Engagement Letter

Overview

An engagement letter is the standard document by which a professional firm — most commonly an accountancy practice or a firm of solicitors — sets out the terms on which it agrees to act for a client. In England and Wales, an engagement letter is not simply good commercial practice: for many regulated professions it is a specific requirement of the relevant professional body, and its absence or inadequacy can itself be a regulatory breach. Accountants (ICAEW): the Institute of Chartered Accountants in England and Wales requires members in practice to issue an engagement letter (or equivalent) to clients, confirming the scope of work, the responsibilities of each party, fee basis, and — critically — the limitations of the engagement (for example, that a compilation of accounts is not an audit and provides no assurance opinion). ICAEW also expects engagement letters to be reviewed and reissued periodically, not left to go stale over a long-running client relationship, and firms are expected to follow the ICAEW's published engagement letter guidance and standard clauses where relevant. Solicitors (SRA): the Solicitors Regulation Authority's Code of Conduct requires solicitors to give clients the best possible information about how their matter will be priced and to ensure clients are able to make informed decisions about their case. In practice, this means an engagement (client care) letter must cover: the scope of the retainer (what the firm is, and is not, being instructed to do), an estimate or basis of costs, complaints handling procedure, and — for certain regulated work — specific transparency requirements on pricing published by the SRA. Failure to provide adequate client care information is a common source of SRA complaints and costs disputes. Scope of engagement — the most important clause: the letter should define precisely what work is, and is not, included. Ambiguity about scope is the single most common source of professional negligence claims and fee disputes against both accountants and solicitors — a client who believes a broader service was promised than was actually delivered has grounds for complaint even where the professional work performed was itself competent. Fees and client money: the letter should set out the fee basis (fixed fee, hourly rate, or other), billing frequency, and how any client money is held — solicitors must comply with the SRA Accounts Rules for client money, and accountants handling client money have their own regulatory requirements (e.g. under the ICAEW Clients' Money Regulations). Limitation of liability: many firms include a liability cap in the engagement letter, which is generally enforceable between commercial parties provided it is reasonable under the Unfair Contract Terms Act 1977, but such clauses require care in drafting and should reflect the firm's professional indemnity insurance position. When to use: at the start of every new client relationship, and reissued whenever the scope of work changes materially or on a periodic review cycle for ongoing engagements. Common pitfalls: leaving scope vague or assuming it is 'understood'; failing to update the letter when the engagement's scope expands; and omitting the professional body's required complaints procedure. This template is a drafting aid only and should be checked against current ICAEW or SRA guidance and reviewed by the firm's own compliance function before use.

Information to customize

• Firm's name

• Firm's registered address

• Regulator / professional body

  ICAEW (accountants) or SRA (solicitors).

• Client's name

• Client's address

• Scope of the engagement — what is (and is not) included

• Fee basis (fixed fee, hourly rate, or estimate)

• Billing frequency

• How client money, if any, is held

• Liability cap (if any)

• Reference to the firm's complaints handling procedure

• Date of this letter

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Frequently asked questions

Is an engagement letter a legal requirement for accountants and solicitors?

It is required, or expected, by the relevant professional body — ICAEW for chartered accountants and the SRA for solicitors — as part of their conduct rules on client communication, pricing transparency and scope of work. Its absence or inadequacy can itself be a regulatory issue.

Why is defining the scope of work so important?

Ambiguity about what is included in an engagement is the most common source of professional negligence claims and fee disputes. A client who reasonably believed broader work was included can have grounds for complaint even if the work actually done was performed competently.

Can a firm limit its liability in an engagement letter?

Generally yes, between commercial parties, provided the limitation is reasonable under the Unfair Contract Terms Act 1977 and reflects the firm's professional indemnity insurance position. It cannot exclude liability that cannot lawfully be excluded.

How often should an engagement letter be updated?

It should be reviewed periodically and reissued whenever the scope of work changes materially — leaving an outdated letter in place for a long-running relationship is a common compliance gap.

Does the engagement letter need to mention complaints handling?

Yes — both ICAEW and SRA requirements expect clients to be told how to raise a complaint about the service provided, as part of giving clients clear information about the engagement.

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