Accounting & Auditing

By Suzanne M. Holl, CPA  

Engagement letters help CPA firms improve their communication with clients, more effectively document engagements, and, as a result, protect the firm from litigation. Engagement letters should be as detailed as possible in describing the nature and extent of the services the firm is being retained to perform.

Similarly, engagement letters should be as detailed as possible regarding the client’s responsibilities and obligations for facilitating the engagement (such as providing necessary documents and accurate information in a timely manner).

The following are a few do’s and don’ts to assist you with writing effective engagement letters.

Engagement Letters Should …

• State the purpose of the engagement.
• Define the scope and limits of the engagement (specifically what the firm will do).
• Specify known negative conditions or adverse situations.
• Note client instructions, responsibilities, and deliverables and dates.
• Note reliance on facts provided by the client.
• Outline terms of fee collections and the consequences of late payment.
• Include a stop-work clause.
• Indicate the firm’s record retention policy.
• Include third-party service provider language, if applicable.
• Confirm client’s acknowledgment of the terms of the agreement and request client’s signature.

Additional considerations:

• Include warnings regarding inadequate internal controls.
• Explain limitations regarding financial statement distribution.
• Include alternative dispute resolution language (i.e., mediation for all disputes and an arbitration clause for fee disputes only).
• Efficacy of limitation of liability clauses.

Engagement Letters Should Not Include …

• Marketing information – Defer promotional information and other forms of marketing to other documents. The engagement letter should be viewed as a contract and composed accordingly. It is not the place to convince a client that your firm is the answer to all their problems. An engagement letter brackets and highlights the specific services you and the client have agreed to; it should not broaden your responsibilities by selling your services. Wording such as, “We are particularly suited for this type of work” may be appropriate for a proposal, but not for an engagement letter.
• All-encompassing language – An engagement letter should not contain all-encompassing language. Because an engagement letter limits the scope of your firm’s work, avoid superlatives and absolutes. For example, use words such as notice, examine, follow, observe, study, investigate, test, watch, and comment on. Avoid words and terms such as all, every, analysis, any, absolute, complete, confirm, judge, determine, totally, thorough, validate and verify.
• Legal jargon or ambiguity – Make the engagement letter easy for the client to understand. Don’t use abbreviations or words only a CPA would understand. Ambiguity in the engagement letter will most likely be decided in the client’s favor in a court of law, so keep the language simple and clear.

Additional considerations:

• Limit the use of unilateral language to lower-risk engagements (signed engagement letters are always the strongest “first line of defense.”)
• Avoid evergreen letters and update letters annually to reflect changes in the scope of the engagement.
• Avoid usurious interest charges. Instead, assess a “late fee” for unpaid balances.

In addition to the above tips, every engagement letter should include the full or exact name of the client, entity type, specific state names, tax years for tax engagements, and purpose of engagement. Also, review the letter with the client and get agreement regarding the terms and conditions before beginning the work. In addition to updating the engagement letters at least once per year, be sure to update the letter whenever an engagement changes.

The best way to improve client communications and manage risk is to use a detailed engagement letter that the client understands and signs.

Suzanne M. Holl, CPA, is senior vice president of loss prevention services with CAMICO. She can be reached at sholl@camico.com.

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Ethics

By Suzanne M. Holl, CPA  

Engagement letters help CPA firms improve their communication with clients, more effectively document engagements, and, as a result, protect the firm from litigation. Engagement letters should be as detailed as possible in describing the nature and extent of the services the firm is being retained to perform.

Similarly, engagement letters should be as detailed as possible regarding the client’s responsibilities and obligations for facilitating the engagement (such as providing necessary documents and accurate information in a timely manner).

The following are a few do’s and don’ts to assist you with writing effective engagement letters.

