In short
Under rule 8.3 of the SRA Accounts Rules, a law firm must reconcile every client account at least every five weeks. The reconciliation compares three figures: the bank or building society statement balance, the client cash book balance and the total of the client ledgers. The record must be signed off by the COFA or a manager, and any difference must be investigated and resolved promptly.
Key takeaways
- Rule 8.3 requires a reconciliation of every client account at least every five weeks, and rule 8.2 requires bank statements for every client and business account at the same interval.
- The reconciliation is a three-way comparison of the adjusted bank balance, the client cash book balance and the total of the client ledger balances, which must all agree.
- The reconciliation record must be signed off by the COFA or a manager of the firm, and SRA guidance suggests recording the date of sign-off.
- Debit balances on client ledgers must be listed separately, investigated and corrected, and cannot be set off against credit balances.
- A shortage found on reconciliation must be replaced immediately, and the managers are jointly and severally responsible for replacing it.
What rule 8.3 requires
Rule 8.3 of the SRA Accounts Rules requires a firm to complete, at least every five weeks and for every client account it holds or operates, a reconciliation of the bank or building society statement balance with the cash book balance and the client ledger total. A record of the reconciliation must be signed off by the COFA or a manager of the firm, and the firm should promptly investigate and resolve any differences it shows. Rule 8.2 supports this by requiring statements for every client and business account at least every five weeks.
The duty extends beyond the main client account. Where the firm operates a client's own account as signatory, rule 10 applies the reconciliation requirement to that account as well. Joint accounts held with a client or third party need statements under rule 9 but not a reconciliation. For the wider framework, see our guide to the SRA Accounts Rules.
The three figures in a client account reconciliation
Each of the three figures comes from a different record, which is why the check works. The bank shows what is actually held. The cash book shows what the firm believes has gone through the account. The client ledgers show what the firm owes, matter by matter. If all three agree, the firm holds what it owes. If they do not, something has been missed, misposted or misused.
The bank balance is rarely used as it stands. It is adjusted for timing differences: receipts recorded in the cash book that have not yet reached the bank, called outstanding lodgements, and payments recorded in the cash book that have not yet left the bank, called unpresented payments. Only differences that remain after those adjustments need investigation. The same principle applies in any regulated business, as our guide to three-way reconciliation explains.
| Figure | Source record | Rule | What it proves |
|---|---|---|---|
| Adjusted bank balance | Bank or building society statement, adjusted for timing items | 8.2 | What the firm actually holds |
| Cash book balance | Client cash book with a running total | 8.1(c) | What the firm's records say passed through the account |
| Client ledger total | List of client ledger balances with a running total | 8.1(a), 8.1(b) | What the firm owes to each client and third party |
How to prepare the reconciliation, step by step
A reconciliation should be prepared to a fixed date, usually a month end, using records that are complete to that date. Rule 8.1 requires records to be contemporaneous, so a reconciliation prepared on records that are days behind is already a weakness an accountant will note.
The steps below follow the order most reporting accountants expect to see on the face of the reconciliation statement, with each figure and adjustment shown separately.
- Obtain the statement for each client account to the reconciliation date.
- Take the client cash book balance at the same date.
- Adjust the bank balance: add outstanding lodgements and deduct unpresented payments, listing each item with its date and matter.
- Produce the list of client ledger balances at the same date, with credit balances and any debit balances listed separately.
- Compare the adjusted bank balance, the cash book balance and the net ledger total.
- Investigate every difference to its cause, correct it, and record what was found and done.
- Have the COFA or a manager review and sign off the reconciliation, recording the date of sign-off.
Who signs off the reconciliation
The rule allows either the COFA or a manager, meaning a partner, member or director, to sign off the record. SRA guidance says the COFA or a manager 'will want to check the reconciliation statement for all accounts the firm hold' and that it is helpful to record the date the records were signed. A signature should mean the reviewer has checked that the three figures agree, that the timing items are genuine and recent, and that every difference has a recorded cause and fix.
The question of who can be COFA is changing. In June 2026 the SRA announced, subject to Legal Services Board approval, that in firms with turnover above £600,000 or holding more than £2 million of client money, people who can make significant decisions about running the firm on their own will not be able to act as COFA. Smaller sole owner-manager firms receive a partial exemption. Firms where a dominant partner is also the COFA should plan for a separate reviewer.
Common reconciliation differences and how to fix them
Most differences come from a small number of recording errors. Each needs a cause, a correction and a record of both. A difference that cannot be explained should be treated as a possible shortage until it is proved otherwise, because the cost of waiting is that other clients' money may be at risk. A reconciliation break log is a simple way to keep that record.
The table sets out the differences firms see most often, what usually causes them and the rule that governs the fix.
| Difference | Likely cause | How to fix it | Rule |
|---|---|---|---|
| Cash book and ledger total disagree | Payment or receipt posted to the cash book but not to a ledger, or the reverse | Post the missing entry to the correct ledger, dated to the transaction | 8.1 |
| Bank and adjusted cash book disagree | Bank charge, returned payment or receipt not yet recorded | Record the item; charges belong to the firm and must be met from business money | 4.1, 8.1 |
| Debit balance on a client ledger | Payment made before funds were received or cleared, or posted to the wrong matter | Correct a misposting; otherwise replace the shortfall immediately from business money | 5.3, 6.1 |
| Old outstanding lodgement | Receipt recorded but never banked, or banked to the wrong account | Trace the receipt; if it was never received, reverse it and check the matter | 8.1, 8.3 |
| Old unpresented payment | Cheque or transfer recorded but never sent, or stopped | Confirm with the payee; reverse and reissue or return the money | 2.5, 8.3 |
| Unidentified receipt | Money received with no clear client or matter reference | Identify the payer quickly and post to the right ledger; return it if it cannot be identified | 2.5, 4.2 |
Debit balances and shortages
A debit balance on a client ledger means the firm has paid out more for that client than it held, so the difference has been paid with other clients' money. SRA guidance says debit balances should be separately listed, fully investigated and corrected promptly, and that their total cannot be deducted from the total of credit balances. Netting them off hides a shortage on the face of the reconciliation.
