Does your firm use an accounting engagement letter when signing on a new client? This post is a deep dive into why you should.
In this article, you’re going to learn about:
- What an accounting engagement letter for your firm is
- The purpose and need of a quality engagement letter
- Items to put in yours
- What to use to send this valuable document
- Sample sections and template letters
- How a future-ready firm can seamlessly share the engagement letter
Let’s get started.
Table of Contents
- What is An Accounting Engagement Letter?
- Why You Need An Engagement Letter For Your Firm
- Sample Engagement Letter
- Key Terms For Your Engagement Letter
- Software For Your Engagement Letter
What is An Accounting Engagement Letter?
Engagement letters for your accounting or CPA firm is a legal document agreement sent to your clients that describes the overall business relationship with your client, clearly defining:
- Services included and how they’ll play out
- Each other’s responsibilities
- The clearly-defined scope of your work
- Price and payment terms
In addition to ensuring a structured business relationship, these documents play a crucial role in the applicable civil justice system.
Incorporating financial statements adds an extra layer of transparency to the engagement, facilitating a comprehensive understanding of the financial aspects within the context of the legal framework.
Why You Need an Engagement Letter for Your Firm
There are a few reasons why your firm needs an engagement letter in place:
- Prevent Scope Creep: To clearly define the terms, fee structure, and services (ex. provide bookkeeping services) inside your proposal.
- Mitigate Your Firm’s Risk: Avoid clients who might not be a good fit.
- Reinforce Values (and Quality Standards): Sets the tone for the relationship and starts everyone off on level ground.
- Legal Protection: Defines the rights and obligations of both parties, which can be crucial in protecting your firm.
- Facilitates Project Adjustments and Changes: To adapt to evolving client needs without jeopardizing the understanding between your firm and the client.
Sample Engagement Letter
Disclaimer: These example and template sections are simply ideas to get you started and are not to be considered advice in creating an agreement or a legal document.
Consult with your lawyer to ensure that your engagement letter should be in compliance with applicable laws and regulations.
Geo-Specific Engagement Letter Templates
Accounting is a global service, and each geographic area has its own regulations, specific structures, and other differences.
There are also a number of fantastic resources available, showing nuances in their accounting and bookkeeping engagement letter template. Below, I’ve included a couple of sample engagement letters for several countries.
Here are a few, with their corresponding area:
Key Terms For Your Engagement Letter
If you’re reading this far, you likely have an idea about what each component of the contents of engagement letters, as a legally binding document, usually have.
Here are the key terms you need to be familiar with:
- Professional body requirements: This is where you begin to get into details, including the overall purpose of the letter, how you’ll handle disputes, and other key items of your engagement
- Pricing and Services: The agreed-upon fees for the accounting services and the specific services that the accounting firm will provide
- Payment terms: A simple statement of when you collect (e.g. upfront, quarterly)
- Period of engagement: Refers to the duration during which the firm will provide its services
- Termination clause: Defines the circumstances under which either party can terminate the engagement, including reasons such as non-payment or breach of terms.
- Confirmation of terms: This is where the client’s signature is placed, acknowledging they’ve read and understood the contents of your letter
- Unanticipated services: A great tool to explain what happens when work exceeds agreed-upon terms
- Dispute resolution: Includes provisions for resolving disputes, such as through mediation or arbitration, to avoid legal action.
- Price Guarantee: Assurance provided by the firm to the client regarding the agreed-upon pricing for the services
- Renewal terms: Addresses whether there are provisions for the automatic renewal of the engagement beyond the initial period.
NOTE: Some of these components are flexible, others aren’t. For example, every letter should have the confirmation of terms, while others may exclude the company overview.
Software For Your Engagement Letter
Another important aspect you must consider is how you’ll send the engagement letter to your clients.
This isn’t my favorite option, but it is free and easy to set up.
That being said, if you’re going for a high-quality client and you’re building a cloud-based accounting firm, these formats might not be the most ideal.
You can automate the creation of detailed engagement letters through Ignition. Consolidating all related aspects into a single online proposal is possible, which allows for streamlined client communication and agreement.
Note: This is my personal favorite. It’s easy to use, has the most automation capabilities, and helps with 3-tiered pricing models.
PandaDoc serves as a comprehensive solution for accountancy firms seeking user-friendly functionality and efficient document processing.
As a fully-featured document editor, it provides the flexibility to design and customize your accounting and bookkeeping services engagement letters according to preferences before client distribution. Additionally, PandaDoc facilitates the capture of digital signatures for documents.
Ready to Create Your Engagement Letter?
Creating your accounting engagement letter can take a bit of work. But the benefits you’ll receive make that work worthwhile, many times over.
That written agreement will set the expectation for your client, give you a resource to point them back to whenever anything is unclear, and provide a clear look into the type of client you want to attract in your business.
Will it change over time? Yep.
Are there still going to be issues with some clients? Absolutely.
But this is exactly the kind of big step forward that moves you toward a scalable accounting firm.