Engagement Letters Should …

• State the purpose of the engagement.
• Define the scope and limits of the engagement (specifically what the firm will do).
• Specify known negative conditions or adverse situations.
• Note client instructions, responsibilities, and deliverables and dates.
• Note reliance on facts provided by the client.
• Outline terms of fee collections and the consequences of late payment.
• Include a stop-work clause.
• Indicate the firm’s record retention policy.
• Include third-party service provider language, if applicable.
• Confirm client’s acknowledgment of the terms of the agreement and request client’s signature.

Additional considerations:

• Include warnings regarding inadequate internal controls.
• Explain limitations regarding financial statement distribution.
• Include alternative dispute resolution language (i.e., mediation for all disputes and an arbitration clause for fee disputes only).
• Efficacy of limitation of liability clauses.

Engagement Letters Should Not Include …

• Marketing information – Defer promotional information and other forms of marketing to other documents. The engagement letter should be viewed as a contract and composed accordingly. It is not the place to convince a client that your firm is the answer to all their problems. An engagement letter brackets and highlights the specific services you and the client have agreed to; it should not broaden your responsibilities by selling your services. Wording such as, “We are particularly suited for this type of work” may be appropriate for a proposal, but not for an engagement letter.
• All-encompassing language – An engagement letter should not contain all-encompassing language. Because an engagement letter limits the scope of your firm’s work, avoid superlatives and absolutes. For example, use words such as notice, examine, follow, observe, study, investigate, test, watch, and comment on. Avoid words and terms such as all, every, analysis, any, absolute, complete, confirm, judge, determine, totally, thorough, validate and verify.
• Legal jargon or ambiguity – Make the engagement letter easy for the client to understand. Don’t use abbreviations or words only a CPA would understand. Ambiguity in the engagement letter will most likely be decided in the client’s favor in a court of law, so keep the language simple and clear.

Additional considerations:

• Limit the use of unilateral language to lower-risk engagements (signed engagement letters are always the strongest “first line of defense.”)
• Avoid evergreen letters and update letters annually to reflect changes in the scope of the engagement.
• Avoid usurious interest charges. Instead, assess a “late fee” for unpaid balances.

In addition to the above tips, every engagement letter should include the full or exact name of the client, entity type, specific state names, tax years for tax engagements, and purpose of engagement. Also, review the letter with the client and get agreement regarding the terms and conditions before beginning the work. In addition to updating the engagement letters at least once per year, be sure to update the letter whenever an engagement changes.

The best way to improve client communications and manage risk is to use a detailed engagement letter that the client understands and signs.

Suzanne M. Holl, CPA, is senior vice president of loss prevention services with CAMICO. She can be reached at sholl@camico.com.

Sign up for weekly professional and technical updates from PICPA's blogs, podcasts, and discussion board topics by completing this form.  

Leadership

By Suzanne M. Holl, CPA  

Engagement letters help CPA firms improve their communication with clients, more effectively document engagements, and, as a result, protect the firm from litigation. Engagement letters should be as detailed as possible in describing the nature and extent of the services the firm is being retained to perform.

Similarly, engagement letters should be as detailed as possible regarding the client’s responsibilities and obligations for facilitating the engagement (such as providing necessary documents and accurate information in a timely manner).

The following are a few do’s and don’ts to assist you with writing effective engagement letters.

Engagement Letters Should …

• State the purpose of the engagement.
• Define the scope and limits of the engagement (specifically what the firm will do).
• Specify known negative conditions or adverse situations.
• Note client instructions, responsibilities, and deliverables and dates.
• Note reliance on facts provided by the client.
• Outline terms of fee collections and the consequences of late payment.
• Include a stop-work clause.
• Indicate the firm’s record retention policy.
• Include third-party service provider language, if applicable.
• Confirm client’s acknowledgment of the terms of the agreement and request client’s signature.

Additional considerations:

• Include warnings regarding inadequate internal controls.
• Explain limitations regarding financial statement distribution.
• Include alternative dispute resolution language (i.e., mediation for all disputes and an arbitration clause for fee disputes only).
• Efficacy of limitation of liability clauses.

