non-exempt firms had not obtained an accountant’s report for their last reporting period, with a further 31 submitting late — a level of non-compliance the SRA has cited as justification for tightening the current, lighter-touch regime introduced in 2014.
Sources: SRA, “SRA strengthens safeguards to protect client money and reduce consumer harm” (sra.org.uk/news); SRA consultation, “Protecting the client money that solicitors hold” (sra.org.uk/sra/consultations).
Adam Bent is a trusted financial leadership expert with 30 years of experience helping startups and small to medium-sized businesses achieve faster growth. He guides companies to success through strategic financial planning and implementation, using his expertise to build actionable turnaround plans for businesses in financial distress.
Having seen many entrepreneurs with great ideas struggle due to a lack of financial expertise, Adam specialises in translating vision into viable, practical financial models, offering dedicated support every step of the way.
Driven by the reward of seeing businesses thrive, he founded AM Strategic Consultancy to help companies realise their full growth potential.
Adam Bent is licensed and regulated by the AAT under licence number 1005891.
For many law firms, the annual accountant’s report has traditionally been a contained compliance exercise. Since a 2014 rule change, only qualified reports have needed to be submitted to the SRA — an unqualified report would generally remain on file rather than being sent to the regulator.
That position is now changing, and it has moved further than “proposed” since firms first started hearing about it.
The SRA consulted between December 2025 and February 2026 on requiring all firms holding client money to submit annual accountant’s reports, including unqualified reports, alongside a mandatory annual declaration about their client money arrangements. Following that consultation, the SRA has confirmed it is proceeding: the proposed rule changes have now been submitted to the Legal Services Board for final approval, with the regulator’s own announcement stating plainly that “under the new rules all law firms that hold client money will be required to submit annual accountants’ reports to the SRA and provide key further information through a declaration.” Firms that consider themselves exempt will still need to declare their exemption status, and fixed financial penalties are being introduced for late or non-submission.
In other words: for COFAs and Managing Partners, this is no longer a case of watching a consultation and waiting to see what happens. Barring a change at the LSB approval stage, firms should be planning on the basis that this is happening.
What triggered the change
The SRA’s own spot-check work is the backdrop worth understanding. In a review of 596 firms, the regulator identified 25 non-exempt firms that had not obtained an accountant’s report for their last reporting period at all, and a further 31 that had submitted late. That level of non-compliance — roughly 10% of the sample checked — is what the regulator has pointed to as the justification for moving away from the lighter-touch 2014 regime.
The reform sits within a wider SRA programme following high-profile firm failures, including the Axiom Ince case, which prompted directions from the Legal Services Board around client money protection more broadly. The accountant’s reports changes are the near-term, practical part of that programme; the SRA has said bigger structural questions — including how client account interest works — remain under separate, longer-term consideration.
What is changing with SRA accountant’s reports
Under the confirmed changes, firms within scope will be required to:
That combination — direct accountant submission plus firm declaration — is intended by the SRA to provide a “back-stop” where reports are late, missing, or never commissioned in the first place, giving the regulator earlier visibility than the current system allows.
For COFAs, this reinforces something that was already true in principle but now carries a harder compliance consequence: the underlying quality of the firm’s client money processes throughout the year, not just the report itself, is what will be visible to the regulator going forward.
Why this matters for law firms
An accountant’s report should not be treated as an isolated annual task.
The quality of the final report depends heavily on the firm’s day-to-day financial processes. Weak controls can create additional work at year end and make it harder to demonstrate that client money has been managed properly.
Late or incomplete three-way reconciliations are one example. Unresolved residual balances can create similar problems, while delays in moving office money from client account may also indicate weaknesses in routine processes.
Poor breach recording and missing supporting documentation can make matters worse. Without clear records, it becomes much harder for a COFA to demonstrate how an issue was identified, investigated and resolved.
In practice: we’ve seen firms treat the accountant’s report as something to prepare for in the final six weeks before their reporting deadline — pulling together reconciliations, chasing down old residual balances, and reconstructing breach records that should have existed already. That approach becomes considerably riskier once every report, not just qualified ones, is visible to the SRA. A firm we worked with moved to a rolling monthly reconciliation review roughly a year before their reporting deadline; when the year-end report was prepared, the reporting accountant’s queries dropped from around a dozen open items to two, purely because nothing had been left to accumulate.
What should COFAs be doing now?
There is little value in waiting for the LSB’s final approval before reviewing client money processes — the direction of travel is clear enough to act on now.
COFAs should ensure that three-way reconciliations are completed on time and reviewed properly. Any differences should be investigated promptly rather than carried forward without explanation.
