Written by:
Grant Yuill
Head of Marketing & Customer Engagement
Every Scottish law firm is subject to regular inspections by the Law Society of Scotland’s Financial Compliance Team, which checks adherence to the professional practice and guarantee fund regulations every two to three years. The purpose of these inspections is to verify that firms continue to comply with the Solicitors’ Accounts Rules and maintain high standards in terms of financial management.
Preparing for an inspection does not have to be stressful. In fact, with as little as 30 minutes each month spent examining your accounts, your firm can prevent last-minute scrambles and be audit-ready at all times. To ensure that you are in full compliance with all regulations, the following is a comprehensive and practical checklist that includes all practice information that you need to assess regularly.
1. Terms of Business and Client Instructions
Ensure that each solicitor in your firm issues and keeps written Terms of Business for each client. Documents like this need to be understandable, up to date, and easily accessible. The Law Society conducts inspections to ensure that client funds are being held under the terms that have been agreed upon; thus, documentation is important.
Confirm that clients regularly update their contact information, especially their address and account number, so that you can correctly refund any remaining amounts once a situation is resolved.
2. Monthly Cashroom and Reconciliation Checks
Monthly reconciliations are essential for ensuring Accounts Rules compliance. The firm should:
- All bank accounts, including savings and loan accounts held for client cash, should be reconciled.
- Any outstanding checks or transfers that are more than one month old must be explained and addressed properly.
- If cheques have not been cashed for more than six months, please return the funds to the proper ledger or client.
Denovo’s CaseLoad platform can automate many of these steps, saving time and preventing errors.
3. Inspection of Client Balances and Suspense Ledgers
Make it a practice to regularly inspect client ledgers for out-of-date or unexplained entries. Keep in mind the following:
- Headings that do not provide enough details of the transaction.
- Balances on suspense ledgers that must be assigned or cleared.
- Old credit balances that haven’t been followed up on in the ledger.
- Long-term debt balances that may need to be wiped off.
Quick response to these things shows the Law Society that your firm takes financial integrity seriously.
4. Day Books, Journals, and Ledger Entries
Ensure consistency by cross-checking Day Book entries with ledger postings. Any corrected entries must be clear and traceable to the original transactions.
This level of transparency not only benefits auditors but also protects the firm against internal discrepancies.
5. Inter‑Client Transfers
Although transfers between client accounts are regular, they have to comply with the terms of Rule B6 and a set of tight rules. Ensure that:
- The client has provided you with the necessary written authority.
- Both the amount of the transaction and its purpose are recorded.
- Exact dates are included on both sides of the ledger, which indicates that the transfer has been completed.
To prevent any perception of misuse and to show transparency, these actions are very necessary.
6. Trial Balance and Year-End Reviews
Your trial balance must always display an equal amount of total debits and credits. What makes a healthy balance sheet is:
- All of the entries have been updated and entered correctly
- Only the current financial year is shown in your profit and loss entries.
- The balances in the ledger all match the bank accounts and statements they are linked to.
When comparing the present year to the previous one, it is important to look for any anomalies or different statistics at the end of the year. If you need help with your finances, you can speak to your accountant or a partner who does.
7. Supplier Statements and Paid Cheques
Checking your suppliers’ accounts regularly is quite important. especially for essential service providers like couriers, surveyors, and searchers. Use ledger entries to compare outstanding amounts.
It is important to file returned or paid checks in chronological order, have a partner sign or initial them, and store them in a secure location for auditing purposes.
8. Quarterly VAT and Other Funds Reconciliation
Every quarter:
- Ensure VAT reports match your trial balances.
- Pay any VAT liabilities on time.
- Reconcile balances in other fund accounts (e.g., Executry, Nominee, or Trust funds).
The Law Society of Scotland suggests that old or dormant accounts be checked on regularly and, if necessary, closed or archived in accordance with recommendations.
9. Mid-Year Checks and Annual Balancing
Every six months:
- Confirm that all client money received is banked within the firm’s defined timeframe.
- Review your breach register, accounts certificate, and staff training logs.
Record any changes for expenses, fees, and unpaid balances held at the end of the year to prevent a backlog. You can find discrepancies by comparing the current trial balance and the one from the previous year.
How Denovo Can Help?
Denovo’s CaseLoad platform is designed with compliance in mind. It offers:
- Cloud-based accounting with automated reconciliations
- Tools for tracking Terms of Business, client balances, and inter-account transfers
- Complete audit trails and permissions depending on roles to prevent misuse
- Regular software updates and security patches for cybersecurity assurance
Final Thoughts
Every legal practice unit must make it a priority to ensure compliance with the Accounts Rules imposed by the Law Society of Scotland. Even minor errors can result in rule breaches or Guarantee Fund issues, ranging from inaccurate accounting records to proper handling of client bank accounts and balances. To prevent getting a negative letter from the Law Society, it is important to conduct regular internal inspections, maintain accurate documentation, and implement secure systems.
Are you ready to take control of your account compliance?
Book a free consultation with the Denovo team now to learn more about how our software and finance services can help you prepare for your pre-audit.