Engagement Letters Should Not Include …

• Marketing information – Defer promotional information and other forms of marketing to other documents. The engagement letter should be viewed as a contract and composed accordingly. It is not the place to convince a client that your firm is the answer to all their problems. An engagement letter brackets and highlights the specific services you and the client have agreed to; it should not broaden your responsibilities by selling your services. Wording such as, “We are particularly suited for this type of work” may be appropriate for a proposal, but not for an engagement letter.
• All-encompassing language – An engagement letter should not contain all-encompassing language. Because an engagement letter limits the scope of your firm’s work, avoid superlatives and absolutes. For example, use words such as notice, examine, follow, observe, study, investigate, test, watch, and comment on. Avoid words and terms such as all, every, analysis, any, absolute, complete, confirm, judge, determine, totally, thorough, validate and verify.
• Legal jargon or ambiguity – Make the engagement letter easy for the client to understand. Don’t use abbreviations or words only a CPA would understand. Ambiguity in the engagement letter will most likely be decided in the client’s favor in a court of law, so keep the language simple and clear.

Additional considerations:

• Limit the use of unilateral language to lower-risk engagements (signed engagement letters are always the strongest “first line of defense.”)
• Avoid evergreen letters and update letters annually to reflect changes in the scope of the engagement.
• Avoid usurious interest charges. Instead, assess a “late fee” for unpaid balances.

In addition to the above tips, every engagement letter should include the full or exact name of the client, entity type, specific state names, tax years for tax engagements, and purpose of engagement. Also, review the letter with the client and get agreement regarding the terms and conditions before beginning the work. In addition to updating the engagement letters at least once per year, be sure to update the letter whenever an engagement changes.

The best way to improve client communications and manage risk is to use a detailed engagement letter that the client understands and signs.

Suzanne M. Holl, CPA, is senior vice president of loss prevention services with CAMICO. She can be reached at sholl@camico.com.

Sign up for weekly professional and technical updates from PICPA's blogs, podcasts, and discussion board topics by completing this form.  

Practice Management

By Suzanne M. Holl, CPA  

Engagement letters help CPA firms improve their communication with clients, more effectively document engagements, and, as a result, protect the firm from litigation. Engagement letters should be as detailed as possible in describing the nature and extent of the services the firm is being retained to perform.

Similarly, engagement letters should be as detailed as possible regarding the client’s responsibilities and obligations for facilitating the engagement (such as providing necessary documents and accurate information in a timely manner).

The following are a few do’s and don’ts to assist you with writing effective engagement letters.

Engagement Letters Should …

• State the purpose of the engagement.
• Define the scope and limits of the engagement (specifically what the firm will do).
• Specify known negative conditions or adverse situations.
• Note client instructions, responsibilities, and deliverables and dates.
• Note reliance on facts provided by the client.
• Outline terms of fee collections and the consequences of late payment.
• Include a stop-work clause.
• Indicate the firm’s record retention policy.
• Include third-party service provider language, if applicable.
• Confirm client’s acknowledgment of the terms of the agreement and request client’s signature.

Additional considerations:

• Include warnings regarding inadequate internal controls.
• Explain limitations regarding financial statement distribution.
• Include alternative dispute resolution language (i.e., mediation for all disputes and an arbitration clause for fee disputes only).
• Efficacy of limitation of liability clauses.

Engagement Letters Should Not Include …

• Marketing information – Defer promotional information and other forms of marketing to other documents. The engagement letter should be viewed as a contract and composed accordingly. It is not the place to convince a client that your firm is the answer to all their problems. An engagement letter brackets and highlights the specific services you and the client have agreed to; it should not broaden your responsibilities by selling your services. Wording such as, “We are particularly suited for this type of work” may be appropriate for a proposal, but not for an engagement letter.
• All-encompassing language – An engagement letter should not contain all-encompassing language. Because an engagement letter limits the scope of your firm’s work, avoid superlatives and absolutes. For example, use words such as notice, examine, follow, observe, study, investigate, test, watch, and comment on. Avoid words and terms such as all, every, analysis, any, absolute, complete, confirm, judge, determine, totally, thorough, validate and verify.
• Legal jargon or ambiguity – Make the engagement letter easy for the client to understand. Don’t use abbreviations or words only a CPA would understand. Ambiguity in the engagement letter will most likely be decided in the client’s favor in a court of law, so keep the language simple and clear.

