As an accountant or bookkeeper, your relationship with your clients is built on trust and professionalism. And one of the most important documents that establish this relationship is the engagement letter. The engagement letter outlines the terms and conditions of your services to your clients, including the scope of work, fees, and responsibilities.

It’s easy to overlook the importance of drafting a well-crafted engagement letter, but doing so can be detrimental in various ways. A poorly written engagement letter could lead to misunderstandings between you and your client regarding what services are included or excluded from their agreement with you. It could also expose you to potential liability if there are any disputes about fees or services rendered.

In this article, we will discuss three steps that every accountant or bookkeeper must take to create a perfect engagement letter.

1. The basics that any engagement letter should cover: 

If you are a professional who provides services to clients, an engagement letter is a crucial document that outlines the scope of work and expectations for both parties. It serves as a contract between you and your client, so it’s important to ensure that all necessary details are included. Here are some basics that any engagement letter should cover:

Identify the client

First and foremost, it is important to state who your client is in the engagement letter clearly. This includes their full name, address, and contact. information. 

If you are working with a business entity rather than an individual client, make sure to include their legal name and any relevant details such as their corporate structure or ownership information. This will help ensure that there is no confusion about who exactly you are working with.

Scope of work

Firstly, describe the services you will provide in detail. This includes the specific tasks you will complete, timelines for completion, and fees charged for each service. Be sure to outline any limitations or exclusions in your scope of work.

Confirm your fees and fee structure

Explain the terms and conditions of payment clearly. This should include how much is due upfront or upon completion of services rendered, accepted forms of payment such as checks or credit cards, and late payment fees if applicable.

Client responsibilities

As an accountant, you need to ensure that your clients understand their role in the accounting process. One way to do this is by including client responsibilities in your accounting engagement letter. This document outlines what each party can expect from the other during the engagement and helps set expectations for a successful partnership.

Be specific when outlining the client’s responsibilities. For example, you may ask them to provide all necessary financial documents on time, respond to queries promptly, and maintain accurate records throughout the year. 

By doing so, you can avoid potential misunderstandings down the road and ensure that both parties are on the same page from day one.

Include timeframes and deadlines

The timeframe should include important dates such as when work will commence, specific milestones throughout the project, and when the final deliverables will be submitted. 

Including timeframes and deadlines in your accounting engagement letter can also help establish a sense of accountability between yourself and your client. Both parties understand exactly what needs to be done by certain dates which ultimately leads to greater transparency in communication.

Engagement clauses

Include clauses outlining confidentiality agreements, record retention policies, indemnification clauses,  jurisdiction, money laundering clause,s and limitation of liability.

Term and termination

One key element that should always be included in an accounting engagement letter is a termination clause. This clause outlines what happens if either party decides to end the relationship before the work has been completed. It can specify whether or not any fees will be refunded and under what circumstances this might occur.

It’s also important to include specific terms in your engagement letter that address how disputes will be resolved if they arise during the course of your working relationship.

2. Additional tips on drafting your engagement letter:

After going through what really goes into an ideal engagement letter, let’s discuss the “how”- how can you put the finest work approach into practice to get the most from your engagement letter?

Have an open conversation with your client

As a professional in the accounting industry, drafting an engagement letter is one of the primary steps to formalize your relationship with a client. However, before you take that step, it’s essential to have an open conversation with them twice. The first conversation should be aimed at understanding their needs and expectations. 

This initial discussion allows you to ask important questions such as what services they require, how they prefer information presented and how often they expect updates from you. With this information in hand, you are better equipped to tailor your services to their specific needs.

The second conversation should take place after the engagement letter has been drafted but before it’s signed. This meeting serves as a final check-in where any last-minute questions or concerns can be addressed. This ensures that both parties have clarity on the terms of service and can proceed confidently knowing everyone is on the same page.

Don’t start from scratch

You don’t need to start from scratch when crafting an engagement letter. In fact, there are plenty of templates and example letters available online that can make the process much easier.

Using an engagement letter template not only saves time but also ensures that you’re covering all necessary aspects of the engagement agreement. Fresh proposals – engagement letter software offers a wide range of templates that you can customize to fit your specific needs and maintain a professional tone and structure.

Additionally, using a template or example letter can be beneficial for clients as well. It provides them with clear expectations and helps avoid any misunderstandings down the line. Overall, taking advantage of these resources can save you time and effort while ensuring a successful client relationship.

Have an attorney review the letter

Drafting an engagement letter can be a complicated process, especially when it comes to compliance with laws and regulations.

This is where having an attorney review your engagement letter can be invaluable. A lawyer can help you ensure that your engagement letter complies with all applicable laws and regulations, including state bar rules, ethics rules, and fiduciary duties. They will also make sure that your engagement letter includes all necessary provisions to protect both you and your client.

Moreover, engaging a lawyer to review your engagement letter can save you time and money in the long run. By identifying potential issues upfront, you can avoid costly litigation or disputes down the line.

3. Using your engagement letter as a weapon in the fight against scope creep

Scope creep can be incredibly frustrating for any business owner, particularly those who provide professional accounting services. 

Despite efforts to establish clear boundaries for the services, clients may try to request additional work or changes in scope that weren’t included in the original agreement. This type of scenario can lead to difficult conversations and potentially tarnish your reputation as a reliable service provider.

However, there is a way to fight against scope creep and avoid these scenarios altogether: by using your engagement letter as a weapon. 

An engagement letter is essentially an agreement between you and your client that outlines what services will be provided and under what conditions. By taking the time to draft this document carefully and explicitly outlining what is included (and excluded) from your services, you have ammunition against any attempts at scope creep down the road.

Conclusion

Writing a clear and concise engagement letter is crucial for setting up a successful working relationship between parties. By taking on board these three steps, accountants and bookkeepers should be able to write the ideal engagement letter that benefits all involved parties.