Sample engagement letters for more than 30 services and a terms and conditions document are available to CNA professional liability policyholders through the Policyholder Resource Center. CNA policyholders can log in with their professional liability policy number to access these resources.
Looking for Sample Engagement Letters?
Sample engagement letters can help CPA firms more efficiently implement engagement letters by providing example language to get them started. Samples also help firms understand how engagement letters are structured and typical provisions for various services. While there is no one-size-fits-all engagement letter, common engagement letter components for all services include:
- Engagement objectives and scope of services
- CPA firm and client responsibilities
- Deliverables
- Timing and fees
- Termination provisions
The videos and guidance below explain each component and why it matters. For answers to common engagement letter questions, visit our Frequently Asked Engagement Letter Questions.
Why Engagement Letters Matter
Engagement letters are an important tool in delivering client service and defending potential professional liability claims. A well-crafted engagement letter defines the terms of the professional relationship, helps align expectations, and clarifies what the CPA firm will and will not do. It can also help manage malpractice risk and build trust by providing greater transparency for the client.
For additional guidance and leading practices, download the Engagement Letters for Accountants eBook.
The videos throughout this page feature professional liability risk management specialists sharing practical guidance on key engagement letter provisions and risk management considerations.
Watch: Key Components of an Engagement Letter (<1 Min)
In this introductory video, Amy Massaro provides an overview of the key components of an engagement letter and how they can help a CPA firm manage its risk.
Although the details will vary based on the services provided, several key components should be considered for every engagement letter:
- Engagement objectives and scope of services
- CPA firm and client responsibilities
- Deliverables
- Timing and fees
- Termination provisions
Understanding the role and purpose of each component can help CPA firms develop clearer engagement letters and help reduce the potential for misunderstandings.
1. Define the Engagement Objective and Scope of Services
The Engagement Objective and Scope section establishes the foundation for the engagement by answering two essential questions:
- What is the firm being engaged to do?
- What falls outside the boundaries of the engagement?
Clearly defining the objective and scope can help manage client expectations, reduce risk, and create a legal defense if a malpractice suit arises.
Watch: Why Objectives and Scope Matter (<2 mins)
Sarah Ference discusses how clearly defining what is included and excluded from an engagement can help manage expectations and reduce the risk of scope creep.
Be Specific About What Is Included
Clients may assume the firm is performing services beyond those agreed upon if the scope is not explicitly documented. Precise and detailed language leaves less room for future misunderstandings or disputes. The engagement letter should identify the specific services the firm will provide rather than relying on general descriptions that could lead to different interpretations.
Firms offering client accounting and advisory services may also find it helpful to review considerations for writing a CAS engagement letter.
Clarify What Is Not Included
The engagement letter should also document relevant limitations. This may include stating that the firm will not perform procedures designed to detect theft, fraud, or other wrongdoing when those procedures are outside the agreed-upon scope.
Documenting exclusions may help limit scope creep, especially when clients make additional requests outside the original engagement. Learn more about how to manage scope creep in accounting engagements.
Consider reviewing this section with both the client and the engagement team so that everyone is on the same page.
2. Clarify CPA Firm and Client Responsibilities
A client may not always understand which tasks belong to the CPA firm and which remain the client’s responsibility. If roles are not clearly documented, the firm could be blamed when something goes wrong. The CPA Firm Responsibilities and Client Responsibilities sections address this risk by spelling out who is responsible for what during the engagement.
Watch: Why CPA Firm and Client Responsibilities Matter (<2 mins)
Al Fennell explains how defining the responsibilities of both parties can help prevent misunderstandings and clarify each party’s role in the engagement.
CPA Firm Responsibilities
The responsibilities assigned to the CPA firm should include:
- Providing the services identified in the engagement letter
- Following the applicable professional standards
These responsibilities should align with the objective and scope established elsewhere in the engagement letter.
Client Responsibilities
The letter should also clearly describe the client’s responsibilities, which may include:
- Overseeing the engagement team
- Reviewing and approving the firm’s deliverables
- Making decisions regarding advice provided by the firm
- Accepting responsibility for the results of the firm’s services
Plain language is important in this section. Clients should be able to understand the responsibilities they are accepting without having to interpret technical or industry-specific terminology.
For a closer look at managing expectations within client accounting services, read Minding the Expectation Gap in a CAS Engagement.
3. Define the Engagement Deliverables
The Deliverables section explains exactly what the CPA firm will provide and what can happen after delivery of the final work product. This section should answer two questions:
- What is the final product?
