So you’ve landed a new client for your accounting practice and you’re ready to get started. While congratulations are in order, it’s important to do some preparation before rendering your services and sending an invoice. One key step is to create an accounting engagement letter for your client to review and sign.

What is an accounting engagement letter? What should you include in it? And how do you properly send one to clients? Get answers to these questions in the guide below.

Why create an accounting engagement letter?

“An accounting engagement letter sets clear expectations about the scope of your collaboration, including what’s expected from the client,” says Jasmine DiLucci, JD, CPA, and principal at DiLucci CPA Firm.

A typical accounting engagement letter answers these foundational questions:

• What services will you be providing?
• How much will the client be expected to pay, through what method, and in what time frame?
• What are the acceptable forms of communication between you and the client?
• How will you handle record retention?
• From what liabilities are you releasing your firm?

DiLucci notes that some clients may not have worked with a CPA or accounting firm before, so they may be unaware of the particulars of an accounting engagement—how it works, what services you offer, and what efforts they must put forth to support you in addressing their needs.

“Even if the client has worked with a CPA before, you may do things a bit differently in your firm. That’s where your accounting engagement letter comes in—it paints a clear picture so that clients can enter the collaboration with no surprises,” DiLucci explains, adding that the letter also helps protect you should any misunderstandings arise. “You want the signed letter available in case a client says, ‘Oh, I thought you were also handling B and C.’”

For example, assume the client initially approaches you with a request to review their finances and complete their federal tax return. After addressing this request, the client returns some time later wondering why you didn’t also file their state tax return. If they didn’t notice the missed filing before the deadline, they may also seek compensation for the resulting penalties.

“You can avoid uncomfortable situations like this by stating clearly in your accounting engagement letter not only what you will be doing, but also what you won’t be doing,” DiLucci explains. “The less room for misinterpretation in the letter, the greater the chance of a smooth engagement.”

7 Key Sections For Accounting Engagement Letters

Every accounting engagement letter will differ, but below are a few sections a typical letter includes.

1. Scope

“Your scope of work should be the first section because you want the client to understand what services you’re providing before getting lost in the details of the remaining sections,” says DiLucci.

Are you only completing their federal tax return? Are you doing federal and state tax returns? Are foreign filings out of the question? Perhaps you’re also offering ongoing bookkeeping services?

“Many clients tend to skim these letters, so you must put the most important pieces front and center. Make them obvious so the client doesn’t miss them,” DiLucci explains.

2. Fees

Next up is the section on your accounting fees. Here are a few questions you should answer:

• Are you charging clients by the hour, on a fixed-fee basis, or a retainer?
• How much are you charging, and when will payments be due?
• Are there any late payment penalties?

“If you have an upfront payment, call this out first,” says DiLucci. “Make sure it’s evident that this payment is required before starting the engagement. Note it several times throughout—including right before the signature—and in the email or other communication you send along with the letter.”

3. Client Responsibilities

What do you need from the client to properly deliver your services? This could include not only providing reasonable access to their systems and supplying specific demographic and financial information, but also ensuring the information they give you is reliable, accurate, and complete.

4. Communication Expectations

Through what methods do you expect to communicate with the client, and does each method have a specific purpose? For example:

• Collaboration tools. You may want most communications to occur in your collaboration tool, such as a client portal, so you can keep track of everything in one place. This is especially helpful if you have multiple clients, as you can stay organised across dedicated workspaces.
• Email. If you don’t employ a collaboration tool, email may be your preferred medium for anything you need in writing.
• Calls. You may use calls just to check in with clients or answer more complex questions.

5. Engagement Period

When exactly will the engagement begin and end? Are there key milestones you plan to meet that should be recorded? Include this information here.

6. Legalities

Other sections you may want to include that most professionals would consider legalese—but are still important—include:

• Liability. Tell the client you require their cooperation in providing information in a timely manner and they’re responsible for any resulting penalties due to a lack of action on their end. In addition, include that you aren’t liable for the client not paying the IRS under any circumstances.
• Record retention. Describe how long and in what manner you’ll retain records related to the engagement, and what responsibility the client has in retaining their own records.
• Disputes. You may choose to send any disputes over fees to arbitration instead of a court of law. If so, note which governing body rules you’ll be abiding by—for example, the American Arbitration Association in the U.S.

Note: You may choose to create and reference a separate terms and conditions page for this legal rhetoric within your accounting engagement letter.

7. Acceptance Of Terms

The last section is for the client to indicate their agreement with the document. By signing, they are agreeing to the terms you’ve laid out in the preceding sections. Make it clear that the engagement will not commence until the letter has been signed, and any relevant payments have been made if you require them.

Note: Are you also a tax agent? Engagement letters may differ if you offer both accounting and tax-related services, though they don’t have to. For example, DiLucci offers both types of services, but works from a single template that includes verbiage about accounting and tax-related items, regardless of the client’s requested services. “It makes my operations more efficient, and it covers my bases with clients.”

3 Ways To Send Engagement Letters

Once you’ve crafted the perfect accounting engagement letter, how do you send it? Here are a few options:

• Email. You can use the traditional method of sending the letter in an email, or writing the letter in a Word document and attaching it to the email.
• Electronic Signature Service. You also can sign up for an electronic signature (eSignature) service that helps streamline the approval process of documents. DiLucci, for example, uses HelloSign at her firm.
• Client Portal. A more comprehensive option than the above is a client portal, which combines document approvals with other necessary functions you need as an accountant, like file sharing, task management, and client collaboration.

Engage with clients efficiently and securely with Glasscubes.

One of the great things about a client portal like Glasscubes is you can build an entire onboarding workflow for new clients, including sending accounting engagement letters and requesting information. You can ensure clients always know next steps and limit administrative burdens for them and your team.

Glasscubes enables you to:

• Simplify communication with clients and strengthen your working relationship
• Gather information from clients in a timely manner and automatically chase overdue or missing items
• Ensure information is acted on as it is received by replacing repetitive actions with a custom, automated workflow

Glasscubes is also security-minded: All data is protected by SSL encryption, and distributed across multiple physical locations across the UK to ensure high availability.

If you’d like a demonstration or want to see how other accountancies are using Glasscubes, learn more here.