PastPaperHero | Record-keeping requirements - Storage and retention of accounting records

Learning Outcomes

This article outlines the requirements for maintaining, storing, and retaining accounting records under the SRA Accounts Rules, including:

Rule 8 requirements for accurate, contemporaneous and chronological records, separate client ledgers for each client and matter, and the firm’s cash sheet
The six‑year retention rule (Rule 13) and the correct start date based on the last entry in each record
Record‑keeping obligations when operating joint accounts, a client’s own account, and third‑party managed accounts (TPMAs), and the applicable Rules for statements and reconciliations
The five‑week bank statement and reconciliation cycle, COFA/manager sign‑off requirements, and their role in the audit trail
Practical, proportionate measures for secure storage of digital and physical records, including integrity, backups, access controls and reproducibility in hard copy
Regulatory exposure from inadequate record‑keeping and risk mitigation through strong systems

SQE1 Syllabus

For SQE1, you are required to understand the practical implications of the record-keeping requirements under the SRA Accounts Rules. This includes knowing what records must be kept, for how long, and the rationale behind these obligations, particularly concerning client money protection and regulatory oversight, with a focus on the following syllabus points:

the specific types of accounting records firms must maintain (Rule 8)
the minimum period for which accounting records must be retained (Rule 13)
the requirement for records to be accurate, contemporaneous, and chronological (Rule 8)
the implications of inadequate record-keeping for compliance and regulatory action.
the requirement to obtain bank statements and reconcile client accounts at least every five weeks, including COFA or manager sign‑off (Rule 8.2–8.3)
record‑keeping adjustments when operating joint accounts (Rule 9) and a client’s own account (Rule 10), and the approach to TPMAs (Rule 11)
examples of accounting records that must be kept: client ledgers, cash sheets, transfers journals, central record of bills, bank statements, reconciliation statements, and TPMA statements.

Test Your Knowledge

Attempt these questions before reading this article. If you find some difficult or cannot remember the answers, remember to look more closely at that area during your revision.

For how long must a firm retain its accounting records under the SRA Accounts Rules?
1. Three years
2. Five years
3. Six years
4. Seven years
Which of the following must be retained for at least six years?
1. Client ledger accounts
2. Bank statements for client accounts
3. Reconciliation statements
4. All of the above
True or False? Accounting records may be kept solely in a digital format, provided they can be reproduced in printed form when required.
Which Rule primarily governs the requirements for keeping accounting records?
1. Rule 5
2. Rule 8
3. Rule 11
4. Rule 13

Introduction

Maintaining accurate and comprehensive accounting records is a fundamental aspect of running a compliant legal practice. The Solicitors Regulation Authority (SRA) Accounts Rules impose specific obligations on firms regarding the nature, storage, and retention of these records. These rules are designed to ensure the safety of client money, provide transparency, and facilitate regulatory oversight. Failure to comply can lead to disciplinary action and damage a firm's reputation. This article examines the key requirements under Rules 8 and 13 concerning the maintenance, storage, and minimum retention period for accounting records, and integrates related obligations from Rules 9–12 where firms operate joint accounts, clients’ own accounts, or TPMAs.

Key Term: Accurate Records
Financial records that correctly reflect the transactions they represent, free from errors or misstatements.

Key Term: Contemporaneous Records
Financial records that are updated promptly as transactions occur, or as soon as reasonably practicable thereafter, ensuring timeliness.

Key Term: Chronological Records
Financial records that are kept in date order according to when the transactions occurred.

Accounting Records: Requirements under Rule 8

Rule 8 of the SRA Accounts Rules sets out the detailed requirements for the accounting records that firms must maintain. The overarching principle, stated in Rule 8.1, is that firms must keep accounting records that are accurate, contemporaneous, and chronological. This ensures a clear and reliable audit trail for all financial transactions involving both client and business money related to client matters.

