You know the client who continually calls with a new accounting emergency or a new set of accounting problems to deal with. Or the business client who has the idea of making a unique investment that requires extensive tax projections, hours of research and complicated calculations It could be one of the refinancing promoters who demands updated financial statements multiple times weekly as they find out the best rate.
What is even more frustrating, this client doesn’t understand the disruptions s/he is causing to your regular work; or worse he doesn’t want to pay for the incremental work you do for him/her.
You may have your reasons and you are not be able to say NO to this client: due to the relationship, account size, future work, etc; since initially you might not have thought that the client would drag you so much. You feel helpless and annoyed.
Mistake happens. We learn from those. You have to prevent such mistake happening again.
Before we get into the details, if someone asks you a question what is an engagement letter, you should be able to answer it in a simple way as
Engagement letter is one such learned way to fend off free-riders and protect your valuable time, prioritize work.
Let’s go back to the basic and look at accounting engagement letters – essential guide.
What is an Accounting Engagement Letter?
Engagement letters are a legally binding document from your accounting firm sent to your clients defines the relationship between the accounting firm and the client.
It is a contract that details the scope of work, billing rates, and any other relevant information about your accounting firm’s engagement with its client. The agreement must necessarily be mutually agreed upon by all involved prior to beginning any work.
A engagement letter needs to be signed by both parties to acknowledge details of the engagement as well as acceptance of the services to be provided and highlight the services be included in the total price. It’s also crucial to incorporate language and highlight the cost, billing of additional services or tools/ products that are not included in the initial agreement.
As an accountant professional, CPA, an engagement letter can help you be aware of your time, resources requires to manage the accounting job. You will have a greater clarity to calculate active revenue, cost and profitability arising from every engagement.
Various types of accounting engagements require signed engagement letters, such as
- Tax engagement letter
- Accounting engagement letter
- Bookkeeping engagement letter
- Audit engagement letter
- CFO engagement letter
- CPA engagement letter
- Payroll engagement letter
- Legal services engagement letter
Accounting engagements must be tailored to each engagement individually. It is possible that you form multiple engagement agreements for a single client.con
You should present the engagement letter once a year to ensure that it has all the information effectively and that the scope of services included correspond to the obligations of the hiring company.
Why engagement letters are important? What purpose does it serve?
While verbal contracts are legally binding, they’re difficult to enforce on paper. Agreeing on something does not guarantee success if it comes to it in court.
The accounting engagement letter is a business contract between accounting firm and its client. It defines the terms of services, responsibilities of each party, obligations, fees structure, payment schedule, service continuation options, legal rights, recourse, etc. Without agreeing to such document, the engagement can run into legal issues.
Engagement letters serve greater purpose, looking at the larger context than merely a legal contract. Let’s look at why engagement letter is important and the purpose it serves.
- Set clear expectations
- Identifies responsibilities
- Prevent scope creep
- Reduce resource & financial risks & protect from liabilities
- Communicate standard quality of service, reliable, mature process
What should an engagement letter include?
Now that you’re reading this far, you have mostly understood the importance & benefits of engagement letters for your accounting practice. Now it’s time to delve into the contents of your engagement letters. Everything that goes into an accounting engagement letter is simply mentioned in here.
It should include following sections
- Cover letter
- Schedule of services
- Terms & condition of engagement
- Payment terms, schedule
- Confidentiality agreement, limitation of liability, etc
- Signature of each party
Automate accounting engagement letters
If you are wondering whether you should automate your accounting engagement letter process: creation, sending, updating, signing, renewing, etc. you should take a look at this ultimate guide to benefits of automating accounting engagement letters. It enlists 7 benefits of automating accounting proposals and engagement letters and illustrates using a case study.
Go a head and take a look at it.
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