- How may the final product be used?
Defining deliverables helps establish expectations and may prevent the firm’s work from being used in an unintended manner.
Watch: How to Define Engagement Deliverables (<2 mins)
Candace Coach discusses why CPA firms should clearly describe the final product, delivery details, and permitted use of their work.
Identify the Final Product
The engagement letter should specifically identify each deliverable, even when the final product may appear obvious. For example, if the deliverable is a completed tax return, the letter should say so rather than assume the client already understands what will be provided.
The letter should also include relevant delivery information, such as:
- The person or organization to whom the report will be addressed
- The format in which the report will be provided
- Other details related to the final work product
Establish Permitted Use
Clients may expect more than the firm agreed to provide, which can lead to disputes. They may also use a deliverable for an unintended purpose. To address this risk, the engagement letter should define which parties may receive and rely on the firm’s work. For tax and consulting work, this is generally limited to the client.
A clear Deliverables section helps establish client expectations and avoid miscommunications. Clarifying the deliverables and their permitted use may also help mitigate the risk of a professional liability claim.
4. Document Timing and Key Milestones
Timing provisions explain when the firm’s services begin and identify milestones that trigger completion. Documenting the conclusion of the engagement is particularly important because professional liability claims against CPAs have statutes of limitations, just as tax returns do. Ending the engagement is crucial for starting the clock on the statute of limitations for liability claims.
The engagement letter should make it clear when the engagement begins and when the firm’s services will be considered complete. Defining timing expectations can also help the firm and client understand their respective deadlines and how the engagement will progress.
5. Explain How Fees Will Be Calculated and Paid
Fee provisions tell the client how much the firm’s services will cost or how fees will be calculated, and when the firm expects to be paid. These provisions can support the firm’s cash receipts while establishing expectations for additional fees if the scope of the engagement changes.
Depending on the engagement, the fee section may address:
- Hourly rates
- Fixed fees
- Retainers
- Payment schedules
- Consequences of late payment
The language should be clear enough for the client to understand how charges are determined and when payment is due. If the client requests services beyond the original scope, the firm should also document how those additional services may affect its fees.
6. Include Clear Termination Provisions
A termination provision explains how either party may end the engagement and what happens afterward. This section can be particularly important if the client is unresponsive, fails to pay, or if another circumstance makes it necessary for the firm or client to end the professional relationship.
Watch: Timing, Fees, and Termination Provisions (2 mins)
Deb Rood outlines the role timing, fee, and termination provisions play in setting expectations, supporting cash receipts, and providing an exit route when needed.
The engagement letter should state that either party has the right to exit the engagement at any time and for any reason. It should also address post-termination obligations, including what happens to:
- Outstanding fees
- Work product
- Client records
These details are especially important when an engagement terminates before the work is completed. Well-drafted timing, fee, and termination provisions can help the firm collect revenue, manage client expectations, and provide an exit route if needed.
When ending a professional relationship becomes necessary, review how to write a client termination letter, which includes considerations for communicating the end of the relationship and a sample letter.
Firms can also use the Client Termination Letter Checklist for additional steps intended to help manage the transition.
A Stronger Engagement Letter Starts with Clarity
Engagement letters can help CPA firms:
- Set clear expectations upfront by documenting the scope of services, responsibilities of the CPA firm and the client, deliverables, timelines, fees, and termination.
- Reduce misunderstandings and disputes by documenting the terms of the engagement, helping to prevent expectation gaps.
Strengthens client relationships through transparency and clear communication, helping build trust and creating a smoother, more professional engagement experience Moreover, it is harder, and typically more expensive, to defend a professional liability claim without an engagement letter in place.
Watch: Engagement Letter Essentials and Resources (<2 mins)
Kat Koehl and Kevin Hayes recap the essential components of an engagement letter and identify additional resources available to CPA firms.
Sample Engagement Letter Resources
Policyholder Resource: Sample Engagement Letters for CPAs
Access more than 30 sample engagement letters, a terms and conditions document, and additional risk management resources through the Policyholder Resource Center.
Login to the Policyholder Resource Center with your policy number.
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Looking for more guidance on creating effective engagement letters? Download the Engagement Letters for Accountants eBook for practical guidance on engagement letter fundamentals, scope definition, client responsibilities, risk management considerations, and other key topics relevant to CPA firms.
Download the Engagement Letters for Accountants eBook
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