Rule 8 mandates several specific types of records:

Client Ledger Accounts (Rule 8.1(a)): Separate ledgers must be maintained for each client (and for each matter where relevant). They must clearly label the client and the matter, record receipts and payments in the correct columns (client side for client money; business side for business money), and show the current balance at all times. Where a firm acts for both lender and borrower on a mortgage advance, the lender’s funds must be clearly identifiable even if a single ledger is used.

Key Term: Client ledger
A running record for each client/matter showing receipts and payments of client money, and related business money entries, with a readily ascertainable current balance.

Record of Balances (Rule 8.1(b)): Firms must maintain a running total of all balances across client ledgers to identify total liabilities to clients and third parties at any point in time.
Client Cash Account (Rule 8.1(c)): Often referred to as the cash sheet or cash book, this shows all transactions passing through the client bank account(s) and maintains a running total.

Key Term: Cash sheet
The ledger that records receipts into and payments out of the firm’s bank accounts (client and business), with separate columns for each, forming part of the double‑entry trail.

Central Record of Bills (Rule 8.4): A central, readily accessible record of all bills or other written notifications of costs must be kept. This record supports transfers of costs from client to business account under Rule 4.3 and demonstrates billing governance.
Bank Statements and Reconciliations (Rules 8.2–8.3): Firms must obtain bank statements for both client and business accounts at least every five weeks and reconcile client accounts against internal records at least every five weeks. The reconciliation statement must be signed off by the COFA or a manager once any differences are investigated and resolved.

Key Term: Reconciliation statement
A document confirming that balances on bank statements match internal client account records, prepared at least every five weeks and signed by the COFA or a manager.

Key Term: COFA
Compliance Officer for Finance and Administration; the individual responsible for overseeing compliance with the Accounts Rules and related financial controls.

Transfers Journal (SRA guidance): Although not a Rule number, SRA guidance recommends a separate record of inter‑client transfers and other internal reallocations. This journal supports transparency when funds are moved between client ledgers without leaving the client account.

Key Term: Transfers journal
A record of internal reallocations (for example, inter‑client transfers) that do not pass through the cash sheet, providing a clear paper trail.

Firms using separate designated deposit client accounts (for example, when holding substantial sums for long periods) must still reflect those deposit movements on the client ledger and cash sheet, either through additional deposit columns or via separate deposit ledgers and deposit cash sheets.

Key Term: Separate designated deposit client account (SDDCA)
An instant‑access deposit client account designated for one client/matter, used to hold significant sums for longer periods so that interest can be attributed accurately.

Worked Example 1.1

A firm acts for Client A on a property purchase and Client B on litigation. The firm receives £10,000 from Client A for the deposit and £1,000 from Client B on account of costs. Both sums are paid into the general client account. How should these receipts be recorded internally?

Answer:
The firm must maintain separate client ledger accounts for Client A (Purchase) and Client B (Litigation). The receipt of £10,000 must be credited to Client A's ledger (client section), and the receipt of £1,000 must be credited to Client B's ledger (client section). Corresponding debit entries must be made in the client cash account. This ensures accurate, separate records for each client's money.

Worked Example 1.2

A firm downloads client account bank statements monthly and prepares a reconciliation every calendar month. Is this compliant with Rule 8?

Answer:
No. Rule 8.2–8.3 require firms to obtain bank statements and reconcile client accounts at least every five weeks. Monthly may comply where months are within five weeks, but it will not comply in longer months. The firm must ensure the interval never exceeds five weeks and the reconciliation is signed off by the COFA or a manager.

Storage and Retention: Requirements under Rule 13

Rule 13 specifically addresses the storage and retention of accounting records.

Retention Period (Rule 13.1)

The fundamental requirement under Rule 13.1 is that firms must retain all accounting records specified under the Rules for at least six years from the date of the last entry in the record.

Key Term: Retention Period
The minimum duration for which accounting records must be kept by a firm as specified by the SRA Accounts Rules, currently six years, measured from the date of the last entry in each record.