Breaches should also be recorded and resolved as soon as possible. A clear breach register can help the firm identify repeated issues and demonstrate how corrective action has been taken.
Historic residual balances deserve similar attention. Leaving old balances unresolved can create unnecessary complications during the accountant’s review — and, once every report is submitted to the SRA rather than only qualified ones, unresolved balances become visible to the regulator by default rather than only on inspection.
Early engagement with the reporting accountant can also make the year-end process more efficient, particularly once direct accountant-to-SRA submission becomes standard practice. Giving the accountant sufficient time to understand the firm’s systems and records reduces the risk of last-minute queries.
Most importantly, firms should maintain evidence of ongoing compliance rather than trying to reconstruct it at year end.
Treat SRA accountant’s reports as a year-round process
The confirmed changes to SRA accountant’s reports should encourage firms to think differently about compliance.
A strong finance function gives COFAs and Managing Partners greater visibility throughout the year. It can highlight errors earlier, reduce repeated problems and make year-end reporting more straightforward.
Regular reviews can also show whether procedures are working as intended. Where the same issue appears repeatedly, management can investigate the underlying cause rather than simply correcting individual errors.
Consequently, compliance becomes part of the firm’s wider financial management rather than a separate administrative exercise.
Stronger controls can benefit the wider firm
Regulatory compliance is important, but better financial controls can also improve the way a law firm operates.
Reliable reconciliations provide greater confidence in client account records. Clear breach monitoring makes it easier to understand where problems are occurring. Better documentation can reduce unnecessary partner queries and make information easier to retrieve.
As a result, firms may spend less time dealing with year-end problems and more time managing their finance function proactively.
We believe that this is where the greatest value lies. Good compliance processes should support the wider business rather than exist simply to satisfy an annual requirement.
How AM Strategic can help
We support UK law firms with legal cashiering, SRA Accounts Rules compliance, COFA support, finance process reviews, management reporting and outsourced finance services.
Our approach focuses on building practical processes that work throughout the year. We can help review existing controls, improve reconciliation procedures, strengthen breach monitoring and provide additional finance support where internal resources are stretched.
If your firm wants to prepare for the confirmed changes around client money and accountant’s reports, book a consultation with AM Strategic today. We can help you identify gaps and build a finance function that supports both compliance and better decision-making.
FAQs
1. Will every law firm need to submit an accountant’s report? Under the confirmed changes, non-exempt firms holding client money will need to submit their accountant’s report to the SRA, including reports that are not qualified. Firms should still check whether the exemption criteria under Rule 12.2 apply to their circumstances, and exempt firms will need to declare their exempt status.
2. Has this been finalised, or is it still just a proposal? The consultation closed on 20 February 2026. Following that, the SRA confirmed it is proceeding with the changes and has submitted the proposed rule amendments to the Legal Services Board for final approval. It is not yet fully in force, but it has moved well beyond the proposal stage.
3. Does this change the COFA’s responsibilities? The underlying responsibilities of the COFA remain focused on effective oversight and compliance. However, greater regulatory visibility — with every report submitted, not just qualified ones — makes accurate records and consistent monitoring even more important.
4. How can a COFA prepare for the changes? The most effective preparation is to treat compliance as an ongoing process. Regular reconciliations, clear breach records, prompt investigation of issues and good supporting documentation all help strengthen the firm’s position.
5. Why are three-way reconciliations so important? Three-way reconciliations help firms confirm that client account records agree with the relevant accounting records and bank balances. Completing them consistently also makes it easier to identify discrepancies before they become larger problems.
6. What prompted the SRA to make this change? SRA spot-checks of 596 firms found that 25 non-exempt firms had not obtained an accountant’s report for their last reporting period, with a further 31 submitting late — a level of non-compliance the SRA has cited as justification for tightening the current, lighter-touch regime introduced in 2014.
Sources: SRA, “SRA strengthens safeguards to protect client money and reduce consumer harm” (sra.org.uk/news); SRA consultation, “Protecting the client money that solicitors hold” (sra.org.uk/sra/consultations).
Adam Bent is a trusted financial leadership expert with 30 years of experience helping startups and small to medium-sized businesses achieve faster growth. He guides companies to success through strategic financial planning and implementation, using his expertise to build actionable turnaround plans for businesses in financial distress.
Having seen many entrepreneurs with great ideas struggle due to a lack of financial expertise, Adam specialises in translating vision into viable, practical financial models, offering dedicated support every step of the way.
Driven by the reward of seeing businesses thrive, he founded AM Strategic Consultancy to help companies realise their full growth potential.
Adam Bent is licensed and regulated by the AAT under licence number 1005891.