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3 steps any accountant & bookkeeper must take for the perfect engagement letter

Gilad Idisis
Published at | Updated:

How much thought have you given to drafting the engagement letter?

An engagement letter is pivotal in any accountants’ and bookkeepers’ relationship with their clients: It’s the one document that defines the scope and terms of the services that you will be providing your clients, possibly years ahead. And it’s the most efficient tool you have to manage scope creep – the all too common phenomenon of recurring requests from clients that are outside of what you signed up for, on your own dime.

Given the importance of the engagement letter, it’s surprising how little thought accounting firms and bookkeepers often put into drafting the letter. Some don’t even have a proper engagement letter. And more often than not, misunderstandings, disagreements, and frustrations eventually arise.

1. The basics that any engagement letter should cover:

First thing’s first. Let’s go over the content of the letter. We’ve narrowed it down to the eight bare essentials that any accounting professional should at the very least consider including in their engagement letter.

Identity of the client, the owner, and the contact person

Your client’s identity may seem obvious when you start working with a new client. Still, things tend to get complicated at times, and you have fiduciary and confidentiality duties to your client.

Partners in a small business have a falling out; a company changes ownership; The manager or employee working opposite to you leaves; one business owner who owns several enterprises – These are all situations where you need to have clarity of who you’re providing services for.

Scope of engagement

Specify the services you are providing, and consider also detailing the services that are not included in your engagement to avoid any doubts, future misunderstandings, and gray areas.

Confirm your fees and fee structure

Confirming the fees goes hand-in-hand with providing the scope of services you intend to deliver. Whether you’re pricing your services on an hourly, fixed, or value pricing method, you must put it down in writing.

When deciding the rate for additional services, consider the best pricing method to prevent scope creep. Charging an hourly fee is more effective but has the risk of provoking the impression of a “nickel and dime” approach from the client’s end.

Now, this is important: If your pricing is a fixed rate, make sure you’re also covering any optional and additional services and time-consuming tasks that often cause scope creep.

Client’s involvement and responsibilities

No matter how professional and devoted you are, you can’t do your job right if your client fails to provide you with information and documents, gives you incomplete information, or if you have to chase him to do his part.

Outlining your client’s responsibilities will help you better understand the scope of work and, respectively, the proper pricing.

It should be made clear that the client is responsible for providing the necessary information and documents and assumes full responsibility for the accuracy and completeness of the information he provides.

Doing so will set the basis for a healthy and sustainable work relationship with your client and help protect you from your liability.

Timeframes and deadlines

Another area where you need to lay out clear (and written) ground rules is the timeframes by which you will be providing the services. Make sure you specify that the timeframes are dependent upon and counted from the client’s providing full documentation and information to perform the task.

Also, cover the scenario where your client needs expedited services and asks you to provide them within a shorter deadline, and set a premium fee for this as an added service.

Term and termination

What’s the effective date for starting the work? How long is the term of engagement? What happens if you or your client decide it’s not working out between you and you want to terminate the engagement?

These terms should all be part of your engagement letter. If your engagement is for a specific project or service, make clear when the requirements are considered satisfied, and the project is done on your end.

Setting a predefined term also helps with scope creep by creating a window of opportunity to discuss the terms of the engagement letter before extending the engagement to an additional term.

Limitation of liability

By the nature of their service, accountants and bookkeepers are exposed to liability claims more than other service providers. They handle sensitive and volatile financial information, complex regulations and are often asked to make assessments and projections, which can be found inexact in hindsight, despite their best efforts.

That is the reason for “limitation of liability” clauses. The content may vary and can include a cap amount, a caveat regarding reliance of third parties, a limitation on the use of the information provided by you, and more.

Drafting a limitation of liability clause is complex and should be tailored to the type of services you provide and to the requirements of the law. Therefore, you should let a lawyer draft the clause, or at least have a look at it, to make the best out of it.


When providing services to clients in the same state, it seems that there is little to think about where the litigation should take place in the unfortunate event that a legal dispute will arise.

However, it’s still important to specify that any litigation will be held in the state you are located in (even with local clients – your client may move its business in the future). It’s especially true when providing remote services to clients.

2. Additional tips on drafting your engagement letter:

After going over the “what”, meaning the content of the letter, let’s discuss the “how”, which is every bit as important –  how to implement the best work process to make the best out of your engagement letter?

Have a sit-down with your client

It’s best to have a talk with your client twice. Once, before drafting the letter, to understand your client’s needs and expectations – how are you getting the documents from your client? How much availability do they need from you? Do they need any added value services? Do they expect you to be proactive in giving financial advice?

After the engagement letter is ready, go over it with your client and make sure they understand it and have no questions or reservations.

No need to ‘reinvent the wheel’

You don’t need to write your engagement letter from scratch. In fact, it’s better that you don’t. There are plenty of templates and example letters on the internet. AICPA has a detailed sample letter on its website.

Having said that, adopting an example letter ‘as is’ is not the best of ideas. You should always tailor it to your and your client’s specific needs: Compare it against the checklist points we set out in the chapter above to make sure it covers everything you need, and make any adjustments you deem necessary.

Have an attorney have a look at it

Your engagement letter is a legal document that governs your professional relationship with your client. The accuracy of its wording is essential, especially in light of the heavily regulated world accountants and bookkeepers operate in. Therefore, it should not be taken lightheartedly.

Let an attorney go over the engagement letter, at least once, to make sure your engagement letter complies with all laws and regulations.

Once you have your own template, you can use it with all your clients, subject to not making any changes to the legal wording (as opposed to fees and scope of work, for example).

You should also consult an attorney at least once a year to make sure nothing has changed on the legal front.

3. Using your engagement letter in the service of war against scope creep:

Having a clearly defined engagement letter already does most of the heavy-lifting when it comes to preventing scope creep. So once you have one prepared, have all your existing clients sign it. The year’s end is a perfect justification for reframing your relationship with them. In addition to that, make sure you have an engagement letter in place when you start working with a new client.

Remember, it always starts with a small request – and before you know it, one thing leads to another, and you’re already elbows deep in the creep. When detecting the first signs of scope creep, you must act swiftly and decisively to nip it in the bud.

This is where all the thought and effort you’ve put in your engagement letter comes to play: Politely refer your client to the engagement letter, tell them that you’d love to help them, but what your client asks of you is beyond the agreed-upon scope of your engagement. Ask the client if they would like to revise the letter and add the service for a fee.

It’s best to prepare a “script” in advance to help you deal better with any inconvenience or embarrassment you may feel when having the “talk”.

If there are other team members in your firm, keep them informed of the existing engagement letters, and make sure they follow your lead.

And last but not least, when approaching the end of the engagement term, go over the engagement letter, compare it to the actual services you have provided over the duration of your work (for this purpose, try to have a full record of all the work you have done), and, if necessary, renegotiate to revise the engagement letter.

To know more about Melio for Accountants, and our easy and intuitive platform to manage all your clients’ accounts payables, just click here or schedule a live demo.

*This blog post is intended for informational purposes only and is not intended as financial advice.
**Melio does not provide legal, tax or accounting advice, and you should consult with a professional advisor before making any financial decisions.