The importance of engagement letters for accountants and advisors

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Discover how engagement letters help both accountants/advisors and clients when doing business.

Any accountant or advisor should know that engagement letters form a critical part of an effective client relationship.

Engagement letters set the overall tone for the relationship, provide clarity on scope, and confirm expectations for both the advisor and the client. A robust engagement process can be an early determining factor of a successful — or not-so-successful — working relationship. Advisors who don’t pay attention to this process are at risk of overservicing clients, and exposing themselves to a range of other challenges. Let’s take a closer look.

What’s in an engagement letter

A new or updated engagement letter provides the perfect platform to review fees, understand whether expectations have been met, and stay ahead of any changes to clients’ circumstances that would enable you to add additional value.

Both the APESB, the Tax Practitioners Board and professional bodies provide guidance surrounding what should be included. At a bare minimum, engagement letters should include:

  • The services you’re expected to provide and the capacity in which they’re provided

  • How often they will be provided

  • Client expectations – what the client wants and expects you to do

  • Your fees and details on client billing (for example, a one-time fee or recurring billing)

  • Details of your deadlines

  • What is not included in the engagement

Practice Ignition helps thousands of accounting and bookkeeping firms send professional looking, up-to-date proposals and engagement letters in a matter of minutes. By signing up for a 14-day free trial, you can access our free, legally vetted engagement letter template to use in your client proposals.

When to issue an engagement letter

We strongly recommend that accountants review and re-engage clients annually, or whenever there is a change to the scope of services provided, as referenced by the Tax Practitioners Board TPB PN3/2019 and Accounting Professional and Ethical Standards (APES) 305 “Terms of Engagement.” Industry guidance surrounding engagement letter inclusions is updated regularly — annual “re-engagements” ensure you are mitigating your risk in the event of a dispute with the most up-to-date terms.

Engagement letters now include provisions around offshore teams and cloud technology.

Engagement letters and outsourced accounting

Accounting, along with IT, is the most commonly outsourced business process, so it should come as no surprise that provisions surrounding offshore teams are now included in engagement letter guidelines.

In fact, a new subsection within APES 305 “Terms of Engagements” (which accountants must adhere to) dictates that firms must include details in their engagement letter when they are using an outsourced service or cloud computing provider.

Disclosing the nature of the offshore team, as well as any cloud technology utilised by the firm, should be a key part of the engagement letter. This means updating your engagement letter templates if you implement new technology solutions in your practice.

Conclusion

It’s clear to see how having an engagement letter completed at the outset of a client relationship can prevent all sorts of snags, confusion, and miscommunication in the future. And along with mitigating the risk of disputes, they offer transparency, confidence, and clarity in the client relationship.

Creating engagement letters can be an easy process, too. You can easily send professional-looking, digital proposals with compliant, up-to-date engagement letters to clients. All you have to do is start your free, 14-day trial with Practice Ignition today to access the free industry templates.

Then, when you’re ready, sign up to receive a free accounting outsourcing strategy and plan and discover the process that has enabled more than 750 firms worldwide to focus on scale, growth and client service.

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