FLK2 · Solicitors Accounts

Breaches, records & reconciliations

SQE1 revision notes — the key rules, leading cases and common traps for this topic, in plain English and current to 2026.

Solicitors Accounts (FLK2) — SA.07: Breaches, Records & Reconciliations

Governed by the SRA Accounts Rules 2019 (in force 25 Nov 2019), made under the SRA's regulatory powers (framework: Legal Services Act 2007). These replaced the prescriptive 2011 rules with a shorter, principles-based set.

Records you must keep (Rule 8)

A separate ledger account for each client (and each trust), showing all client-money receipts/payments and a running balance (Rule 8.1).
A central record / listing of all client money held, kept up to date (Rule 8.1–8.2).
Records of all bills and other notifications of costs (Rule 8.4).
All accounting records must be retained for at least 6 years (Rule 8.4 / Rule 13 retention provisions) and be available on request to the SRA.

Reconciliations (Rule 8.3)

At least every 5 weeks, you must obtain bank/building society statements and prepare a reconciliation comparing: (a) the cash book (client ledger total) balance, (b) the bank statement balance, and (c) the total of all client ledger balances. These must agree.
The reconciliation must be signed off by the COFA or a manager of the firm, with any differences promptly investigated.

Breaches & corrections

Correct promptly on discovery (Rule 6). A shortfall on client account must be replaced promptly from your own funds (Rule 6.1) — even if the loss was caused by a third party or bank error; fault is irrelevant.
No set-off: a surplus on one client's ledger cannot cover a deficit on another's.
The COFA (Compliance Officer for Finance and Administration) must keep a record of all breaches and report serious breaches to the SRA promptly (a materiality test).

Common traps for SQE1

A material/serious breach is reported promptly; non-material breaches are recorded, not necessarily reported individually — but a pattern can become reportable.
The reconciliation interval is 5 weeks, not monthly.
Replacement of a client-account shortfall must be prompt/immediate — fault is irrelevant.
An accountant's report is needed unless the exemption applies; the exemption requires client money held to be both an average of £10,000 or less and a maximum of £250,000 or less over the period (so a report is required if average > £10,000 or max > £250,000) (Rule 12.2). A report qualified to show a failure to comply such that client or third-party money is, has been, or is likely to be placed at risk must be delivered to the SRA within 6 months of the period end (Rule 12.1(b)). Other qualified reports are kept by the firm. Unqualified reports are kept by the firm, not auto-filed.
Each client gets a separate ledger (Rule 8.1); running balances must never go into debit (overdrawn client ledger = breach).

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A woman is the treasurer of a small amateur football club. Members pay £20 each month in cash. Under the club rules she accepted on becoming treasurer, she must bank the subscriptions into the club's dedicated account within seven days. One month she receives £200 in subscriptions and spends the cash on her own gas bill that same day. She intends to replace the money from her wages before anyone notices, and pays an equivalent £200 into the club account two weeks later. Which statement best explains how section 5(3) of the Theft Act 1968 applies to the subscriptions when she pays the gas bill?

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