The first line of defense against misunderstandings with clients is a detailed engagement letter setting clear expectations about services you’ll provide, the cost, the time frame and other key points. Yet many firms overlook this best practice. According to the Journal of Accountancy, more than a third of firms facing liability claims under the American Institute of Certified Public Accountants’ Professional Liability Insurance Program in 2013 hadn’t created an engagement letter before undertaking the work.
While creating these letters may seem like an unnecessary formality, or a tax on your already overbooked schedule, they may actually help streamline your practice by reducing distractions. Here are some elements to include.
Scope of work. Don’t assume the client fully understands the nature of the work you’ll provide. Clearly spell out the specific services, such as balance sheets, income statements and tax returns, that will be covered. Also, to avoid misaligned expectations, detail what segments of the client’s accounting may not be covered by your agreement.
The cost. Include an estimate of your overall fee. You may want to leave room to adjust based on the total hours you spend, but note that if the hours exceed your estimate, you will alert the client.
The timetable. As companies prosper, they share business forecasts, future plans, capital expenditures and income figures with you. It could be easy for them to assume a relationship is open-ended. To better manage expectations and to give you a chance to assess the terms of the work periodically, set definite time periods for your engagement. Renew (with a new engagement letter) as necessary.
The client’s responsibilities. You can’t do your best work on behalf of clients unless they meet you halfway. Your engagement letter should stipulate the information that a client is expected to provide and note that you’ll use the numbers they give you in good faith. Also, you may want to stipulate any access you’ll need to their offices, including a workspace.
Sample templates available online can offer ideas on the best way to structure and word your engagement letter. Once you’ve crafted the letter, review it carefully with the client and answer any questions they have. That small investment up front could prevent complications down the road.
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