What's tested in SQE1 Solicitors Accounts?

Solicitors Accounts (FLK2) tests the SRA Accounts Rules: the distinction between client money and business money, the duty to keep client money safe and separate, recording transactions through double-entry client and business ledgers, the treatment of mixed receipts, interest and disbursements, common breaches of the Rules, and the requirement for an accountant's report.

A firm's client account is overdrawn by £2,000 at the close of business on Thursday due to a bank error that debited a business expense from the wrong account. The bank agrees to correct the error, but the correction will not be processed until Monday. The firm's business account has sufficient funds to cover the shortfall. The COFA discovers the overdraft on Friday morning during a spot check. What must the firm do?

Immediately transfer £2,000 from business account to client account to eliminate the overdraft.

Wait until Monday for the bank to correct its error, as the firm is not at fault.

Immediately transfer £2,000 from business account to client account to eliminate the overdraft.

Report the matter to the SRA as a serious breach of the SRA Accounts Rules.

Record the overdraft in the firm's breach register and monitor until the bank's correction is processed.

Notify all clients whose money is held in client account of the temporary shortfall.

A firm acts for a client in a property purchase. The client transfers £250,000 to the firm to hold pending completion. The firm's bank requires seven days' notice for withdrawals exceeding £100,000 from the client account. Completion is scheduled for next Tuesday, four days away. The firm places the full £250,000 in the client account. On completion day, the firm cannot access the funds in time. What is the firm's position under the SRA Accounts Rules?

The firm has breached the rules by failing to ensure client money was available when required.

The firm has complied, because client money must always be placed in a client account immediately.

The firm has breached the rules by failing to ensure client money was available when required.

The firm has complied, because the bank's withdrawal restrictions are beyond the firm's control.

The firm should have sought the client's written consent to place funds in a notice account.

The firm has breached the rules by not placing the funds in a separate designated client account.

A firm holds £15,000 in its client account for Client A. The bookkeeper mistakenly pays £8,000 from the client account to a supplier for office stationery. The error is discovered the same day. The firm has sufficient funds in its business account to remedy the breach. The compliance officer is advising on the appropriate steps. What must the firm do immediately to comply with the SRA Accounts Rules 2019?

Transfer £8,000 from the business account to the client account promptly, and record the breach in the firm's compliance records; SRA reporting is only required if the breach is serious or cannot be promptly remedied.

Transfer £8,000 from the business account to the client account promptly, and report the breach to the SRA immediately because any withdrawal of client money for an office expense is a material breach requiring mandatory notification.

Transfer £8,000 from the business account to the client account promptly, and record the breach in the firm's compliance records; SRA reporting is only required if the breach is serious or cannot be promptly remedied.

Notify Client A and obtain their consent before making any transfer, because client money cannot be moved without the client's prior authorisation.

Report the breach to the SRA first and await guidance before transferring any funds, to ensure the firm does not compound the error.

Transfer £8,000 from the business account to the client account and immediately instruct the firm's reporting accountant to conduct a full client account audit before any further client transactions are processed.

A firm acts for a corporate client in a commercial lease negotiation. The client transfers £50,000 to cover the firm's fees and disbursements. The firm immediately issues a bill for £30,000 covering work completed to date. It transfers £30,000 to its business account and retains £20,000 in the client account for future work. The engagement letter describes all payments as 'non-refundable retainers'. Has the firm handled the money correctly under the SRA Accounts Rules 2019?

Yes, because the firm issued a bill before transferring the £30,000 to the business account, and the remaining £20,000 is client money that must remain in client account until a further bill is delivered.

No, because the entire £50,000 should have been transferred to the business account immediately upon receipt, as the engagement letter describes the payments as non-refundable retainers.

No, because once any bill has been issued, the firm must transfer all client funds held, including the £20,000, to the business account without delay.

Yes, but only if the client gave prior written consent to the £20,000 being retained in the client account.

No, because money described as a retainer in the engagement letter must be held in a separate designated client account rather than a general client account.

A firm holds £12,000 in client account for Client C in relation to a litigation matter. Client C gives specific written instructions for the firm to pay £12,000 directly from the client account to her barrister as a disbursement on her behalf. The firm has not itself incurred or paid the barrister's fee and is acting purely as the client's agent in making the transfer. Which of the following best describes whether this payment is properly authorised under the SRA Accounts Rules 2019?

Yes, because rule 5.1(b) of the SRA Accounts Rules 2019 permits withdrawal of client money from client account to make a payment to or on behalf of the client, and the written instruction from Client C satisfies that condition.

No, because any disbursement payable to a barrister must first pass through the firm's business account before being forwarded to the barrister.

Yes, but only if the payment relates to the same matter for which the £12,000 is held, which is the sole controlling requirement.

No, because payments to third parties out of client account are never permitted; the firm must invoice the client, transfer funds to business account, and pay the barrister from there.

Yes, but only if the firm obtains a receipted fee note from the barrister within 14 days of making the payment.

SQE1 · FLK2 · Free samples

Solicitors Accounts — free SQE1 sample questions

170 free, worked single-best-answer questions for Solicitors Accounts, shown in the official SRA SBAQ format with the correct answer and a cited rationale. Drill the full bank in timed practice once you’ve worked through these.

