What is an engagement letter?
An engagement letter is the written agreement between an accounting firm and its client that sets out which services the firm will provide, what it will not do, the fees and payment terms, each side's responsibilities and the legal terms that apply. The client signs it before work starts, and it is renewed or updated when services or fees change.
Also calledletter of engagementterms of engagementengagement agreement
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- Signed
- Before work starts
- Covers
- Services, fees, responsibilities, terms
- Audit standard
- ISA 210 / AU-C 210
How engagement letters work
A letter usually has a short cover letter, a schedule of services for this client and standard terms of business covering liability, data protection, anti-money laundering checks, complaints and termination. For audits, auditing standards (ISA 210 internationally and AU-C 210 in the US) require the terms of the engagement to be agreed in writing; for other services, professional bodies expect firms to put them in writing. Firms now send letters through proposal software: the client picks services and pricing options, signs electronically, and the signed letter sets up recurring billing and payment collection, so what was agreed is what gets invoiced. Scope creep, meaning work done outside the letter, is a common cause of write-offs. Ignition, Anchor and Aiwyn turn signed letters into billing, and TaxDome and Canopy include engagement letters in their practice platforms.
Common questions
Is an engagement letter legally required?+
For audits, auditing standards require written terms. For other services, professional bodies expect them and they are the firm's main protection in a dispute about scope or fees.
How often should engagement letters be updated?+
Whenever services, fees or the client's circumstances change, and many firms reissue them annually so terms, prices and regulatory wording stay current.
What is the link between engagement letters and billing?+
The letter defines what the client agreed to pay for. Proposal software uses the signed letter to set up invoices and payment collection, which reduces disputes and unbilled extra work.
Engagement letter software for accounting firms
IgnitionProposals, engagement letters and automated billing.Profile →
AnchorEngagement terms turned into automated billing and collection.Profile →
AiwynBilling and collections automation purpose-built for accounting firms.Profile →
TaxDomeAll-in-one practice management for tax and accounting firms.Profile →
CanopyClient management, documents and billing for accounting firms.Profile →Part of Accountio’s accounting technology coverage · Glossary