Additional considerations:

• Limit the use of unilateral language to lower-risk engagements (signed engagement letters are always the strongest “first line of defense.”)
• Avoid evergreen letters and update letters annually to reflect changes in the scope of the engagement.
• Avoid usurious interest charges. Instead, assess a “late fee” for unpaid balances.

In addition to the above tips, every engagement letter should include the full or exact name of the client, entity type, specific state names, tax years for tax engagements, and purpose of engagement. Also, review the letter with the client and get agreement regarding the terms and conditions before beginning the work. In addition to updating the engagement letters at least once per year, be sure to update the letter whenever an engagement changes.

The best way to improve client communications and manage risk is to use a detailed engagement letter that the client understands and signs.

Suzanne M. Holl, CPA, is senior vice president of loss prevention services with CAMICO. She can be reached at sholl@camico.com.

Sign up for weekly professional and technical updates from PICPA's blogs, podcasts, and discussion board topics by completing this form.  

Technology

By Suzanne M. Holl, CPA  

Engagement letters help CPA firms improve their communication with clients, more effectively document engagements, and, as a result, protect the firm from litigation. Engagement letters should be as detailed as possible in describing the nature and extent of the services the firm is being retained to perform.

Similarly, engagement letters should be as detailed as possible regarding the client’s responsibilities and obligations for facilitating the engagement (such as providing necessary documents and accurate information in a timely manner).

The following are a few do’s and don’ts to assist you with writing effective engagement letters.

Engagement Letters Should …

• State the purpose of the engagement.
• Define the scope and limits of the engagement (specifically what the firm will do).
• Specify known negative conditions or adverse situations.
• Note client instructions, responsibilities, and deliverables and dates.
• Note reliance on facts provided by the client.
• Outline terms of fee collections and the consequences of late payment.
• Include a stop-work clause.
• Indicate the firm’s record retention policy.
• Include third-party service provider language, if applicable.
• Confirm client’s acknowledgment of the terms of the agreement and request client’s signature.

Additional considerations:

• Include warnings regarding inadequate internal controls.
• Explain limitations regarding financial statement distribution.
• Include alternative dispute resolution language (i.e., mediation for all disputes and an arbitration clause for fee disputes only).
• Efficacy of limitation of liability clauses.

Engagement Letters Should Not Include …

• Marketing information – Defer promotional information and other forms of marketing to other documents. The engagement letter should be viewed as a contract and composed accordingly. It is not the place to convince a client that your firm is the answer to all their problems. An engagement letter brackets and highlights the specific services you and the client have agreed to; it should not broaden your responsibilities by selling your services. Wording such as, “We are particularly suited for this type of work” may be appropriate for a proposal, but not for an engagement letter.
• All-encompassing language – An engagement letter should not contain all-encompassing language. Because an engagement letter limits the scope of your firm’s work, avoid superlatives and absolutes. For example, use words such as notice, examine, follow, observe, study, investigate, test, watch, and comment on. Avoid words and terms such as all, every, analysis, any, absolute, complete, confirm, judge, determine, totally, thorough, validate and verify.
• Legal jargon or ambiguity – Make the engagement letter easy for the client to understand. Don’t use abbreviations or words only a CPA would understand. Ambiguity in the engagement letter will most likely be decided in the client’s favor in a court of law, so keep the language simple and clear.

Additional considerations:

• Limit the use of unilateral language to lower-risk engagements (signed engagement letters are always the strongest “first line of defense.”)
• Avoid evergreen letters and update letters annually to reflect changes in the scope of the engagement.
• Avoid usurious interest charges. Instead, assess a “late fee” for unpaid balances.

