Engagement Letter

Overview

An engagement letter is a written agreement, commonly used by accountants, CPAs, bookkeepers, tax preparers and similar professional service providers, that sets out the scope of the services to be performed, the client's and provider's respective responsibilities, fees, and the terms governing the professional relationship for a specific engagement (a tax return, an audit, ongoing bookkeeping, a financial review). While the format resembles a general services agreement, engagement letters have their own conventions in professional practice, particularly in accounting. Professional standards context: for CPAs and accounting firms, engagement letters are closely tied to professional standards set by the American Institute of Certified Public Accountants (AICPA) — for example, Statements on Standards for Accounting and Review Services (SSARS) for compilation and review engagements, and various auditing standards for audit engagements, generally require (or strongly recommend) a written engagement letter defining the scope and level of service (compilation, review, audit, or non-attest bookkeeping/tax services each carry different responsibilities and different client expectations that should be stated explicitly). This template addresses the general commercial structure of an engagement letter only, and does not walk through the specific AICPA professional-standards requirements for any particular engagement type — a CPA or firm should confirm the specific standard applicable to the engagement being performed. Scope and level of service: because different engagement levels (e.g. tax preparation vs. a full audit) carry very different degrees of assurance and responsibility, the letter should state plainly what level of service is being provided and, importantly, what it is NOT — for example, that a compilation or bookkeeping engagement does not provide the assurance of a review or audit, so the client does not mistake the scope of work performed. Client responsibilities: engagement letters commonly place explicit responsibility on the client for the accuracy and completeness of information and records provided (financial statements ultimately remain management's/the client's representation, even when a professional assists in preparing them), which protects the provider if the client supplies incomplete or inaccurate information. Fees and termination: fee structure (flat fee, hourly, retainer) and payment terms should be clearly stated, along with how either party may terminate the engagement, particularly mid-engagement (e.g. mid-tax-season or mid-audit), since an abrupt termination in some professional engagements carries practical and, for CPAs, professional-conduct implications. When to use: for any professional service engagement (accounting, bookkeeping, tax, consulting-adjacent professional services) where the provider's professional or firm conventions call for an engagement letter rather than a generic services agreement. Common pitfalls: not stating clearly what level of service is (and is not) being provided; and not confirming any AICPA or other applicable professional-standards requirement specific to the engagement type. Review this template against {{governing_state}} law and any applicable professional standards before use.

Information to customize

• Service provider's name (individual or firm)

• Client's name

• Governing state

• Scope of the engagement and level of service

• What is explicitly not included in this engagement

• Client's responsibilities (accuracy/completeness of information provided)

• Fee structure and payment terms

• Engagement period or the specific matter/tax year covered

• Termination terms, including mid-engagement termination

• Date of this engagement letter

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Frequently asked questions

How is an engagement letter different from a general services agreement?

It follows the same basic structure but is a professional-practice convention, most common in accounting, and often expected or required by professional standards (for example AICPA standards for CPAs performing compilation, review or audit engagements).

Why should the letter state what services are NOT included?

Different levels of service (bookkeeping, compilation, review, audit) carry very different degrees of assurance. Stating clearly what is excluded prevents the client from mistakenly relying on the engagement for a higher level of assurance than was actually provided.

Who is responsible if the client provides incomplete financial information?

Engagement letters commonly place explicit responsibility on the client for the accuracy and completeness of the information and records supplied, protecting the provider from liability tied to client-supplied data.

Do CPAs need to follow specific professional standards for engagement letters?

Often yes. AICPA standards (such as SSARS for compilation and review engagements, and various auditing standards for audits) generally call for a written engagement letter defining scope. Confirm the specific standard applicable to the engagement type being performed.

Can an engagement be terminated mid-way, such as mid-tax-season?

This should be addressed explicitly in the letter. Abrupt mid-engagement termination can carry practical complications and, for CPAs, professional-conduct considerations, so termination terms deserve specific attention.

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