An engagement letter is a formal letter of terms and conditions between two parties. Accountancy firms engagement letter defines terms and conditions of busines between them, as a firm and client.
Why Engagement Letter is required?
It is a standard requirement of all professional accountancy bodies like The Association of Chartered Certified Accountants (ACCA) and The Institute of Chartered Accountants in England and Wales (ICAEW). Practicing members of these and other professional bodies are required to have an engagement letter in place for all their current clients. There is a standard practice to revise and update engagement letters every two to three years.
Why Engagement Letter is important?
Engagement letter will protect both parties from any dispute. This letter will have all the terms and conditions necessary for the business engagement and it will help to resolve any conflict between the two parties.
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What is included in the Engagement Letter?
Accountancy engagement letters are normally consist of three parts. First part of the engagement letter normally is a covering letter to explain to the client why this letter is required, and which services will be provided. Each accountancy firm letter can be different.
Second part of the engagement letter can be the terms and conditions of the engagement. The standard terms and condition may include the applicable laws, how clients’ data will be handled, quality of the services, how the firm will deal with client’s money and data privacy etc.
Third part of the engagement letter normally are the detailed schedules of all the service which accountancy firm will provide. For example, if client has asked the firm to provide a service to prepare and file the company accounts and the corporation tax return, there will be detailed seprate schedules of these two services.
Each service schedule within the engagement letter normally will have two parts, responsibilities of a client and firms’ responsibilities.
Can an accountancy firm provide services without an Engagement Letter?
If you have hired a professional accountancy firm, after their initial due diligence and professional clearance, they will prepare their engagement letter. They will send a copy of the letter to you for your review and signature. If you have hired an accountant who have not asked you or sent you any engagement letter, there is a possibility that accountant might not be a practising accountant.
Sometime accountancy firms send their engagement letters to the clients but they do not receive a signed copy back from some of the clients. Does it mean that firm has agreed to provide the accountancy and taxation services without a signed engagement letter? No, if the client has received an engagement letter and information requested by the accountants were later sent by the client, it is assumed that the engagement letter sent by the firm have been accepted by the client even if the firm has not received a signed copy.