3 Steps Any Accountant And Bookkeeper Must Take For The Perfect Engagement Letter

Key takeaways

• Cover the eight essentials in every engagement letter, from scope and fees to liability and jurisdiction.
• Define the scope of services clearly to stop scope creep before it starts.
• Review your engagement letter with an attorney at least once a year to stay compliant.
• Refer clients back to the letter whenever a request falls outside the agreed scope.

What is an engagement letter?

An engagement letter is a written agreement between you and your client. It sets out the services you’ll provide, your fees, and each side’s responsibilities. Think of it as a plain-language roadmap for the working relationship.

Unlike a formal contract, an engagement letter is easier to read and quicker to sign. It still carries weight, though. Once both parties agree to it, it helps prevent misunderstandings, disagreements, and the frustration that tends to follow when expectations aren’t written down.

The eight basics every engagement letter should cover

Let’s start with the content. We’ve narrowed it down to the eight essentials any accounting professional should consider including.

• Identity of the client, owner, and contact person. Your client’s identity may seem obvious at the start. Still, partners fall out, companies change hands, and contacts leave. You have fiduciary and confidentiality duties, so be clear about who you’re providing services for.
• Scope of engagement. Specify the services you’re providing. Consider also listing what’s not included, so there’s no doubt or gray area later.
• Fees and fee structure. Confirming fees goes hand in hand with the scope of work. Whether you price by the hour, a fixed rate, or value pricing, put it in writing. If you use a fixed rate, make sure you cover optional and time-consuming tasks that often cause scope creep.
• Client’s involvement and responsibilities. You can’t do your job well if the client gives you incomplete information or you have to chase them. State that the client is responsible for providing accurate, complete documents. This sets the basis for a healthy relationship and helps protect you.
• Timeframes and deadlines. Lay out clear, written ground rules for when you’ll deliver. Note that timeframes depend on the client providing full documentation first. Cover expedited requests too, and set a premium fee for them.
• Term and termination. When does the work start? How long does the engagement run? What happens if either side wants to end it? Include these terms, and a predefined term also gives you a natural moment to revisit the letter before renewing.
• Limitation of liability. Accountants and bookkeepers handle sensitive financial information and complex rules, so liability exposure is higher than in many fields. A limitation of liability clause can include a cap, a caveat on third-party reliance, and more. Have a lawyer draft or review it.
• Jurisdiction. Specify that any litigation will take place in the state where you’re located, even with local clients, since a client may move their business later. This matters most when you provide remote services.

Additional tips for drafting your engagement letter

After the “what,” let’s cover the “how.” A good work process is every bit as important as the content of the letter.

Have a sit-down with your client. It’s best to talk with your client twice. First, before drafting, to understand their needs and expectations. How will you get documents? How much availability do they need? Do they expect proactive financial advice? Then, once the letter is ready, go over it together and make sure they have no questions or reservations.

Use a template, but tailor it. You don’t need to write your letter from scratch. There are plenty of templates and examples online. AICPA has a detailed sample letter on its website. Don’t adopt an example as is, though. Compare it against the checklist above and adjust it to your and your client’s specific needs.

Have an attorney review it. Your engagement letter is a legal document that governs your professional relationship. Given how heavily regulated your work is, the accuracy of the wording is essential. Let an attorney review it at least once, and consult one each year to make sure nothing has changed on the legal front.

Using your engagement letter to prevent scope creep

A clearly defined engagement letter does most of the heavy lifting against scope creep. Once you have one, have all your existing clients sign it. Year’s end is a natural moment to reframe the relationship. And always have a letter in place before starting with a new client.

Scope creep usually starts with a small request. One thing leads to another, and soon you’re doing work you never agreed to. When you spot the first signs, act quickly. This is where your engagement letter earns its keep.

Politely point the client back to the letter. Tell them you’d love to help, but the request falls outside the agreed scope. Ask if they’d like to revise the letter and add the service for a fee. It helps to prepare a short script in advance, so you feel less awkward having the talk.

If you work with a team, keep everyone informed of existing engagement letters and make sure they follow your lead. And as the term winds down, compare the letter against the work you actually did, then renegotiate if needed. Keeping a full record of your work makes that conversation easier.

Put your engagement letter to work with Melio

A clear engagement letter sets expectations for scope and fees. Clear payment terms deserve the same care. When both sides know what’s owed and when, the working relationship stays smooth from the first invoice to the last.

Melio helps you manage your clients’ bill pay and payments in one place, with syncing to the tools you already use. It can make the payment side of each engagement simpler for you and your clients. Sign up for Melio.

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