Engagement letters are not only a legal requirement but also a cornerstone of transparency and mutual understanding in the accounting and finance industry. For bookkeepers, crafting an effective engagement letter can help build the foundation of a successful working relationship with clients, creating an atmosphere of trust and setting clear expectations from the onset.
What is a bookkeeping engagement letter?
An engagement letter is a written agreement that outlines the services a bookkeeper or accounting firm will provide to their client. It is a crucial communication tool that not only defines the roles and responsibilities of both parties but also sets the professional tone of the engagement.
A bookkeeping engagement letter is designed to protect both the client and the firm. For the client, the letter provides a comprehensive outline of the work to be done, the cost, and the expected timeframe. For the bookkeeper, it provides a documented understanding of the scope of the work, serving as a bulwark against any potential misunderstanding or conflict.
Why are engagement letters important?
Engagement letters serve as a formality to secure an understanding between the bookkeeper and the client. They also provide a legal framework that can be referred back to if disputes arise.
While some may view it as an administrative hassle, the value of a well-drafted engagement letter defines the scope of work, reducing the risk of scope creep, outlines payment terms, and stipulates how potential disputes will be resolved. In short, an engagement letter acts as a form of contract that provides clarity and a legal safety net for both parties.
What to include in an engagement letter
Writing an engagement letter for bookkeeping is simple. The key is to ensure all pertinent information is included and communicated clearly. Below are the critical elements that should be incorporated into every bookkeeper engagement letter.
Date
Like any other, your bookkeeping engagement letter should start with the date of the agreement.
Identifying the Parties Involved
Secondly, include the full legal names of both the bookkeeper or firm and the client. This section ensures that there's no ambiguity regarding who is bound by the terms of the agreement.
Intro and objectives
Just as an introduction, introduce your firm, yourself, your role, and who you're working for. Explain what your company does and why you're writing the letter while clearly stating what bookkeeping services you will provide. This helps organize your engagement letter in a more professional way. Doesn’t have to take up too much space, make sure to stay in only one paragraph for this section.
Scope of Services
This is the most important of all, where you have to detail all the bookkeeping services to be performed, from routine tasks such as accounts payable and receivable, payroll, and general ledger maintenance, to more complex tasks like financial statement preparation or tax services. This section defines the boundaries of the engagement and helps prevent scope creep.
Payment Terms
The engagement letter should clearly state the fee structure for the bookkeeping services. This might be an hourly rate, a fixed fee, or a combination of both. It should also detail the terms of payment, including when the fees are due, and the interest charges for late payments.
The Timeline
When and how often services will be provided? This might include specific days of the week or month, or it might be more general, such as "on a monthly basis." Be sure also to include any deadlines related to these services, such as the end of a financial quarter or tax season.
Confidentiality Clause
As bookkeepers handle sensitive financial information, confidentiality is a key concern. An engagement letter should include a clause stating that the bookkeeper will not disclose any confidential information received during the course of the engagement, except where required by law or with the client's permission.
Termination of Agreement
It’s always a good idea to specify the conditions under which the agreement can be terminated. This could be for various reasons, such as a failure to pay fees, a breach of the terms of the agreement, or simply at the discretion of either party with notice. It's also essential to stipulate the responsibilities of both parties upon termination, such as the client's obligation to pay any outstanding fees.
Templates for Engagement Letters in Accounting
Making a template for engagement letters can save you lots of time. You can use different templates for each service you offer and the possibilities online are endless. From the basic Sample Engagement Letter by the AICPA which has worked for years, to more eye-catching templates you can try out from platforms like Ignition or even Canva.
After you create your template, it’s always a good idea to ask a local legal expert to check it. This can help avoid problems later. Remember, engagement letters are legal contracts. This post is only for information, not legal advice.
Regularly Reviewing and Updating Engagement Letters
As with any contract, it's crucial to review and update engagement letters regularly. Firms evolve, as do the services that a bookkeeper might provide to a client. An annual review can ensure that the scope of services, fee structure, and other details still accurately reflect the reality of the engagement.
An up-to-date engagement letter will help mitigate any potential disputes or misunderstandings that could arise. It's a small investment of time that can save a lot of trouble down the line.
In conclusion, letters of engagement for bookkeepers serve as an essential tool for setting the right expectations and forging a successful working relationship with clients. By meticulously detailing the scope of services, fees, timelines, and responsibilities, bookkeepers can ensure that both parties have a clear and mutual understanding of their professional relationship. Regularly reviewing and updating these letters will help keep this relationship in tune with the evolving needs of both parties. Remember, clarity and transparency are the building blocks of any fruitful professional engagement.
>> Ready to start hiring? Fill out the form and one of Vintti's account executives will contact you within 24 hours.
Kevin Mitchell, CPA
Senior Manager and CPA with over 20 years of experience in accounting and financial services, specializing in risk management and regulatory compliance. Skilled in managing audits and leading teams to deliver exceptional services. Proud father of two.
References:
What to include in your bookkeeping engagement letter. (2022, February 15). Content Snare. https://contentsnare.com/bookkeeping-engagement-letter/
workflow, J. (2022, March 22). A Clear & Simple Bookkeeping Engagement Letter - Template. Jetpack Workflow. https://jetpackworkflow.com/blog/bookkeeping-engagement-letter/
