Engagement Letter Do’s and Don’ts

Engagement letters help improve communication with clients, document engagements, and protect you from litigation. By clearly defining an engagement’s scope and services, you can better avoid misunderstandings. CAMICOEngagementLetter

What you should do:

  • State the purpose of the engagement
  • Define the scope of the engagement (specifically what you will and won’t do)
  • Specify known negative conditions or adverse situations
  • Note client instructions, responsibilities, deliverables and dates
  • Note reliance on facts provided by client
  • Outline terms of fee collections and the consequences of late payment
  • Include a stop-work clause
  • Indicate your record retention policy
  • Include third-party service provider language, if applicable
  • Confirm client’s acknowledgment to the terms of the engagement and request client’s signature

Additional areas to consider:

  • Include warnings regarding inadequate internal controls
  • Explain limitations regarding financial statement distribution
  • Include alternative dispute resolution language (i.e., mediation for all disputes and an arbitration clause for fee disputes only)
  • Review efficacy of limitation of liability clauses with your risk advisor or legal counsel

What you should avoid:

  • promotional information and other forms of marketing in your engagement letter. Defer marketing information to other documents. Your engagement letter should be viewed as a contract and composed accordingly. It is not the place to convince a client that your firm is the answer to all their problems. It limits your services, rather than selling them.
  • all-encompassing language that expands rather than limits the scope of your work.
  • legal jargon, ambiguity, abbreviations or words only a CPA would understand. Make your engagement letter easy for your client to understand. Review the letter with your client and get a signature before beginning any work.

Share this post

Leave a comment

Filtered HTML

  • Web page addresses and e-mail addresses turn into links automatically.
  • Allowed HTML tags: <a> <em> <strong> <cite> <blockquote> <code> <ul> <ol> <li> <dl> <dt> <dd>
  • Lines and paragraphs break automatically.

Plain text

  • No HTML tags allowed.
  • Web page addresses and e-mail addresses turn into links automatically.
  • Lines and paragraphs break automatically.

Latest Articles

  • 15 Jun

    How to respond to subpoenas

    CPAs in receipt of a subpoena should consider the information in the client files, the recent communications with the client or any parties involved, and then contact their professional liability risk adviser or attorney before responding to the subpoena. CAMICO provides this consultation ... read more

  • 06 May

    Six Risk Management Mistakes CPA Firms Make

    Managing CPA liability risk exposures is a complex process, and it's easy to underestimate the potential for risk along the way. The following six mistakes can be avoided by being aware and taking the right steps.

    1. Not discussing questions about the insurance application... read more

  • 23 Apr

    Top 5 Ways a CPA Can Invite a Malpractice Lawsuit

    After more than 31 years of malpractice claims experience, CAMICO has developed a wealth of information about what causes disputes between CPAs and their clients, what leads to litigation, and how to avoid or minimize the damages from such conflicts. There are basic risk management steps t... read more

  • 15 Mar

    Tax Tip – Documenting Advice and Decisions

    All significant client meetings should be documented with a written description of the subjects discussed at the meeting. This will help ensure that both you and the client are proceeding with the same expectations and assumptions.

      ... read more