Client Engagement Letter: Why You Need It and What to Include

A Client Engagement Letter is a valuable tool to build your credibility and help your Pennsylvania accounting practice grow. Many of the problems CPAs face with clients could be avoided with a proper Client Engagement Letter. 

Many liability insurance providers actually require an engagement letter as a prerequisite for coverage; but beyond that, an engagement letter will avoid the common problem of scope creep—when clients little-by-little make additional requests or assume certain services are included. Without a clear listing of what services you will and will not provide, this will likely lead to confused expectations, negative client opinion, damage to your reputation, and possible lawsuits.

A simple, clear engagement letter will also help you avoid bad clients, those who expect additional services or do not pay on time. Generally, these types of clients avoid the clarity that a good, signed agreement offers. 

Separate Terms and Conditions

Keeping your engagement letter short and clear will increase your client’s confidence that there’s nothing “hidden” in the details. However, we recommend a clear and detailed Terms and Conditions as a separate document, to which the clients agree when they sign the engagement letter.

The separate Terms and Conditions should include the details that are true for all agreements, such as billing practices including late fees; alternative dispute resolution; withdrawal provisions; limitations of liability; professional conduct; intellectual property; privacy and confidentiality. These are the same for every client and can be kept in a separate document. 

Keep it Simple

You can keep your engagement letter to two pages or less by including the following information, clearly laid out:

  • Name and address of client
  • Detailed scope of service: Be very specific, listing exactly what you will do, and just as importantly, what you will not do. For instance, if you are providing tax services but not performing procedures to identify theft or fraud, clearly define this.
  • Fee structure: Clearly match your services to your fees. Be very specific about your payment expectations, what you expect to be paid when and in what manner. Some accountants set up a payment method from the client, which they automatically activate at the time of billing. This arrangement ensures timely payment and avoids strain on the relationship due to late payment. Include how you handle additional services that the client requests. At the end of the fees section, clearly state, “These fees are tax deductible.” This little reminder helps clients feel more comfortable about their investment in your services.
  • Client responsibility: Define the client’s responsibilities to provide you with accurate and timely information, inform you as soon as they find out any changes to information they’ve already provided, and pay on time.
  • Professional Standards: Clearly state here that you see no conflict of interest and that if you recommend other services, you will not receive any benefit or compensation from the other provider.
  • Effective date and termination date: Have the client update and sign an agreement annually. This ensures that your scope of service and fees remain clear and protect you in case of a dispute, which is less likely due to the presence of the agreement.
  • Signature: Both you and your client must sign the engagement letter, including a statement that the client is also agreeing to the Terms and Conditions. Some CPAs set up electronic signature methods, which make it much quicker and easier to secure the signature and grow their business. 

Additional letters of engagement

If you offer additional services, such as business advice or financial planning, we recommend you create additional letters of engagement for these specialized services. Include a line in your general template stating that any services agreed upon for (list the other types of services you offer here) are covered under a separate Client Engagement Letter. All engagement letters should include the sections as described above, adjusted as needed for each client. 

A simple, clear Client Engagement Letter is a powerful tool that will advance your professional reputation, improve cash flow, and keep both you and your clients happy.