How to read and understand the financial accounts of a law firm
Produced in partnership with Robert Mowbray of Taylor Mowbray LLP
How to read and understand the financial accounts of a law firm

The following Practice Management guidance note Produced in partnership with Robert Mowbray of Taylor Mowbray LLP provides comprehensive and up to date legal information covering:

  • How to read and understand the financial accounts of a law firm
  • Why are financial accounts important?
  • What financial statements make up a set of financial accounts?
  • What governs the form and content of financial statements?
  • What do you need to do with the finalised accounts?
  • What does each financial statement tell you?
  • How do you interpret the information in the annual financial statements?
  • Ratios
  • Ratios to assess the availability of cash
  • Ratios to assess the profitability of the firm
  • more

This Practice Note provides information about how to read and understand the financial accounts of a law firm.

Why are financial accounts important?

Law firms need to look at their accounts to see how they are performing and understand what needs to be done to improve performance.

What is available in a set of year-end accounts will depend upon the:

  1. legal constitution of the firm

  2. rules that govern the form and content of the accounts

In addition to year-end accounts, you may elect to produce monthly or quarterly management accounts which should be regularly reviewed. For further information on management accounts, see Practice Note: The importance of good time recording.

What financial statements make up a set of financial accounts?

Every firm needs to prepare a set of annual financial statements that make up the firm’s financial accounts. There are six financial statements potentially available:

  1. profit and loss account

  2. balance sheet

  3. cash flow statement

  4. notes to the accounts

  5. report to members

  6. audit report

What governs the form and content of financial statements?

The accounts of law firms and sole practitioners can look different as the legal constitution of the firm may dictate certain rules governing their format.

Sole practitioners

No rules govern the format of these accounts.

Partnerships

If you are a traditional partnership, the partnership deed might have rules that govern