It is important to have the paperwork clear and all the terms and conditions discussed before getting into any professional or monetary relationship. Accounting is a sector where services are involved. You must be even more peculiar with the terms and conditions in such sectors. There have been numerous scenarios where the client has different expectations from the accounting firm. In contrast, the accounting firm cannot offer any more services at the given time and cost.
Therefore, there must be e a few rounds of discussion between the client and the representatives of the accounting firm, and a detailed engagement letter must be prepared. In any business, paperwork is critical as that saves the parties from getting into any dispute or solving the case if there is any legal dispute.
For instance, the client might expect from the accounting firm that they are going to manage their payroll services. On the other hand, the accountant has not promised to manage the payroll services and cannot provide any help in this regard due to a shortage of time and challenges with respect to the budget of the project.
Such ambiguities occur only if the project’s terms and conditions are unclear between the client and the accounting firm. Therefore, a legal agreement must be established between both parties on the job roles and responsibilities of the accounting firm, along with the terms and conditions. An engagement letter serves this purpose. Let’s discuss more on engagement letters to see how this problem can be solved with the help of a piece of paper.
Table of contents
- What is an engagement letter?
- Who writes down the Letter of Engagement?
- Is an Engagement Letter similar to a Contract?
- When is the Engagement Letter sent and signed?
- How frequently must the Engagement Letter be updated?
- The importance of engagement letters for accountants and advisors
- Summing Up
What is an engagement letter?
An engagement letter is an agreement between the client and the accounting firm. It describes the business relationship the client and the accounting firm will have once an agreement is established. It includes the roles and responsibilities of the accounting firm so that both parties are on the same page and there is no ambiguity going forward.
It also includes other important factors, such as the entire outline of work allotted to the accounting firm, the period, the cost, and the miscellaneous deliverables the client expects from the accounting firm. The engagement letter is generated to ensure that all the client expectations are apparent to the accounting firm. This agreement is referred to in case of disputes between the two parties.
Who writes down the Letter of Engagement?
The engagement letter is usually drafted by the accounting company offering the service. It is drafted with a lawyer’s help or approved by the lawyer.
Is an Engagement Letter similar to a Contract?
Engagement letters have less content and are less formal than conventional contracts. Still, there are some critical statistics, such as being legally binding and drafted to lessen the liability on both parties.
When is the Engagement Letter sent and signed?
The accounting firm presents the engagement letter in front of the client before the counting work commences, and they start their client-provider relationship. The engagement letter is periodically reissued, specifically if new services are being added or the previous ones are being removed.
How frequently must the Engagement Letter be updated?
To be secure legally, the accounting firms have a new engagement letter issued yearly to the client. Usually, the same engagement letter is time the following year if the services and the cost of services remain the same, else an updated letter the shared.
Even if both parties will preserve the terms and conditions of the previous agreement, it is legally advised to draw a new agreement or have an updated agreement to be legally sound.
The importance of engagement letters for accountants and advisors
- It ensures that the client and the service provider are on the same page. And, there is no need and expectations of the client from the service provider.
- It is legally bound, and any of the two parties can be charged by the court if they do not follow the terms and conditions.
- It keeps the accounting service provider on the toes regarding the deadlines and the client regarding the financial commitments.
- It includes the job roles and responsibilities of the accounting service provider in clear terms, as such information can be ambiguous sometimes.
- None of the parties can break the terms until the period is completed.
After understanding the importance of an engagement letter, we know that you won’t miss out on it. It is an essential legal document that maintains law and order when an accounting firm serves its client. It is pretty standard that humans can make errors and misconceptions when discussing solutions.
That’s why this agreement saves both parties from being cheated. The engagement letter is a critical document and should not be skipped, even if you have less time and want to avail yourself of accounting services immediately. It takes significantly less time to prepare an engagement letter, but it has high significance in the project.