Top 5 Frequently Asked Questions About Engagement Letters
Curious about engagement letters? Discover clear answers to the top 5 frequently asked questions, including what they are and why they matter.
Do you know? Clients are three times more likely to recommend firms that have clear onboarding processes. This includes firms that present them with good and professional engagement letters.
Yet many firms tend to gloss over engagement letters and end up getting them wrong. So today, we'll look at what engagement letters are and why they are important, and answer some general questions that accountants, bookkeepers and tax advisers across the globe have about them.
What Are Engagement Letters?
An engagement letter is a written agreement between professional service providers such as accountants, bookkeepers and tax advisers, and their clients. It sets the scope of the overall engagement, outlines each party's responsibilities and clarifies fees and payment terms.
Think of an engagement letter as a document that signals the acceptance of the contract, sets expectations for both parties and limits responsibilities to either side. In case of legal disputes and proceedings, the engagement letter is the first document requested by a dispute resolution tribunal. That's why accountants need engagement letters!
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How Do Engagement Letters Help Accountants & Bookkeepers?
Engagement letters are the most effective risk management tools an accountant, bookkeeper or tax adviser has. As a matter of fact, engagement letters are the first document requested during legal proceedings.
Even professional liability insurers offer discounts and deductible credits to firms using engagement letters. Yet, many accountants and accountancy firms don't use engagement letters. As per a 2020 study, only 61% of CPA firms' claims involved engagement letters.
Engagement letters protect your firm, reduce legal exposure and save thousands on insurance and potential lawsuits. If you are not using them, you're exposed to greater risk.
Do I Really Need Engagement Letters If I've Worked With A Client for Long?
When it comes to money, longstanding relationships never guarantee protection. Even your loyal clients and family friends can sue you.
Remember this adage: The client you have known for 10 years can still sue you in year 11.
It's harsh. But numbers don't lie. Trust alone has never been a defence for accountants.
So, as an accountant, you must be the first to introduce an engagement letter in any engagement. It formalises what both sides already expect, sets clear boundaries and fosters mutual understanding. Remember, in today's business world, using an engagement letter is not just smart but necessary, in a way mandatory.
What Are Multi-Year Engagement Letters & How Can Accountants, Bookkeepers & Tax Advisers Use Them?
A multi-year engagement letter is an agreement that stays in effect over multiple years without the need to sign and draft a new letter each year. Such a document is ideal for recurring and low-risk services where the scope of services doesn't change much from year to year.
For instance, if your firm provides individual tax return preparation (Form 1040) or monthly bookkeeping services, you can use a multiyear engagement letter. It will save you a lot of time and administrative burden. However, it's important to review and change the wording of a multi-year engagement letter over time, especially if the legal policies, fees and scope of service change.
Where Can I Find Sample Engagement Letters?
It's not hard to find samples of engagement letters online. But what is hard is to find engagement letters that are comprehensive, customisable, include the services you need and are compliant with ACCA, CIOT or other bodies you are governed by.
That's where FigsFlow comes in. FigsFlow offers comprehensive engagement letter templates that are ready to use as soon as you download them. Or, if you sign up, you can create engagement letters that are legally compliant, visually appealing and adhere to your organisational branding requirements within minutes. You also get the added benefits of team collaboration and digital signatories.
So, why not sign up for a free 30-day trial?
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