Signing an Engagement Letter with Your Accountant
Entering a work agreement with any professional involves signing a legal document containing terms and conditions. A standard practice amongst accountants is to present their clients with an engagement letter during on-boarding. The engagement letter exists to establish protection for the concerned parties, the accountant, and the client. In case a disagreement occurs between both parties during the work process, you can always refer to the engagement letter.
Signing the letter is an essential part of building the client-accountant relationship. The document contains the duties and responsibilities of both parties. It also provides clarity on the scope of services offered by the accountant. In this blog, we’ll examine the concept of an engagement letter in a way.
What Is an Engagement Letter?
Engagement letters are formal agreements that the accountant and the client sign before starting a working relationship. It is basically a contract outlining the obligations and fee structure of the involved parties. This letter establishes the scope of services provided by the accountant to the client. Without a well-defined contract, the work arrangement could result in disagreements or wrong expectations.
7 Sections in an Engagement Letter
There are different sections contained in an engagement letter. Both parties should read through and agree to the specified terms under these sections. As the client, you should do this before signing the document.
Now, let’s see what you should expect in an engagement letter.
1. Purpose, Scope, and Engagement
This section addresses the scope of the accountant’s services, which is often bound to tax legislation and regulations. It also states that the accountant’s intentions aren’t to search for illegal activities such as fraud. Although, if they come across such, they might have to report it. The key objective is to list out the duties the accountant will be performing clearly. If any part is unclear, your account should be able to offer more clarifications based on your specific contract.
2. Period of Engagement
Simply put, this tells you how long the accountant will be serving you. It could be a few weeks, months, or years. You get to decide the duration of the job contract.
An accountant isn’t permitted to reveal your business details to any other third party. The only exception is with your given permission or as part of a law requirement. Some governing bodies, e.g., a CPA firm, can request for your information as part of a quality review. Then, your accountant is bound by duty to inform you and afterward, provide your files.
The reviewers aren’t concerned with your details. They are interested in how the accountant performs his/her duties. This section also talks about your responsibilities as the client and how your accountant must always receive accurate and updated records from you.
Without the right information, it can be difficult for the accountant to perform the requested services. Lastly, this part discusses how you can exercise your right to a private ruling. This action is needed when there’s a tax law that doesn’t apply to your business. When requested, your accountant has to file a notice to the ATO. Without factual information, you won’t receive a ruling in your favour.
This part talks about the payment structure of the work arrangement. The accountant can either request for fixed or hourly payment. Before any work starts, discuss with the accountant about how much you will be paying. An additional clause, specifying the consequences for late payment, can also be found in the engagement letter. Late payment can result in either suspended service or extra charges.
5. Limitation of Liability
You can find this clause under a paragraph in the engagement letter. It serves to establish the exposure of the accountant and client and to protect both parties. It discusses whether the accountant can be held responsible, or to what extent, for any issues or damage caused by the rendered services.
6. Ownership of Documents
This part is crucial. It points to the ownership of the documents handled by the accountant during the arrangement. You are the sole owner of original documents like bank statements or records. At the same time, the accountant retains ownership over anything used to perform his/her duties, like work notes or checklists. You are only paying for the accountant’s services.
7. Communication and the Management of Personal Information
In this section, you’ll get an overview of how the accountant will be handling the information supplied by the client. The accountant must treat your information as confidential. As such, the accountant must have safeguards or measures to prevent unauthorized access to your information.
Many accountants use a cloud-based or external system to store all your information. The engagement letter should clearly state the storage medium. Also included in this section is the agreed mode of communication. The communication channel needs to be fast and secure for the proper relay of information.
Engagement letters are contracts that lays the legal relationship between you and an accountant. They can be used to resolve any dispute or misunderstandings in the immediate future. The signing parties can set their expectations using the letter. Before the document is signed, all terms should be discussed and accepted by both parties. Any additional services, missing in the contract, will incur extra charges.
At FindUKAccountant, our accountants carefully explain their terms and conditions to clients before rendering any services. They are available to answer any questions you might have. You can compare between five local accountants to get the right fit. Provide your details, and we’ll get you connected to these five local accountants in your area.
Disclaimer: We don’t take any responsibility for actions taken based on above information. Please speak to our consultants if you need more information. This guide was written specifically for FindUkAccountant clients. By necessity, this briefing can only provide a short overview and it is essential to seek professional advice before applying the contents of this article. No responsibility can be taken for any loss arising from action taken or refrained from on the basis of this publication. Details are correct at time of writing.