Question 1
A firm's client account is overdrawn by £2,000 at the close of business on Thursday due to a bank error that debited a business expense from the wrong account. The bank agrees to correct the error, but the correction will not be processed until Monday. The firm's business account has sufficient funds to cover the shortfall. The COFA discovers the overdraft on Friday morning during a spot check. What must the firm do?
- A.Wait until Monday for the bank to correct its error, as the firm is not at fault.
- B.Immediately transfer £2,000 from business account to client account to eliminate the overdraft.✓ correct
- C.Report the matter to the SRA as a serious breach of the SRA Accounts Rules.
- D.Record the overdraft in the firm's breach register and monitor until the bank's correction is processed.
- E.Notify all clients whose money is held in client account of the temporary shortfall.
Why B is correct
Rule 6.1 of the SRA Accounts Rules 2019 requires firms to remedy breaches promptly by ensuring no money is drawn from client account in breach of the rules. An overdrawn client account is a serious breach regardless of fault. The firm must immediately transfer funds from business account to restore the client account. Option A is wrong because the firm cannot wait for the bank's correction; it must remedy the breach immediately to protect client money, even if the breach was not the firm's fault.
Question 2
A firm acts for a client in a property purchase. The client transfers £250,000 to the firm to hold pending completion. The firm's bank requires seven days' notice for withdrawals exceeding £100,000 from the client account. Completion is scheduled for next Tuesday, four days away. The firm places the full £250,000 in the client account. On completion day, the firm cannot access the funds in time. What is the firm's position under the SRA Accounts Rules?
- A.The firm has complied, because client money must always be placed in a client account immediately.
- B.The firm has breached the rules by failing to ensure client money was available when required.✓ correct
- C.The firm has complied, because the bank's withdrawal restrictions are beyond the firm's control.
- D.The firm should have sought the client's written consent to place funds in a notice account.
- E.The firm has breached the rules by not placing the funds in a separate designated client account.
Why B is correct
Rule 2.3 of the SRA Accounts Rules 2019 requires firms to ensure client money is available on demand unless the client has agreed otherwise. By placing funds in an account with notice restrictions incompatible with the completion date, the firm breached its duty to keep client money accessible. Option C is wrong because the firm is responsible for choosing appropriate banking arrangements. The bank's policy does not excuse non-compliance with rule 2.3.
Question 3
A firm holds £15,000 in its client account for Client A. The bookkeeper mistakenly pays £8,000 from the client account to a supplier for office stationery. The error is discovered the same day. The firm has sufficient funds in its business account to remedy the breach. The compliance officer is advising on the appropriate steps. What must the firm do immediately to comply with the SRA Accounts Rules 2019?
- A.Transfer £8,000 from the business account to the client account promptly, and report the breach to the SRA immediately because any withdrawal of client money for an office expense is a material breach requiring mandatory notification.
- B.Transfer £8,000 from the business account to the client account promptly, and record the breach in the firm's compliance records; SRA reporting is only required if the breach is serious or cannot be promptly remedied.✓ correct
- C.Notify Client A and obtain their consent before making any transfer, because client money cannot be moved without the client's prior authorisation.
- D.Report the breach to the SRA first and await guidance before transferring any funds, to ensure the firm does not compound the error.
- E.Transfer £8,000 from the business account to the client account and immediately instruct the firm's reporting accountant to conduct a full client account audit before any further client transactions are processed.
Why B is correct
**Rule 6.1, SRA Accounts Rules 2019** provides that where client money has been withdrawn from a client account in breach of the Rules, the firm must **promptly replace** the shortfall. The immediate obligation is therefore to transfer £8,000 from the business account to the client account without delay, restoring the client account balance to £15,000. **Why B is correct:** The transfer must happen promptly (Rule 6.1). Good compliance practice—and the firm's obligations under **Rule 8.3** (keeping appropriate accounting records) and its broader duties under the **SRA Code of Conduct for Firms**—requires the breach to be recorded internally. However, there is **no automatic 24-hour or immediate reporting obligation to the SRA** for every breach of the Accounts Rules. Under **Paragraph 3.9 of the SRA Code of Conduct for Firms**, reporting to the SRA is required only where the firm has reasonable grounds to believe there has been a **serious breach** or a **material risk to clients**. A single, promptly corrected, isolated bookkeeping error that causes no client loss is unlikely to meet that threshold, though the firm should document it and keep the position under review. **Why the other options are wrong:** - **A** incorrectly states there is an automatic 24-hour reporting deadline for any breach; no such rule exists. - **C** is wrong: the obligation to remedy the shortfall is the firm's own duty under Rule 6.1 and does not depend on client consent. - **D** is wrong: delaying the transfer pending SRA guidance would prolong the breach and aggravate the firm's position. - **E** is wrong: there is no rule requiring a full audit by the reporting accountant before further transactions can take place following a promptly corrected isolated error. **Key authority:** SRA Accounts Rules 2019, Rules 6.1, 8.3; SRA Code of Conduct for Firms, Paragraph 3.9.
Question 4