This six-year period applies broadly to accounting records, including (non-exhaustive):

client ledgers and any deposit ledgers
cash sheets (client and business), including deposit cash sheets
bank statements for client and business accounts
reconciliation statements and supporting schedules
the central record of bills and other written notifications of costs
transfers journals and records of inter‑client transfers
records relating to separate designated deposit client accounts (for example, deposit interest postings)
statements and records obtained when operating joint accounts (Rule 9) or a client’s own account (Rule 10), and statements obtained from TPMA providers (Rule 11.2)
accountants’ reports (and correspondence with the reporting accountant)
central registers used to manage residual client balances (and receipts from charities where applicable).

The purpose of this retention period is to ensure that sufficient historical data is available for:

Regulatory Scrutiny: Allowing the SRA to investigate past transactions if required, and enabling the firm to produce records promptly under production powers.
Client Queries: Enabling firms to answer client questions about past matters and payments.
Dispute Resolution: Providing evidence in case of disputes or claims against the firm.
Audit Trail: Maintaining a comprehensive financial history of the firm's dealings with client money and supporting the reporting accountant’s work.

Worked Example 1.3

A firm concluded a matter for Client X on 30 June 2020. The final entry on Client X's ledger account was made on 15 July 2020 when the remaining client balance was returned. Until what date must the firm retain Client X's ledger account records?

Answer:
The firm must retain the ledger account records for Client X until at least 15 July 2026. The six-year retention period runs from the date of the last entry in the record, which was 15 July 2020.

Storage Requirements (Rule 13.1)

Rule 13.1 also mandates that accounting records must be stored securely. This applies to both physical and digital records. Firms must implement appropriate measures to protect records from loss, damage, unauthorised access, or destruction, while ensuring they remain readily accessible for regulatory, audit and client service purposes.

Key considerations for secure storage and accessibility include:

Integrity and accuracy: Maintain records so they remain complete and unaltered. Use audit trails and access controls to evidence integrity.
Backups and continuity: Operate regular, tested backups, preferably in geographically separate locations, and maintain business continuity and disaster recovery plans to ensure records survive incidents.
Access control: Restrict access to those who need it, with role‑based permissions, and maintain logs of access and changes. Protect physical records in locked, controlled‑access storage.
Confidentiality and data protection: Safeguard client information in line with professional duties and applicable data protection law while meeting retention requirements under the Rules.
Reproducibility: Where records are kept electronically, firms must be able to reproduce them promptly in hard copy form on request by the SRA or a reporting accountant. Use durable formats (for example, non‑modifiable PDFs), and retain metadata where practical to evidence authenticity.

Digital storage solutions, including secure cloud services, are acceptable provided the firm ensures robust security, continuity and hard‑copy reproducibility. The use of electronic statements is common; ensure they are saved in a format that cannot be altered and can be printed quickly.

Records when operating joint accounts, clients’ own accounts, and TPMAs

The SRA Accounts Rules treat some arrangements differently:

Joint accounts (Rule 9): The full client account rules do not apply to money held in joint accounts; however, firms must still obtain statements at least every five weeks (Rule 8.2) and keep a central record of bills (Rule 8.4). Those statements and related records are “accounting records” and must be stored securely and retained for at least six years from the last entry date.
Client’s own account (Rule 10): Where operating a client’s own account as signatory, the firm must obtain statements at least every five weeks (Rule 8.2), reconcile at least every five weeks (Rule 8.3) where statements are obtained regularly, and keep a central record of bills (Rule 8.4). Save statements in a durable, non‑modifiable format and retain for at least six years from the date of the last entry. If practical constraints mean statements cannot be obtained and reconciled every five weeks, the firm should document the steps taken to assure the money is not at risk (per SRA guidance).
Third‑party managed accounts (Rule 11): TPMA providers hold the money, so the Accounts Rules on holding client money do not apply to the firm. The firm must, however, obtain regular statements from the TPMA (Rule 11.2), keep accurate internal records that mirror those statements, and store these securely for at least six years from the date of the last relevant entry.