Where a debit balance is not a simple misposting, the firm has a shortage. Rule 6.1 requires money improperly withdrawn to be replaced immediately, and the SRA's 2024 warning notice says shortages must be replaced in full with extreme urgency, from the managers' own resources if necessary, whether or not they were personally at fault. The firm should not take costs from client account until the shortage is replaced, should notify its insurer, and should consider its duty to report to the SRA, which our guide to SRA client account breaches covers.
Worked example: a month-end reconciliation in pounds
A 25-partner firm with a residential conveyancing and private client practice reconciles its general client account at 31 October. After adjusting the bank balance for timing items, the bank and the cash book agree at £1,296,880.00. The client ledger total does not: credit balances total £1,300,580.00 and one probate ledger shows a debit balance of £1,200.00, giving a net ledger total of £1,299,380.00. The ledgers show £2,500.00 more owed than the cash book shows held.
The finance team finds two causes. First, a £2,500.00 payment of search and registration disbursements on a purchase matter was entered in the cash book but not posted to the client's ledger. Posting it brings that ledger down by £2,500.00. Second, the £1,200.00 debit balance came from an estate agent's fee paid before the estate's funds arrived. That is a breach of rule 5.3, so the firm transfers £1,200.00 from its business account to client account the same day and credits the probate ledger. After both corrections all three figures agree at £1,298,080.00, the COFA signs and dates the reconciliation, and the debit balance is recorded in the breach register.
| Line | Amount (GBP) |
|---|---|
| Bank statement balance at 31 October | 1,284,630.00 |
| Add: outstanding lodgements (two receipts banked 31 October) | 18,500.00 |
| Less: unpresented payments (three transfers sent 31 October) | (6,250.00) |
| Adjusted bank balance | 1,296,880.00 |
| Client cash book balance | 1,296,880.00 |
| Client ledger credit balances | 1,300,580.00 |
| Client ledger debit balance (probate matter), listed separately | (1,200.00) |
| Net client ledger total | 1,299,380.00 |
| Difference: ledgers higher than cash book | 2,500.00 |
| Fix 1: post £2,500.00 disbursement payment to the purchase ledger | Ledger total falls to 1,296,880.00 |
| Fix 2: transfer £1,200.00 from business account to clear the debit balance | All three figures rise to 1,298,080.00 |
| Agreed position after corrections | 1,298,080.00 |
How often to reconcile in practice
Five weeks is the legal minimum, not a target. Most firms reconcile at least monthly, and firms with heavy conveyancing volumes often reconcile weekly or daily, because a misposting found the next morning takes minutes to fix while one found five weeks later may involve several completed matters and a client who has moved on. Our guide to reconciliation break management sets out how to age and escalate open items.
The reconciliation balances also matter for the annual accountant's report. SRA guidance works out whether a firm qualifies for the exemption by averaging the balances at each reconciliation, so a full set of signed reconciliations is the evidence a small firm needs to rely on it. All reconciliation records must be kept securely for at least six years under rule 13.1.
What reporting accountants and the SRA look for
SRA guidance for reporting accountants names three-way reconciliations between the bank, the cash book and the client ledger listing as a check that can test several rules at once. Accountants also look at whether reconciliations were done on time, whether differences were resolved promptly, whether debit balances were shown and corrected, and whether the COFA's review was real rather than a signature on a finished document.
SRA inspections and fines regularly cite the same failures: reconciliations not done every five weeks, differences carried forward for months without correction, and records not kept up to date. A firm that can show signed reconciliations, a short list of recent timing items and a clear record of every difference has little to fear from either.
Safeheld reconciles client money every day for regulated firms, works every difference to its cause and keeps the record auditors ask for, and is extending that work to law firm client accounts. If your firm holds client money under the SRA Accounts Rules, talk to us about SRA client money.
Frequently asked questions
How often must a solicitors' client account be reconciled?
At least every five weeks under SRA Accounts Rules rule 8.3. Many firms reconcile monthly, weekly or daily.
Who signs off a client account reconciliation?
The COFA or a manager of the firm, such as a partner, member or director. SRA guidance suggests recording the date of sign-off.
What is a three-way reconciliation for solicitors?
A comparison of the bank statement balance, adjusted for timing items, with the client cash book balance and the total of the client ledger balances. All three must agree.
Can debit balances be netted off against credit balances?
No. SRA guidance says debit balances must be listed separately, investigated and corrected, and their total cannot be deducted from credit balances.
What happens if the reconciliation shows a shortage?
The shortage must be replaced immediately under rule 6.1, from the managers' own resources if necessary, and the firm should consider whether it must report the matter to the SRA.
Do client's own accounts need to be reconciled?
Yes. Where the firm operates a client's own account as signatory, rule 10 applies the five-weekly reconciliation requirement to that account.
References
- SRA Accounts Rules
- SRA guidance: Helping you keep accurate client accounting records
- SRA guidance: Planning for and completing an accountant's report
- SRA warning notice: Money missing from client account
- SRA news release, 2 June 2026: Safeguards to protect client money
About Safeheld
Safeheld reconciles client money every day, resolves every difference and prepares every regulatory return for sign-off, for regulated firms in the United States, the United Kingdom, the European Union, Canada, Australia, Singapore and Hong Kong. To discuss your operations, contact us at safeheld.com/contact.
This article is for general information and does not constitute legal or regulatory advice.