Law Society Trust Account Examination
The 31 May deadline for NSW law firm trust account audits passed over a month ago. If your firm met it, well done – you can read on for general interest. If your firm did not, you are likely already very aware that you have a problem, and this article is written with you in mind.
As an External Examiner registered with the NSW Law Society, I have seen what happens when law practices fall behind on their trust account obligations. The consequences are real, they escalate quickly, and they are far more damaging to a practice than the inconvenience of getting the audit done on time in the first place.
This article explains what the trust account audit requirement involves for NSW law firms, what happens when the deadline is missed, and – importantly – what to do if you find yourself in that position right now.
The Trust Account Requirement for NSW Law Firms
Under the Legal Profession Uniform Law (NSW) and the Legal Profession Uniform General Rules 2015, any law practice that holds money in trust on behalf of clients is required to maintain a properly managed trust account and have it independently audited each year.
The trust account holds money that belongs to clients – settlement funds, retainers, costs on account, and other amounts received in the course of legal work. This money must be kept entirely separate from the practice’s operating funds, properly recorded, and available to be returned to clients on demand.
The annual external examination (commonly called an audit) provides independent verification that the trust account has been properly maintained throughout the financial year. The report must be lodged with the NSW Law Society by 31 May each year, covering the year ended 31 March.
| The NSW Law Firm Trust Account Audit Deadline Financial year covered: 1 April to 31 March Audit report must be lodged with the NSW Law Society: by 31 May each year The examination must be conducted by an approved External Examiner — not your own accountant or anyone connected to your practice Note: The deadline has already passed for the year ended 31 March 2026. If you have not yet lodged, take action today. |
What Happens When a Law Firm Misses the Deadline?
Missing the 31 May deadline does not go unnoticed. The NSW Law Society monitors compliance with trust account reporting obligations, and firms that have not lodged by the due date will hear about it.
The consequences escalate in proportion to how overdue the lodgement is and whether the practice has a history of compliance issues. In the first instance, a firm may receive a formal written warning. If no action is taken, the matter can be escalated to include:
- Conditions placed on the principal’s practising certificate
- A requirement to undergo a compliance audit at the practice’s own expense
- Referral to the Law Society’s Professional Standards team
- Referral to the Legal Services Commissioner for investigation
- Suspension or cancellation of the practising certificate
- In the most serious cases, referral to the NSW Civil and Administrative Tribunal (NCAT)
For a law practice, the practising certificate is not optional — without it, there is no practice. The willingness of the Law Society to escalate non-compliance to the point of suspension is very real, and it has happened.
| Real Experience: The Call We Received in July The following is based on a real situation handled by TSP. Identifying details have been changed to protect the practice’s privacy. We received a call well into July from a law firm principal who was, to put it plainly, in a state of significant distress. The firm had received a formal warning from the NSW Law Society advising that if their trust account audit report was not lodged immediately, the principal’s practising certificate would be subject to review. The audit was now more than six weeks overdue. The firm’s trust account records were in reasonable condition, but no one had engaged an External Examiner because the deadline had been noted somewhere and then, in the busyness of running a law practice, simply not actioned. TSP was able to step in, conduct the examination on an urgent basis, and get the report lodged with the Law Society. The firm avoided further escalation, but the principal spent several weeks under considerable stress that could have been entirely avoided. The cost of fixing a problem under pressure is always greater than the cost of avoiding it in the first place. That applies to the financial cost, and to the personal cost of operating under regulatory threat while trying to serve your clients. |
If You Have Already Missed the Deadline – What to Do Now
If your firm has not yet lodged its trust account audit report for the year ended 31 March 2026, the most important thing you can do is act immediately. The situation is recoverable, but only if you move quickly.
| Do not wait and hope it goes unnoticed. The NSW Law Society will follow up on missing audit reports. Proactively addressing the situation – engaging an External Examiner and lodging as quickly as possible – is treated far more favourably than waiting until a formal demand is received. If you have already received a formal warning, contact us today. We are experienced in handling urgent trust account examinations and can assist you in moving quickly to resolve the matter. |
The steps to take right now are straightforward:
- Engage an approved External Examiner immediately — do not delay waiting for a more convenient time
- Gather your trust account records: bank statements, trust ledger, receipt and payment records, and bank reconciliations for the full year ended 31 March 2026
- Advise the External Examiner of the urgency and confirm they can complete the examination promptly
- Once the report is completed, lodge it with the NSW Law Society without delay
- If you have received a formal warning or compliance direction, consider seeking advice on how to communicate proactively with the Law Society about the steps you have taken
TSP is an approved External Examiner with the NSW Law Society. We have experience in both routine trust account examinations and urgent situations where a firm needs to move quickly to meet its obligations. We can be engaged remotely and work with law practices anywhere in NSW.
What the External Examination Actually Involves
For principals who have never been through the process, or who have inherited trust account responsibilities without a clear understanding of what the examination covers, it helps to understand what the External Examiner is actually looking at.
The examination covers the full financial year from 1 April to 31 March and includes:
- Trust receipts and disbursements — confirming all money received and paid out has been properly recorded
- Bank reconciliations — confirming the trust account balance matches the actual bank balance at each required reconciliation point throughout the year
- Individual matter ledgers — confirming the correct amount is held for each client matter and that no matter is in debit
- Authorisation for payments — confirming that disbursements from the trust account were properly authorised
- Controlled money accounts — if the practice maintains controlled money accounts, these are also examined
- Transit money — checking that any money held in transit has been dealt with correctly
- Trust records and systems — confirming the practice’s systems and processes meet the requirements of the Legal Profession Uniform General Rules
If the External Examiner identifies any irregularities, these are noted in the examination report. Certain types of irregularities — particularly those involving a deficiency in the trust account — must be reported to the Law Society regardless of the cause. This is why maintaining accurate records throughout the year matters so much: an irregularity identified after the fact is far harder to explain than one that was caught and corrected in real time.
