2017-11-28 00:00:00 Tax Professional English Learn the importance of engagement letters for accountants and get tips on writing effective, useful engagement letters to your accounting... https://quickbooks.intuit.com/ca/resources/ca_qrc/uploads/2017/12/Two-women-in-accounting-office-discuss-engagement-letters.jpg https://quickbooks.intuit.com/ca/resources/pro-taxes/accounting-engagement-letters/ Getting Engaged – Giving Your Accounting and Tax Clients Effective Engagement Letters

Getting Engaged – Giving Your Accounting and Tax Clients Effective Engagement Letters

3 min read

An engagement letter is a letter than defines the relationship between a professional firm such as an accounting firm and a client. According to attorneys and insurance agents specializing in liability, engagement letters can be a powerful tool in fighting an accounting malpractice case, but in spite of that fact, many accountants don’t bother send these letters out. Should you send engagement letters as part of your professional accounting practice? – The answer is absolutely yes.

Defining the Business Contract

Ideally, your letter should reflect the business contract you have made with your client, and if you haven’t created a specific contract, it should outline the main elements that would be included in such as contract, such as the parties involved and services to be provided. You note the client as either an individual or a business entity in the introduction to the letter, and of course, your name or your firm’s name are also part of the letter. Beyond that, the letter should note what services you plan to provide and at what prices.

Avoiding Scope Creep

Scope creep is when a project becomes bigger than you expected and it’s a risk in any industry, including accounting. For example, imagine that you tell a company that you can do tax prep for “x” dollars. Your quote is based on the company having clear, well organized records, but when you start the job, you realize that you’re dealing with unorganized records and piles of receipts. The scope of your project has increased significantly. At this point, you either have to suffer the loss or renegotiate your rates. To avoid these types of situations, it helps to set out clear expectations in your engagement letter.

Setting Expectations

It’s critical to use your engagement letter to set clear expectations about your services. For instance, if you are willing to take a shoebox full of receipts and sort through them by hand, you can include something to that effect in the letter. At the same time, if you’re not willing to do that, and require that receipts be properly organized, your letter should explain that. If you only accept expenses that have already been saved in an app or entered by the client in their accounting software, your engagement letter should mention that as well.

Reducing Risk

All of the above tips help you avoid issues down the road with your client in terms of payment and expectations, but you can also use these letters as a way to reduce your personal risk. For example, if your client has done business in multiple provinces, you need to note that on their federal return. If they have corporate activities in one of the provinces that requires a stand alone corporate return, such as Alberta or Ontario, you also need to take care of that. If the client hasn’t properly notified you of where they do business, you may miss one of those reporting obligations. To protect yourself and your firm in instances like that, you may want to include disclaimers in your letter. A basic disclaimer may state something to the effect of, “This firm’s services only include filing returns in tax jurisdictions where you have informed us that you have earned money or done business. Our services don’t include determining if you need to report in other jurisdictions unless specified in your contract.”

Your Engagement Letter

To make writing engagement letters easier, you may want to look for samples online. You may also want to have a liability attorney look over your letter before you send it, to ensure that it covers the elements you need to avoid professional malpractice suits.

An engagement letter can be an effective and easy way to protect your firm. It also helps to pin down client expectations and ensure your relationship gets off on the right foot, without any misunderstandings.

Information may be abridged and therefore incomplete. This document/information does not constitute, and should not be considered a substitute for, legal or financial advice. Each financial situation is different, the advice provided is intended to be general. Please contact your financial or legal advisors for information specific to your situation.

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