Compliance

Introduction

**Compliance** is about the firm's obligations to make **disclosure to the SRA** so that the regulator can be satisfied that firms are complying with the **SRA Accounts Rules**. The headline obligation is that most firms which hold or receive **client money** must **obtain an accountant's report** for each accounting period, and must **deliver** that report to the SRA where it is **qualified** (i.e. where it discloses a failure to comply with the Rules). This chapter examines **when a report is required**, the **exemptions** (Legal Aid income and the low-balance threshold), the firm's **duty to provide information** to the reporting accountant, and the **retention** and **sign-off** requirements for accounting records.

Assessment focus

For SQE1 FLK2, Solicitors Accounts is assessed within the **Ethics and Professional Conduct** umbrella, and compliance is a **high-yield, rule-numbered** topic. You must be able to state, from memory, that a report must be **obtained within six months** of the end of the relevant accounting period (**Rule 12.1**), that it is **delivered to the SRA only when qualified**, and the **two exemptions** in **Rule 12.2** (all income from Legal Aid; and the **average £10,000 / maximum £250,000** client-balance threshold). Questions are **single best answer** and typically test whether candidates can distinguish **obtaining** a report (almost always required) from **delivering** it (only if qualified), and can apply the exemption thresholds to a short scenario. This is a **closed-book** assessment — commit the rule numbers, the six-month window and the threshold figures to memory.

Study tips

1) Distinguish **obtain v deliver**: a firm holding client money must **obtain** a report for every accounting period (subject to exemptions), but need only **deliver** it to the SRA if it is **qualified** (Rule 12.1). 2) Memorise the **six-month** window — it runs from the end of the **accounting period**, NOT the tax year. 3) Learn the **two exemptions** (Rule 12.2): (a) all income from **Legal Aid**; (b) client balances not exceeding an **average of £10,000** AND a **maximum of £250,000**. 4) Remember the SRA's residual power (**Rule 12.4**) to require a report on **cessation** or in the **public interest**, and its power to inspect records. 5) Records must be retained for **six years** (Rule 13.1) and the report signed off by a **registered auditor** who is a member of a chartered accountancy body (Rule 12.5).