Why are engagement letters important? The AICPA identifies at least three reasons that accounting firms should use engagements letters as: Enhanced Client Communications Professional Standards Protection from Legal Liability Enhanced Client Communications Engagement letters are a great tool to enhance and clarify expectations between CPA’s and their clients. When engagement letters are used consistently, they can help build client relationships.
CPA’s can also use them as a marketing tool, letting he client know what services they are being offered, and identifying supplemental services that may be beneficial to them. Such as discussing in the engagement letter for a tax client that tax planning services could be offered with a new signed engagement letter. Professional Standards While the AICPA does not require engagement letters, the standards do discuss establishing an understanding with the client, and it is preferable that this communication be written. Protection from Legal Liability
Engagement letters can be a good basis of defense in the event of a malpractice claim. Also, if the intended users are identified in the engagement letter, it can limit those who can sue the CPA for use of the work product in some states. Our firm does not happen to be consistent with getting signed engagement letters before services are performed. Recently, we did some valuation services for one of our larger clients that was quite intensive and took a good deal of time. The client received the information and then the bill.