A well-crafted engagement letter can help your firm establish credibility and build trust with potential clients. It demonstrates that you take your work seriously and are committed to delivering high-quality services. This document serves as the cornerstone of any successful client relationship, outlining the terms and conditions of the services you will provide. Additionally, an engagement letter provides clarity around expectations and deliverables, ensuring that both parties are on the same page from day one.

But beyond its practical benefits, an engagement letter is also a reflection of your firm’s brand and reputation. A polished document shows attention to detail and professionalism – qualities that clients value when selecting an accounting partner.

In this article, we will share some best practices and a sample template for creating a professional engagement letter for accountants that can help you streamline your process and improve client relationships.

What is an accounting engagement letter?

An accounting engagement letter is a written agreement between an accountant and their client. It outlines the terms and conditions of the services to be provided by the accountant, including the scope of work, fees, deadlines, and responsibilities of both parties. 

The purpose of this letter is to establish a clear understanding of the expectations for both parties involved in the engagement.

One of the key benefits of an accounting engagement letter is that it helps to avoid misunderstandings or disputes between the accountant and the client. Outlining all aspects of the engagement in writing it leaves less room for confusion or misinterpretation regarding what services will be provided and how they will be delivered. Additionally, it can help protect both parties legally if any issues were to arise during or after the completion of the work.

Why should accounting firms always have an engagement letter?

This document serves as a form of legal protection for both parties in case any disputes may arise. 

Can verbal contracts be legal? The answer is yes – verbal contracts can be binding and enforceable by law.

However, it’s important to note that while verbal contracts are recognized by law, they have their limitations. Unlike written contracts, verbal agreements do not provide tangible evidence of the agreement made between two or more parties. In cases where there is a dispute over what was agreed upon verbally, it becomes difficult to prove the terms of the agreement without any physical record or documentation.

An engagement letter has significant benefits besides legal requirements:

It sets expectations and helps avoid scope creep

Firstly, an engagement letter clearly defines the scope of work and expectations between the client and the professional. It lays out specific details on what tasks will be performed, timelines for completion, and fees associated with the job. This helps avoid any misunderstandings or miscommunications down the line.

It establishes a level of responsibility

Secondly, an engagement letter establishes a level of accountability for both parties involved. By signing this document, clients acknowledge that they understand what they are paying for and what results can be expected from their service provider.

What to include in your accounting engagement letter?

To ensure that your letter is comprehensive and effective, the following are the main sections that you should include:

• Cover Letter/Purpose of the letter
• Expectations
• Responsibilities
• Service details
• Terms

Fresh Proposals- engagement letter software, has made it easy for you. All you have to do is grab an accounting engagement letter template from our template library where you will find a bunch of accounting-related engagement letters, agreements, and much more. 

Having said that, every client and project will be unique. So we suggest you seek professional advice before putting them to use.

Here are some of the most important things you must include in your accounting engagement letter:

Cover letter

The first thing that should be included in an accounting engagement letter is a brief summary and a clear list of the services that you will be providing. 

This includes information on what specific work you will perform for your client, how often this work will take place, and what type of reports or deliverables they can expect from you. It is also important to include details about who will be the point of contact for the engagement.

Expectations

The Main expectations include

• Communication: how often meetings will be held and in what format (in person or remote), who should be involved in these meetings from both sides etc.
• Scope of work: it is essential to specify the scope of work that will be provided by the accountant. This includes outlining what services will be performed, deadlines for completion, and any limitations or exclusions related to those services.  
• Fees and payments: Outline your fee structure clearly, whether hourly or fixed-priced-based charges for specific services rendered. Then, detail all the payment terms such as payment deadlines and penalties for late payment.

In the future, possible misunderstandings can be avoided by outlining mutual expectations.

Responsibilities

Both the client and service provider have responsibilities when it comes to an accounting engagement letter. And it is crucial to specify such obligations in an engagement letter. The most likely ones are:

• providing accurate information about their financial situation and ensuring that all necessary documents are provided in a timely manner
• providing all necessary details so that we can complete the project within the specified deadline
• communication regarding any changes or discrepancies in financial data
• keeping track of every work that has been done and making it available to the client upon request
• reporting on the progress of all the work
• maintaining records in accordance with the Data Protection Act

If you spend the time to clearly define responsibilities, your entire working relationship with the client will be transparent and predictable over the course of your collaboration.

Service details

An engagement letter out the terms and expectations of the accountant-client relationship, including fees, timelines, and deliverables. However, failing to provide enough detail in this letter can lead to misunderstandings and disputes down the line.

One way to prevent these issues from arising is by including detailed information regarding the accounting services offered in the engagement letter. 

This includes defining various accounting services details such as. 

• Analyzing the company’s cash inflows and outflows
• Providing budget allocation options
• Developing a comprehensive risk management strategy
• With integrated business planning, we will help you improve your profitability
• Organizing and maintaining financial records

The service details should also include financial statements that will be prepared or reviewed, what accounting software will be utilised, and how often meetings will occur between client and accountant. By doing so, both parties are on the same page as to what services will be provided and what they can expect throughout their business relationship.

In addition to detailing specific accounting services offered in an engagement letter, it’s also important for accountants to clarify any limitations or exclusions that may exist.

Terms and limitations

You should consider adding some (or maybe all!) of these to your letter:

• Disclaimer that states the accountant will carry out his or her responsibilities to the best of their abilities. 
• Timelines or deadlines for submitting information
• Agreed-upon fee and the way it will be paid.
• Record retention policy (how long the accounting firm will retain the information related to the work)
• Fees policy (penalties and charges for late payments)
• Communication protocols
• Confidentiality agreements
• Service limitations; by explicitly stating what services will be performed and what limitations apply, you can avoid disagreements later on. For example, if a client assumes that you will provide tax planning advice when it was never agreed upon in the engagement letter, they may hold you responsible for any losses incurred as a result. However, if your engagement letter clearly states that tax planning advice is not part of the service being offered, then you have provided them with sufficient notice of limitation.

Final thoughts

In conclusion, accounting firms should always have an engagement letter in place to ensure that their clients understand the scope of services they will provide, their fees, and any other terms of the engagement. 

It is also important that the engagement letter is reviewed and updated regularly to reflect changes in regulations or the nature of the client’s business.