📅 Deadline Reminder: Solicitors must submit their trust account audit to the Law Society of NSW by 31 May 2025. The audit covers the financial year from 1 April 2024 to 31 March 2025—so now is the time to prepare your financial records and ensure compliance.
The Law Society’s Trust Account Audit Requirements
Legal practitioners who manage trust money are required to maintain strict compliance with the Law Society of NSW trust account audit regulations. A solicitor’s trust account audit in NSW must be conducted by an external examiner, ensuring that client funds are managed lawfully, transparently, and with full accountability. This audit process is not just a procedural formality; it’s a critical component of maintaining the integrity and trustworthiness of the legal profession. Solicitors must adhere to these regulations to protect client funds and uphold professional standards.
Why the Law Society Conducts Trust Account Audits
Trust account audits aren’t just a formality—they’re essential. The Law Society Trust Account Audit process exists to safeguard client money, maintain professional standards, and prevent misuse of funds. It ensures that your firm is handling client money ethically, with proper record-keeping and transparent reporting. These audits provide an independent verification that client funds are being managed in accordance with the law, fostering confidence among clients and the broader community. They also serve as a deterrent against potential financial misconduct.
Essential Components of the Law Society Trust Account Audit Checklist
1. Record Keeping and Documentation
âś… Maintain individual ledgers for each client
âś… Store all supporting documents (receipts, invoices, statements)
âś… Use permanent, unalterable records
âś… Retain records for at least 7 years
Accurate and comprehensive record-keeping is the cornerstone of trust account management. Each client should have a dedicated ledger detailing all transactions. Supporting documents such as receipts, invoices, and bank statements must be meticulously stored. It’s essential to use permanent, unalterable records to prevent tampering and ensure the integrity of the audit trail. All these records must be retained for a minimum of seven years to comply with regulatory requirements.
2. Trust Account Reconciliation
âś… Reconcile trust bank account with ledger monthly
âś… Promptly identify and correct discrepancies
âś… Document adjustments with a clear audit trail
Monthly reconciliation of the trust bank account with the internal ledger is crucial. This process ensures that all transactions are accurately recorded and any discrepancies are promptly identified and corrected. All adjustments made during reconciliation must be documented with a clear audit trail to provide transparency and accountability. This regular practice helps in maintaining accurate financial records and preventing potential issues.
3. Client Statements and Reporting
âś… Issue statements quarterly or upon request
âś… Show opening/closing balances and detailed transactions
âś… Ensure clarity in fee deductions and fund movements
Client statements should be issued quarterly or upon request, providing a comprehensive overview of their trust account activities. These statements must include opening and closing balances, as well as detailed transaction information. It’s vital to ensure clarity in fee deductions and fund movements to avoid any confusion or disputes. Clear and timely communication with clients regarding their trust funds is essential for maintaining trust and transparency.
4. Withdrawals of Trust Money
âś… Only withdraw for legitimate, documented purposes
âś… Ensure client instructions or invoices support every transaction
âś… Never mix business expenses with trust funds
Withdrawals from trust accounts should only be made for legitimate and documented purposes. Each transaction must be supported by client instructions or invoices. It is absolutely critical to never mix business expenses with trust funds. Maintaining this separation ensures that client funds are protected and used only for their intended purposes. Any deviation from these guidelines can lead to serious regulatory consequences.
5. Authorised Signatories
âś… Maintain a current list of authorised personnel
âś… Notify the Law Society of any changes
âś… Implement strong internal controls to prevent unauthorised access
A current list of authorized personnel who can access and manage trust accounts must be maintained. Any changes to this list should be promptly notified to the Law Society. Strong internal controls must be implemented to prevent unauthorized access and ensure that only authorized individuals can initiate transactions. These controls safeguard client funds and maintain the integrity of the trust account system.
Preparing for a Law Society Trust Account Audit
đź•’ With March 31st just around the corner, now is the time to:
- Finalise all trust account records
- Complete and reconcile all March transactions
- Review client statements
- Check your authorised signatories
- Conduct an internal review against this checklist
As the audit deadline approaches, it’s crucial to finalize all trust account records and complete the reconciliation of all March transactions. Reviewing client statements ensures accuracy and compliance. Verify the list of authorized signatories and conduct a thorough internal review against this checklist to identify and rectify any potential issues before the official audit. Proactive preparation can significantly streamline the audit process and minimize stress.
Common Issues Found in Solicitors’ Trust Account Audits
❌ Missing or incomplete transaction records
❌ Unauthorised trust fund withdrawals
❌ Delayed or missing bank reconciliations
❌ Inaccurate or missing client statements
❌ Mixing client funds with operational funds
Avoid these pitfalls by staying proactive. These issues are easily preventable with good systems—and a reliable audit partner. Common issues found during audits include missing or incomplete transaction records, unauthorized trust fund withdrawals, delayed or missing bank reconciliations, inaccurate client statements, and the commingling of client funds with operational funds. These issues can lead to serious regulatory consequences, highlighting the importance of maintaining meticulous records and robust internal controls.
What to Expect During Your Solicitor’s Trust Account Audit
A Law Society-registered external examiner (like TSP) will review:
🔍 All client ledgers and source documentation
🔍 Your monthly reconciliations and trust ledger accuracy
🔍 Compliance with the Legal Profession Uniform General Rules 2015
Audits generally take 2–4 weeks, depending on complexity, so starting early ensures there’s time for adjustments before submission. During the audit, a Law Society-registered external examiner [TSP] will review all client ledgers and source documentation, assess the accuracy of monthly reconciliations and trust ledgers, and verify compliance with the Legal Profession Uniform General Rules 2015. The duration of the audit typically ranges from 2 to 4 weeks, depending on the complexity of the trust account activities. Starting the preparation process early allows sufficient time for adjustments and ensures a smoother audit experience.
Consequences of Non-Compliance
Failing to comply with lawyers trust account regulations may result in:
⚠️ Disciplinary action by the Law Society of NSW
⚠️ Fines, suspensions, or loss of practicing certificate
⚠️ Reputational damage and loss of client trust
Non-compliance with lawyers trust account regulations can lead to severe consequences, including disciplinary action by the Law Society, fines, suspension or loss of the practicing certificate, and significant reputational damage, resulting in the loss of client trust. These penalties underscore the importance of adhering to all regulatory requirements and maintaining the highest standards of ethical conduct.
Let TSP Handle Your Trust Account Audit This Year
âś… Registered External Examiners with the Law Society of NSW
âś… Experienced with legal trust account audits and law firm compliance
âś… Fast, accurate audits with expert advice to improve your processes
âś… Seamless, stress-free service that ensures your audit is submitted on time
🔍 We go beyond just an audit – we help your firm improve its trust account systems for long-term peace of mind, efficiency and compliance.
đź“ž Call us today: 4926 4155
📧 Email: admin@tspaccountants.com.au
When not at work, Deidre enjoys spending time with her husband and two children, as well as indulging in audiobooks and coffee.
Areas of Expertise:
âś… Business structuring & compliance
âś… SMSF strategy & auditing
âś… Tax planning for individuals & businesses
📧 deidrem@tspaccountants.com.au
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