A firm acts for a corporate client in a commercial lease negotiation. The client transfers £50,000 to cover the firm's fees and disbursements. The firm immediately issues a bill for £30,000 covering work completed to date. It transfers £30,000 to its business account and retains £20,000 in the client account for future work. The engagement letter describes all payments as 'non-refundable retainers'. Has the firm handled the money correctly under the SRA Accounts Rules 2019?
- A.Yes, because the firm issued a bill before transferring the £30,000 to the business account, and the remaining £20,000 is client money that must remain in client account until a further bill is delivered.✓ correct
- B.No, because the entire £50,000 should have been transferred to the business account immediately upon receipt, as the engagement letter describes the payments as non-refundable retainers.
- C.No, because once any bill has been issued, the firm must transfer all client funds held, including the £20,000, to the business account without delay.
- D.Yes, but only if the client gave prior written consent to the £20,000 being retained in the client account.
- E.No, because money described as a retainer in the engagement letter must be held in a separate designated client account rather than a general client account.
Why A is correct
**Correct answer: A** Under the **SRA Accounts Rules 2019**, the classification of money turns on its nature, not on how it is labelled contractually. Money paid in advance for future fees or disbursements is **client money** (rule 2.1) and must be held in a client account until the firm becomes entitled to it — which occurs when a **bill has been delivered** (or the client has been given a written notification of costs) (rule 4.3). **The £30,000 transfer is correct.** The firm issued a bill for £30,000 before transferring that sum to the business account. At the moment of billing, the firm became entitled to those funds, so the transfer was proper. **The £20,000 must remain in client account.** No bill has been delivered for the remaining £20,000. It therefore continues to be client money and must stay in the client account. The firm has done this correctly. **Why the other options are wrong:** - **B** is wrong: contractual language describing a payment as a 'non-refundable retainer' does **not** change the regulatory classification. The SRA Accounts Rules override such terms; money paid for future fees remains client money until a bill is rendered. (SRA Warning Notice on payment on account of costs, and rule 2.1.) - **C** is wrong: there is no rule requiring the firm to sweep all client funds into business account upon issuing any bill. Only the amount covered by that bill may be transferred. - **D** is wrong: no client consent is required for the firm to hold client money in a general client account in the ordinary course. Written consent is relevant to specific situations such as holding client money in a designated account or making withdrawals before a bill — it is not a precondition here. - **E** is wrong: there is no SRA Accounts Rules requirement that money described as a 'retainer' be held in a *designated* (matter-specific) client account rather than a general client account. Designated accounts are optional arrangements under rule 4.4 and are not mandatory for retainer payments.
Question 5
A firm holds £12,000 in client account for Client C in relation to a litigation matter. Client C gives specific written instructions for the firm to pay £12,000 directly from the client account to her barrister as a disbursement on her behalf. The firm has not itself incurred or paid the barrister's fee and is acting purely as the client's agent in making the transfer. Which of the following best describes whether this payment is properly authorised under the SRA Accounts Rules 2019?
- A.Yes, because rule 5.1(b) of the SRA Accounts Rules 2019 permits withdrawal of client money from client account to make a payment to or on behalf of the client, and the written instruction from Client C satisfies that condition.✓ correct
- B.No, because any disbursement payable to a barrister must first pass through the firm's business account before being forwarded to the barrister.
- C.Yes, but only if the payment relates to the same matter for which the £12,000 is held, which is the sole controlling requirement.
- D.No, because payments to third parties out of client account are never permitted; the firm must invoice the client, transfer funds to business account, and pay the barrister from there.
- E.Yes, but only if the firm obtains a receipted fee note from the barrister within 14 days of making the payment.
Why A is correct
**Correct answer: A** **Relevant rule:** SRA Accounts Rules 2019, **rule 5.1(b)** provides that client money may be withdrawn from client account to make a payment "to or on behalf of the client". Rule 5.3 requires that withdrawals are properly authorised. **Why A is correct:** Client C has given specific written instructions for the firm to pay her barrister directly on her behalf. This is a classic "on behalf of the client" disbursement. The client's written authority satisfies the authorisation requirement and rule 5.1(b) expressly permits this type of withdrawal. The firm is acting as the client's agent; it is not paying its own liability but discharging the client's obligation to her barrister. **Why B is wrong:** There is no rule requiring disbursements to barristers to be routed through the business account first. That would only be required if the firm itself had incurred and paid the liability (making it a firm expense later reimbursed). **Why C is wrong:** While it is correct that money should only be used for the matter for which it is held (a relevant safeguard under rule 5.3), stating it is "the sole controlling requirement" is inaccurate. Proper client authorisation under rule 5.1(b) is the primary gateway condition; the matter-specific requirement is an additional constraint, not the only one. **Why D is wrong:** This overstates the restriction. Rule 5.1(b) expressly authorises payments out of client account to or on behalf of the client where properly instructed. There is no blanket prohibition on direct payment to third parties from client account. **Why E is wrong:** The SRA Accounts Rules 2019 impose no 14-day receipt requirement. This is a fabricated condition with no basis in the rules.

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