How many times have you tossed a receipt into your filing system and forgotten to record the expense? Are you guilty of losing track of the time you spend working on a case? What’s the status of those un-cleared funds in your client’s trust account? 

Law firm accounting isn’t exactly straightforward. Nor is it something you went to school for.  

Yet how you handle accounting at your law firm can have major implications for your law firm’s reputation and profitability, especially when you consider the high standards legal professionals are held to for trust accounting. So while your law school curriculum may not have done a deep dive into accounting compliance, you still need to know it—and know it well.   

What is accounting compliance? 

By definition, accounting compliance is the process of ensuring that a law firm’s financial transactions and reporting are both accurate and in line with the current laws and regulations set forth by the IRS, the American Bar Association, and any other governing forces.  

Every law firm in the United States has the responsibility to not only stay compliant with general accounting rules but also to adhere to ethics regulations. These guidelines vary from jurisdiction to jurisdiction, but typically touch on protocols for: 

• Keeping transaction records   
• Holding client funds in a trust 
• Sending notice to clients when funds or property are received 

Why law firms must adhere to accounting compliance rules 

Accounting compliance is not just a mere suggestion. Law firms can face serious consequences if they fail to adhere to the guidelines set in place. This is true regardless of whether the failure to comply was intentional or a result of their negligence. 

The exact punishment for law firms that don’t maintain accounting compliance vary, but can range from significant financial penalties to license suspension. 

That’s not all! 

In some serious cases, a lawyer could risk losing their entire practice as the mishandling of client funds can lead to a complete disbarment. Not to mention, the firm could face even more financial damage if they are faced with lawsuits on behalf of clients who suffered from the neglectful or unintentional mishandling of their funds. Even if attorneys avoid formal penalties, they may still suffer from lasting reputational damage both among clients and colleagues. 

General accounting solutions vs. legal-specific accounting solutions 

With the gravity of legal accounting compliance in mind, you’re probably ready to invest in accounting software. Before you make any purchases, though, let’s press the pause button for a moment. There are significant differences between general accounting solutions and those that are designed with legal clients in mind.  

General accounting solutions 

General accounting solutions can work for many different types of businesses, but law firms fall into their own category of compliance regulation. While general accounting software may work in some situations, it doesn’t offer nearly the same number of specialized tools that law firms usually require. In fact, you might end up paying for many tools that you will never need (and missing out on the ones you do).  

It’s also important to recognize that some of these products may incorporate tax compliance features, but they won’t help with legal-specific needs, such as features that support trust accounting compliance . 

Legal accounting solutions  

Legal-specific accounting tools, on the other hand, have been carefully thought out to meet the unique needs of law firms and solo practices. Not only do they provide tools for tracking time spent on a case, but they also allow lawyers to sync time tracked and matter expenses directly to client invoices for more accurate recordkeeping and payments.  

To top it off, these solutions also have built-in compliance features so that law firms can effortlessly adhere to all of the necessary regulations and guidelines. 

How legal-specific accounting software addresses common compliance challenges  

With the help of accounting software designed specifically for law firms, you can tackle obstacles when it comes to compliance by:  

Boosting resources for firms, no matter their size 

Oftentimes, small firms don’t have the human resources to dedicate to ensuring compliance. In some cases, lawyers have to take on accounting processes themselves. With legal-accounting software, though, your law firm can free up valuable time to focus on other tasks. These tools have automation features that can reduce the need for manual data entry, invoicing, and more.     

Preventing the commingling of funds 

Under no circumstances is a law firm allowed to commingle funds in a client’s trust with another client’s account or the firm’s funds. Failure to comply with this rule can lead to major consequences—but with legal-specific accounting software, law firms can rest easy. These solutions can keep all accounting transactions and reports separate from matter to matter and from account to account.  

Establishing appropriate safeguards for accounting compliance 

Without legal-specific software, law firms lack the necessary safeguards that can protect them from costly mistakes. Legal accounting solutions can put in place multiple safeguards to prevent overdrafts, duplicate data entry, commingling of funds, and so much more. If there are any issues detected, the software will notify the firm so that they can be addressed right away. 

Prevent accounting compliance missteps with CosmoLex 

Are you tired of stressing over your firm’s accounting compliance? Do you lack extra time to keep up with all of your accounting tasks? If so, it’s time to try legal-specific accounting software like CosmoLex. CosmoLex can help you say goodbye to time spent on billing, trust accounting, and bookkeeping with current, compliant, and completely automatic tools such as:  

• Built-in trust accounting. CosmoLex will do all of your trust bookkeeping—automatically, in the background, and in real-time. 
• Audit-ready reconciliations with error-proof software.  

• Comprehensive trust reports so staying on top of your accounting and avoiding compliance issues is easy and automatic.  

Sign up for a free, no-risk trial or schedule a demo today to see for yourself how the all-in-one solution can meet your firm’s needs.