Keeping Your Trust Account in Good Order Throughout the Year
The best time to start thinking about your trust account examination is not in May. It is at the beginning of the financial year, and consistently throughout the twelve months that follow.
Law practices that experience smooth, straightforward examinations year after year tend to share the same habits:
- Monthly trust account reconciliations are completed on time and the workings are retained
- Matter ledgers are kept up to date and reviewed regularly for any unusual balances
- Payments from trust are only made when properly authorised and are recorded promptly
- Unclaimed trust money is identified and dealt with according to the correct statutory procedure
- The principal or practice manager reviews the trust account position regularly — not just at examination time
- An External Examiner is engaged and booked in well before the 31 May deadline
None of these practices require significant time or resources. What they require is consistency. A trust account that is well maintained throughout the year takes a fraction of the time to examine compared to one where records need to be reconstructed or reconciled under pressure.
Why TSP for Your Law Firm Trust Account Examination?
TSP Accountants & Business Advisors has been serving the legal profession across NSW for many years. Director Deidre Molloy holds an appointment as an External Examiner with the NSW Law Society, bringing specialist knowledge of the requirements under the Legal Profession Uniform Law and the associated rules.
We understand the unique obligations of law practices and work efficiently to complete examinations with minimal disruption to the firm. For practices based in Sydney or other parts of NSW, our examinations can be conducted remotely, making the process as straightforward as possible regardless of where you are located.
If your examination is already overdue, please contact us today. We will not judge the situation — we will simply help you resolve it as quickly and professionally as possible.
| Need an urgent trust account examination? If your law firm has missed the 31 May deadline and needs an External Examiner urgently, contact TSP today. Phone: (02) 4926 4155 | Email: ad***@****************om.au We work with law practices across NSW, including Sydney, and can complete examinations remotely. |
Frequently Asked Questions
Q: What is the deadline for NSW law firm trust account audits?
The External Examiner’s report must be lodged with the NSW Law Society by 31 May each year. The examination covers the financial year from 1 April to 31 March. If 31 May has already passed and you have not yet lodged, you should engage an External Examiner immediately.
Q: What is an External Examiner and how is it different from an accountant?
An External Examiner is a person specifically approved by the NSW Law Society to conduct trust account examinations for law practices. The role requires specific knowledge of the Legal Profession Uniform Law and associated rules. Not all accountants are approved as External Examiners — the appointment requires relevant expertise and Law Society registration. Deidre Molloy at TSP holds this appointment.
Q: Can our own firm’s accountant conduct the trust account examination?
No. The examination must be conducted by an independent External Examiner who has no connection to the practice. Your regular business accountant, if they provide accounting services to the firm in other capacities, cannot conduct the trust account examination. Independence is a fundamental requirement of the process.
Q: What happens if the External Examiner finds a problem with our trust account?
The External Examiner is required to report certain types of irregularities to the NSW Law Society regardless of the cause or explanation. A deficiency in the trust account — where the bank balance is less than the total of client ledger balances — is a mandatory reportable matter. Other irregularities may be noted in the report with an explanation. This is why it is important to ensure your records are in order before the examination, rather than hoping issues will not be identified.
Q: We have already received a formal warning from the Law Society. What should we do?
Engage an External Examiner immediately and lodge the examination report as quickly as possible. The Law Society’s escalation process moves faster once a formal warning has been issued. Do not wait. If you have already received a warning, contact TSP today — we have experience handling urgent examinations and can assist you in moving quickly to resolve the matter before it escalates further.
Q: How long does a trust account examination take?
The duration depends on the size of the practice, the volume of trust transactions, and the condition of the records. For a small to medium practice with well-maintained records, the examination can typically be completed within a few days. Practices with high transaction volumes or incomplete records will take longer. This is another reason to engage your External Examiner early — rushing an examination under deadline pressure is not the ideal conditions for either the examiner or the practice.
Q: Does TSP provide trust account examination services to law firms outside Newcastle?
Yes. TSP provides External Examiner services to law practices across NSW, including Sydney-based firms. A significant proportion of our examinations are conducted remotely, meaning geography is not a barrier. If you are a law practice anywhere in NSW that needs an External Examiner, we can assist.
Q: Is a solicitor trust account audit the same as a real estate trust account audit?
No. Both involve the independent examination of trust accounts, but they are governed by entirely different legislation and regulated by different bodies. Law firm trust accounts are governed by the Legal Profession Uniform Law and regulated by the NSW Law Society, with a 31 May deadline. Real estate agent trust accounts are governed by the Property and Stock Agents Act 2002 and regulated by NSW Fair Trading, with a 31 July deadline. TSP provides auditing and examination services for both.
General Information Disclaimer
The information in this article is general in nature and does not constitute legal or professional advice. Trust account obligations for NSW law practices are governed by the Legal Profession Uniform Law (NSW) and the Legal Profession Uniform General Rules 2015. Requirements may vary depending on the structure and circumstances of your practice. TSP Accountants & Business Advisors recommends seeking specific advice in relation to your obligations.
| Need a trust account External Examiner for your law practice? Contact TSP Accountants & Business Advisors today. Phone: (02) 4926 4155 Email: ad***@****************om.au |