In addition to the above tips, every engagement letter should include the full or exact name of the client, entity type, specific state names, tax years for tax engagements, and purpose of engagement. Also, review the letter with the client and get agreement regarding the terms and conditions before beginning the work. In addition to updating the engagement letters at least once per year, be sure to update the letter whenever an engagement changes.

The best way to improve client communications and manage risk is to use a detailed engagement letter that the client understands and signs.

Suzanne M. Holl, CPA, is senior vice president of loss prevention services with CAMICO. She can be reached at sholl@camico.com.

Sign up for weekly professional and technical updates from PICPA's blogs, podcasts, and discussion board topics by completing this form.  

Tax

By Suzanne M. Holl, CPA  

Engagement letters help CPA firms improve their communication with clients, more effectively document engagements, and, as a result, protect the firm from litigation. Engagement letters should be as detailed as possible in describing the nature and extent of the services the firm is being retained to perform.

Similarly, engagement letters should be as detailed as possible regarding the client’s responsibilities and obligations for facilitating the engagement (such as providing necessary documents and accurate information in a timely manner).

The following are a few do’s and don’ts to assist you with writing effective engagement letters.

Engagement Letters Should …

• State the purpose of the engagement.
• Define the scope and limits of the engagement (specifically what the firm will do).
• Specify known negative conditions or adverse situations.
• Note client instructions, responsibilities, and deliverables and dates.
• Note reliance on facts provided by the client.
• Outline terms of fee collections and the consequences of late payment.
• Include a stop-work clause.
• Indicate the firm’s record retention policy.
• Include third-party service provider language, if applicable.
• Confirm client’s acknowledgment of the terms of the agreement and request client’s signature.

Additional considerations:

• Include warnings regarding inadequate internal controls.
• Explain limitations regarding financial statement distribution.
• Include alternative dispute resolution language (i.e., mediation for all disputes and an arbitration clause for fee disputes only).
• Efficacy of limitation of liability clauses.

Engagement Letters Should Not Include …

• Marketing information – Defer promotional information and other forms of marketing to other documents. The engagement letter should be viewed as a contract and composed accordingly. It is not the place to convince a client that your firm is the answer to all their problems. An engagement letter brackets and highlights the specific services you and the client have agreed to; it should not broaden your responsibilities by selling your services. Wording such as, “We are particularly suited for this type of work” may be appropriate for a proposal, but not for an engagement letter.
• All-encompassing language – An engagement letter should not contain all-encompassing language. Because an engagement letter limits the scope of your firm’s work, avoid superlatives and absolutes. For example, use words such as notice, examine, follow, observe, study, investigate, test, watch, and comment on. Avoid words and terms such as all, every, analysis, any, absolute, complete, confirm, judge, determine, totally, thorough, validate and verify.
• Legal jargon or ambiguity – Make the engagement letter easy for the client to understand. Don’t use abbreviations or words only a CPA would understand. Ambiguity in the engagement letter will most likely be decided in the client’s favor in a court of law, so keep the language simple and clear.

Additional considerations:

• Limit the use of unilateral language to lower-risk engagements (signed engagement letters are always the strongest “first line of defense.”)
• Avoid evergreen letters and update letters annually to reflect changes in the scope of the engagement.
• Avoid usurious interest charges. Instead, assess a “late fee” for unpaid balances.

In addition to the above tips, every engagement letter should include the full or exact name of the client, entity type, specific state names, tax years for tax engagements, and purpose of engagement. Also, review the letter with the client and get agreement regarding the terms and conditions before beginning the work. In addition to updating the engagement letters at least once per year, be sure to update the letter whenever an engagement changes.

The best way to improve client communications and manage risk is to use a detailed engagement letter that the client understands and signs.

Suzanne M. Holl, CPA, is senior vice president of loss prevention services with CAMICO. She can be reached at sholl@camico.com.

Sign up for weekly professional and technical updates from PICPA's blogs, podcasts, and discussion board topics by completing this form.