Worked Example 1.4

A firm is joint executor with a family member. The firm decides to use a joint account for the estate. What statements and records must the firm keep, and for how long?

Answer:
For a joint account, the firm must obtain statements at least every five weeks (Rule 8.2) and maintain a central record of bills (Rule 8.4). These statements and related accounting records must be stored securely and retained for at least six years from the date of the last entry in each record.

Worked Example 1.5

A firm uses a TPMA provider for certain conveyancing and probate matters and does not operate its own client account. What records must the firm keep and retain?

Answer:
The firm must obtain regular TPMA statements (Rule 11.2), keep internal records tracking receipts and payments for each client/matter, and store them securely. The firm must be able to reproduce them in hard copy on request and retain them for at least six years from the date of the last entry.

Practical examples of records within scope of Rule 13

To ensure comprehensive compliance, firms typically include within their “accounting records” the following (all to be stored securely and retained for at least six years from the last entry date):

client ledgers (including deposit columns/ledgers for SDDCAs)
cash sheets for client and business accounts (including deposit cash sheets)
bank statements for client and business accounts (electronic or printed)
reconciliation statements and evidence of COFA/manager sign‑off
the transfers journal and inter‑client transfer records
the central record of bills and any abatement records
TPMA statements and internal tracking records
registers and documentation relating to residual client balances (including charity receipts and evidence of tracing steps where applicable)
correspondence and working papers relating to reconciliations and corrections of breaches (Rule 6.1)
accountants’ reports and related communications.

Worked Example 1.6

A firm scans all paper statements and ledgers, stores them in a secure document management system, and destroys the originals. Is this acceptable, and what must the firm be able to do?

Answer:
Yes, provided the scans are complete, accurate, secured against alteration, and the firm can reproduce them promptly in hard copy upon request. The firm must retain these electronic records for at least six years from the last entry and ensure robust backups and access controls.

Exam Warning

Be mindful of the start date for the six-year retention period. It runs from the date of the last entry in the specific record, not necessarily from the date the matter concluded or the file was closed. For ongoing records like a cash account or a transfers journal, the period runs from the date of the last transaction recorded within it. Also note the five‑week requirement for bank statements and reconciliations—do not assume that “monthly” is always compliant.

Revision Tip

Focus on understanding why the SRA requires these records to be kept for six years. Connecting the rule to its purpose (protecting client money, enabling audits, resolving disputes) will help you apply it correctly in exam scenarios. Remember that compliance is about demonstrating proper stewardship of client funds over a significant period. Consider how reconciliation statements, COFA sign‑off, and robust storage controls underpin client protection.

Key Point Checklist

This article has covered the following key knowledge points:

Firms must keep accurate, contemporaneous, and chronological accounting records (Rule 8).
Key records include client ledgers, cash accounts, records of bills, and reconciliation statements.
All accounting records must be retained for a minimum of six years from the date of the last entry (Rule 13).
Records must be stored securely, whether in physical or digital format.
Digital records must be capable of being reproduced in hard copy if needed.
The six-year retention period facilitates regulatory oversight, client protection, and dispute resolution.
Bank statements must be obtained at least every five weeks and client account reconciliations performed at least every five weeks, with COFA/manager sign‑off (Rule 8.2–8.3).
Adjusted obligations apply when operating joint accounts (Rule 9), clients’ own accounts (Rule 10), and TPMAs (Rule 11); statements and internal records in these contexts remain within the retention duty.
Maintaining a transfers journal and central registers (for example, residual balances) improves transparency and evidences compliance.
Inadequate record‑keeping can lead to qualified accountants’ reports and regulatory action; robust storage and reconciliation processes mitigate risk.

Key Terms and Concepts

Accurate Records
Contemporaneous Records
Chronological Records
Retention Period
Reconciliation statement
COFA
Client ledger
Cash sheet
Transfers journal
Separate designated deposit client account (SDDCA)

Record-keeping requirements - Storage and retention of accou...