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A trust account audit from your law society is not an annual performance review. It is a technical examination of your records against very specific rules, and small firms that are not prepared tend to find the experience stressful in ways that are entirely avoidable. Being audit-ready does not require extra work during the audit. It requires ordinary work done properly all year.
This checklist covers what auditors look for and what you need to have in order before anyone knocks on your door, or emails your practice address. Provincial rules vary in their specifics, so treat this as a framework and verify the particulars against your own law society's requirements.
What Auditors Are Actually Checking
Trust audits are not primarily looking for theft, though that is what people fear. They are checking whether you followed the procedural rules: proper authorization before disbursing, timely deposits, accurate records, bank reconciliations that match, and client ledgers that add up to what is in the bank. Most deficiencies found in routine audits are bookkeeping failures, not dishonesty. The record did not match the bank. The reconciliation was late. The client ledger was not maintained separately. These are fixable problems, but they create serious headaches if you are trying to fix them during an audit.
Note. "Audit-ready" means your records are accurate and complete today, not that you could make them accurate if given two weeks. Auditors can and do ask for records as of a specific date, and you need to produce them promptly. If your reconciliation is three months behind, that is already a finding.
The Pre-Audit Checklist
1. Trust Bank Reconciliation
Your monthly trust reconciliation must be completed, dated, and signed off within a reasonable time after month-end, typically by the 25th of the following month in most jurisdictions. Auditors will ask for the last 12 to 24 months. Each reconciliation must show the bank balance, the total of all client ledger balances, and a confirmation that those two numbers match. If they do not match, you have a deficiency until you find and correct it. Do not leave unexplained differences sitting in your records.
2. Client Trust Ledgers
Every client with funds in trust must have a separate ledger showing all receipts, disbursements, and the current balance. The running total must be current and must never show a negative balance, not even briefly. An overdrawn client ledger, even one caused by a timing difference, is a trust shortage. Check your ledgers against current balances before any audit period.
3. Trust Account Journal
Every transaction that touches the trust account must be recorded in a trust journal with the date, amount, direction (receipt or disbursement), client matter name, and a description of the purpose. "Various" or "as per instructions" are not adequate descriptions. The journal must be maintained in real time, not reconstructed. This ties directly back to the kind of step-by-step reconciliation discipline that prevents surprises at audit time.
4. Source Documents
Every receipt and disbursement must be backed by a source document: a deposit slip or confirmation for receipts, a cancelled cheque or payment record for disbursements, and a written direction from the client before any disbursement of their funds. Written directions do not need to be elaborate, a signed direction or a clear email from the client authorizing the specific disbursement will do, but they must exist and you must be able to produce them.
5. Remittances and Compliance Filings
Your law society may require periodic reporting on your trust account, a trust safety report or similar filing. Know when yours is due and keep a copy of the most recent submission. Auditors will check that filings were made on time.
Tip. Run a "ghost audit" on your own files once a year. Pull the last 12 months of reconciliations, pick three client matters with trust activity, and trace every transaction from the bank statement through the journal to the client ledger and back. If you find a gap in that chain, find and close it before anyone else does.
6. No Commingling
Fees earned and general business funds must never sit in the trust account, even overnight. If you have received a retainer that covers both trust funds and an advance on fees, split them at the point of receipt or within the period your law society allows. Similarly, do not use trust funds to cover a business expense "temporarily," even if you plan to reimburse immediately. That practice is commingling and it is one of the most serious findings an auditor can make.
7. Unclaimed Trust Balances
Client matters that closed years ago may still have small balances sitting in trust. Most law societies have rules about how long you may hold these before they must be paid out or, if the client cannot be located, handled through the law society's unclaimed funds process. Go through your closed matter list annually and address any residual balances. A dozen $50 balances from matters closed in 2018 is a finding waiting to happen.
Practice Management and Record Quality
The firms that consistently pass audits cleanly are not the ones with the most sophisticated systems. They are the ones whose ordinary daily practice keeps records current. A retainer goes in, the client ledger is updated the same day. A disbursement goes out, the direction is on file and the ledger is updated before the end of the week. The month-end routine is followed every month without exception, including the months when the docket is heavy and everyone is tired.
Practice management software that integrates billing and trust ledgers, like A1 CMS, reduces the risk of transcription errors and makes the reconciliation process faster because the journal entries are tied to the same transactions as the invoices. But the software does not replace the discipline of reviewing the output for accuracy. A reconciliation that runs itself is still wrong if someone posted a payment to the wrong client matter.
If the Auditor Finds Something
Most audit findings are resolved with an undertaking to correct and a follow-up inspection. Cooperate fully, fix what is broken, and do not treat a deficiency notice as an adversarial proceeding. The law society's practice advice staff exist precisely to help you understand what went wrong and how to correct it. Call them if you are not sure what a finding means or what the correction should look like. See trust accounting basics and the full billing and trust category for more on building a practice that stays clean between audits.
Audit readiness is not a project you finish. It is a posture your practice maintains. The checklist above is not something you run before an audit, it is a description of what your records should look like every single month, because the month the auditor happens to pick could be any of them.
