If you have a client that you have worked with often as an accountant, it is inevitable that you know one or two of the ways they tend to behave. Although you can build a friendship and trust with your client, it is best if your professional relationship is always clear. Therefore, it’s a good idea to have an engagement letter in place so that you can create a foundation of trust and professionalism, contributing to a successful collaboration.

An accounting engagement letter serves as a crucial document for establishing a clear understanding between the client and the accountant regarding the scope of services, terms, and conditions. 

To ensure successful collaboration, there are specific do’s and don’ts that both parties should follow. Adhering to these guidelines can help set clear expectations and avoid potential misunderstandings or conflicts during the engagement. 

By taking a proactive approach, an accountant can effectively communicate their responsibilities and maintain a positive relationship with clients throughout the engagement process.

In this post, we will discuss the Do’s and Don’ts of Accounting Engagement Letter. But first, let’s start from the basics.

Why should you always have an accounting engagement letter?

Although verbal agreements are legally enforceable, they can be difficult to prove in court, especially if there are no witnesses or written documents to support the agreement. It is always best to have a written contract in place to avoid any potential legal disputes.

An engagement letter serves as a critical tool in establishing a clear understanding between a client and a service provider. By outlining the terms and conditions of the working relationship, it ensures that both parties are on the same page. A well-crafted engagement letter can provide legal protection for both parties should any disputes arise. 

Client relationship horror story without an engagement letter

Engagement letters help reduce the risk, can cut professional liability insurance (also known as E&O insurance) rates, and are commonly demanded by insurers.

The most terrifying aspect due to a lack of formal client engagement is that you could find yourself in a precarious position, or in a full-blown legal battle that could result in costly financial consequences and damage to your reputation. Every one of these issues can be avoided by establishing the terms and conditions or guidelines with a solid engagement letter,

Do’s and don’ts with your engagement letter 

Here is a simple guide on what to do and what not to do when writing your accounting engagement letter:

6-step guide for what to include in your engagement letter

Step 1: Recognition

You should carefully identify who will use your services. It’s essential to clarify whether it’s a specific individual, group, entity, or part of one. Along with that, you should also introduce your firm.

Step 2: Services to be provided

It is important to communicate clearly and concisely with clients, avoiding any language that may be difficult for them to understand. By outlining the scope of services in an engagement letter, clients can have a clear understanding of what they can expect from the relationships you can avoid scope creep.

Step 3: Period of engagement

The period of engagement in an engagement letter plays a crucial role in establishing the timeline and expectations for both parties involved. It outlines the specific duration within which the agreed-upon services will be provided by one party to the other.

In addition, this period ensures that both parties are aware of their responsibilities, deadlines, and any milestones that need to be met throughout the engagement. Furthermore, by clearly defining the length of the engagement, it facilitates transparent communication and smooth collaboration between both parties, reducing the possibility of any misunderstandings or conflicts in the future.

Step 4: Highlight the fee schedule

In the engagement letter, it’s crucial to outline the fee schedule for your accounting services, ensuring complete transparency and avoiding potential misunderstandings. This detailed information enables our clients to fully understand the costs associated with each aspect of our work together. 

In addition, it helps establish trust and fosters a healthy working relationship, as each party is aware of the financial expectations from the outset. By incorporating a clear fee schedule, you can focus on delivering quality services while ensuring our clients are confident in the value they receive.

Step 5: Responsibilities

In order to establish a clear understanding between our firm and the client, it is essential to outline the responsibilities of both parties in an engagement letter. This document serves as a foundation for successful collaboration, ensuring that expectations are managed and agreed upon from the beginning. 

As the service provider, your primary responsibility is to deliver high-quality, timely work that meets the client’s specific objectives. Conversely, the client is responsible for providing crucial information and guidance throughout the process, enabling you to achieve the desired outcomes effectively and efficiently.

Step 6: Confirmation of terms

In order to solidify your professional relationship and ensure a clear understanding of the project scope, it is crucial that both parties confirm the terms outlined in the engagement letter. 

This document serves as a formal agreement between the service provider and the client, detailing the specific deliverables, timeframes, and payment terms. Establishing such a foundation is essential for fostering a successful partnership and mitigating potential miscommunications or disputes down the line. 

By signing the engagement letter, both parties signify their commitment to uphold their respective responsibilities and work collaboratively to achieve the desired objectives.

What to avoid when writing an accounting engagement letter

Below are some common mistakes to avoid in bookkeeping engagement letter:

Avoid using generic language

To avoid disagreements between you and your client, it is important to use clear and specific language when describing your job responsibilities and tasks. This will help ensure that both you and your client have a clear understanding of what is expected.

Stop using jargons

In crafting an effective engagement letter, it is essential to prioritize clear and concise communication. One way to achieve this is by avoiding the use of jargon that may confuse or alienate the recipient. 

By using simple, straightforward language, you can ensure that all parties involved in the agreement have a comprehensive understanding of the terms and expectations. This approach not only fosters a positive working relationship but also establishes an atmosphere of trust and transparency throughout the engagement.

Do not market your business

While the letter serves as a formal introduction and outlines the scope of work, it is not the appropriate platform to market one’s business. Instead, the engagement letter should emphasize the value and benefits the client will receive from the proposed collaboration. 

By keeping the contents relevant and tailored to the client’s specific requirements, it ensures a strong foundation for a successful professional relationship.

Do not make your clients use the wet signature

It is not necessary nor practical to sign a document physically. If you require clients to print and sign your letter, they will definitely delay doing it.

To avoid this delay, consider offering an electronic signature option or sending the letter via a secure electronic platform that allows for easy and immediate signing. This will ensure timely delivery and reduce the risk of further delays.

One of the most significant advances in this journey of digital transformation is the use of electronic signatures. Electronic signatures are a revolutionary technology that is transforming the way documents are signed and approved, replacing the traditional process of printing, signing, and scanning physical documents.

Conclusion

Crafting a well-structured accounting engagement letter is vital for establishing a strong foundation for a successful client-accountant relationship. By adhering to the do’s and avoiding the don’ts outlined in this blog post, you can ensure that your engagement letters are clear, comprehensive, and legally compliant. Remember, open communication and transparency are key to fostering trust with your clients, so take the time to explain the terms and conditions thoroughly. With a carefully drafted engagement letter, you can embark on a professional journey that benefits both your accounting practice and your client’s financial success.